SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 8-K
---------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 1996
THE MORGAN GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-13586 22-2902315
(Commission File Number) (IRS Employer Identification No.)
2746 Old U.S. 20 West
Elkhart, Indiana 46514-1168
(Address of principal executive offices) (Zip Code)
(219) 295-2200
Registrant's telephone number, including zip code
<PAGE>
Item 2. Acquisition of Assets
On December 30, 1996, The Morgan Group, Inc. ("Morgan") acquired the
operating assets of Transit Homes of America, Inc. ("Transit") of Boise, Idaho.
Morgan will account for the acquisition as a purchase. Transit, with recent nine
month revenue and pretax earnings in excess of $27 million and $300,000,
respectively, and more than 400 independent contractor drivers, serves, as does
Morgan, a number of leading producers in the manufactured housing industry,
including Fleetwood Enterprises, Champion Enterprises, Redman Homes, Palm
Harbor, Schult Homes, and Cavalier Homes.
The purchase price for the Transit assets of approximately $4.3 million
consists of approximately $1.6 million paid at closing, a five year seller
financed note (bearing interest at 6.31%) of approximately $1.2 million, assumed
obligations related to the assets purchased of approximately $400,000, and
approximately $1.1 million associated with acquisition related payables, costs
of closing duplicative facilities, and below market contracts. The closing
payment of $1.6 million was funded internally with borrowing under the Company's
credit line. In addition, $1.1 million of incentive payments (See Note #5) can
be earned by the seller based upon the profitability of Morgan's manufactured
housing business. For the nine months ended September 30, 1996, and calendar
year ended December 31, 1995, Transit had nine month sales of $27 million in
1996, and annual sales of $40 million, in 1995, respectively. Pretax income for
the nine months ended September 30, 1996, amounted to $307,000, and pretax loss
for the year ended December 31, 1995, amounted to $1.4 million.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
The following financial statements, pro forma financial information,
and exhibits are filed as part of this report.
(a) Financial statements of the business acquired prepared pursuant to Rule
3.105 of Regulation SX and provided to The Morgan Group, Inc. by
Transit Homes of America, Inc.
Audited Financial Statements of
Transit Homes of America, Inc.
business Report of KPMG Peat Marwick LLP
certified public accountants.................................... Pg. 5
Combined balance sheets - September 30, 1996
and December 31, 1995 ............................................Pg. 6
Combined statements of operations - nine months ended
September 30, 1996 and year ended December 31, 1995...............Pg. 7
Combined statement of stockholders' deficit - nine months
ended September 30, 1996 and year ended December 31, 1995.........Pg. 8
Combined statements of cash flows - nine months ended
September 30, 1996 and year ended December 31, 1995...............Pg. 9
Notes to combined financial statements .....................Pg. 10 - 15
(b) Pro Forma Financial Information
The Morgan Group, Inc. and Transit Homes of America, Inc. pro forma
condensed combined financial statements (unaudited)
Pro Forma condensed combined balance sheet -
September 30, 1996..........................................Pg. 16 - 17
Pro Forma condensed statement of operations -
nine months ended September 30, 1996 and year ended
December 31, 1995................................................Pg. 18
Notes to pro forma financial statements.....................Pg. 19 - 20
(c) Exhibits in accordance with the provisions of Item 601 of Regulation
S-K
Exhibit
(2)-1 Asset Purchase Agreement between The Morgan Group, Inc. and
Transit Homes of America, Inc. as of November 19, 1996 (as
amended as of December 30, 1996)
(2)-2 Amendment to Asset Purchase Agreement between The Morgan
Group, Inc. and Transit Homes of America, Inc. as of December
29, 1996
(2)-3 Employment Agreement between Morgan Drive Away, Inc. and Larry
Kling as of November 19, 1996
23 Consent of KPMG Peat Marwick LLP
<PAGE>
KPMG PEAT MARWICH LLP [LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Transit Homes of America, Inc.
Cambridge Management Company, Inc.:
We have audited the combined financial statements of Transit Homes of America,
Inc. and affiliate as listed in the accompanying index. These combined financial
statements are the responsibility of the CompanyOs management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Transit Homes of
America, Inc. and affiliate as of September 30, 1996 and December 31, 1995, and
the results of their operations and their cash flows for the nine months ended
September 30 1996 and the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 2 to the
combined financial statements, the Company has a net capital deficiency and its
total current liabilities exceed its total current assets. As a result, there is
substantial doubt about its ability to continue as a going concern. ManagementOs
plans in regard to these matters are also described in note 2. The combined
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
December 10, 1996
<PAGE>
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- ---------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 266,585 165,208
Notes receivable 56,953 74,265
Trade accounts receivable, less allowance
for doubtful accounts of
$52,527 in 1996 and $30,000 in 1995 2,892,355 1,988,415
Prepaid insurance 790,438 655,574
Other prepaid expenses and current assets 162,780 146,063
----------- ---------
Total current assets 4,169,111 3,029,525
----------- ---------
Property and equipment 1,202,688 1,283,628
Less accumulated depreciation 399,109 368,202
----------- ---------
Net property and equipment 803,579 915,426
----------- ---------
Other noncurrent assets 10,140 55,769
----------- ---------
4,982,830 4,000,720
=========== =========
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdrafts 649,706 365,626
Line of credit 1,581,445 1,353,051
Current portion of long-term debt 207,109 95,595
Trade accounts payable 441,843 322,991
Claims payable 2,020,169 2,156,472
Deposits from line-haul operators, net 335,613 145,867
Other accrued liabilities 199,616 193,328
----------- ---------
Total current liabilities 5,435,501 4,632,930
----------- ---------
Long-term debt, net of current portion 104,059 173,716
----------- ---------
Stockholders' equity (deficit):
Common stock 145,000 145,00
Treasury stock (50,127) (50,127)
Accumulated deficit (651,603) (900,799)
----------- ---------
Total stockholders' deficit (556,730) (805,926)
Commitments, contingencies and subsequent event
$ 4,982,830 4,000,720
=========== =========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Statements of Operations
Nine months ended September 30, 1996 and
year ended December 31, 1995
1996 1995
------------ ----------
Operating revenues $ 27,495,279 39,747,370
------------ ----------
Operating expenses:
Line-haul costs 20,381,432 29,599,511
General and administrative 6,715,740 11,416,227
------------ ----------
Total operating expenses 27,097,172 41,015,738
------------ ----------
Income (loss) from operations 398,107 (1,268,368)
------------ ----------
Other income (expense):
Interest income 25,358 38,052
Interest expense (209,952) (284,879)
Other, net 93,010 98,342
------------ ----------
Total other expense (91,584) (148,485)
------------ ----------
Net income (loss) $ 306,523 (1,416,853)
------------ ----------
Pro forma (unaudited):
Net income before income taxes 306,523
Income tax expense 147,607
- --------------------------------------------------------------------------------
Net income $ 158,916
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
<PAGE>
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Statements of Stockholders' Deficit
Nine months ended September 30, 1996 and
year ended December 31, 1995
<TABLE>
<CAPTION>
Common Treasury Accumulated
stock stock deficit Total
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 145,000 (50,127) 971,898 1,066,771
Net loss -- -- (1,416,853) (1,416,853)
Less distributions to stockholders -- -- (455,844) (455,844)
----------------------------------------------------------------------
Balance at December 31, 1995 145,000 (50,127) (900,799) (805,926)
Net income -- -- 306,523 306,523
Less distributions to stockholders -- -- (57,327) (57,327)
- -----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 145,000 (50,127) (651,603) (556,730)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Statements of Cash Flows
Nine months ended September 30, 1996 and
year ended December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 306,523 (1,416,853)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 115,669 234,090
Change in certain assets and liabilities:
Decrease in notes receivable 17,312 38,588
Decrease (increase) in trade accounts receivable (903,940) 1,399,477
Increase in prepaid insurance (134,863) (142,069)
Decrease (increase) in other prepaid expenses and current assets (16,717) 16,698
Decrease in other noncurrent assets 45,629 36,950
Increase (decrease) in trade accounts payable 118,852 (35,516)
Increase (decrease) in claims payable (136,303) 1,254,262
Increase in deposits from line-haul operators 189,746 11,019
Increase (decrease) in other accrued liabilities 6,287 (152,275)
---------- ---------
Net cash provided by (used in) operating activities (391,805) 1,244,371
---------- ---------
Cash used in investing activities - purchase of equipment (3,822) (930,745)
---------- ---------
Cash flows from financing activities:
Increase in bank overdrafts 284,080 365,626
Net borrowings (repayments) under line of credit 228,394 (813,800)
Proceeds from long-term debt 386,620 586,938
Payments of long-term debt (344,763) (348,577)
Distributions to stockholders (57,327) (455,844)
---------- ---------
Net cash provided by (used in)
financing activities 497,004 (665,657)
---------- ---------
Net increase (decrease) in cash
and cash equivalents 101,377 (352,031)
Cash and cash equivalents at beginning of period 165,208 517,239
---------- ---------
Cash and cash equivalents at end of period $ 266,585 165,208
---------- ---------
Supplemental disclosures of cash flow information - cash paid during
the period for:
Interest $ 209,952 273,277
Income taxes 12,400 20,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
Transit Homes of America, Inc. (Transit) is a provider of
transportation services principally to the domestic
manufactured housing industry and to a lesser extent to the
travel trailer industry, using personnel provided on a
contract basis by Cambridge Management Company, Inc.
(Cambridge) and independent contractors who contract directly
with Transit (the "Transit Business"). Cambridge, which is
under common ownership with Transit, in addition to providing
personnel on a contract basis to Transit, is also engaged in
other, unrelated business (the "Unrelated Cambridge
Businesses"). Company, as used in the combined financial
statements, refers to Transit and Cambridge, excluding the
Unrelated Cambridge Businesses. Credit is extended to
customers in the Company's normal course of business.
(b) Principles of Combination
The combined financial statements include the operations of
Transit and the financial position, results of operations, and
cash flows of Cambridge except for the Unrelated Cambridge
Businesses. All significant intercompany balances and
transactions have been eliminated in the combination.
(c) Cash Equivalents
The Company considers all liquid investments with original
maturities of 90 days or less to be cash equivalents.
(d) Revenue Recognition
The Company is principally involved in providing
transportation of mobile homes and utilizes independent
owner-operators as its principal source of drivers and
transportation equipment. The owner-operator costs are
contracted before the shipment is made and are based on a
fixed percentage of the total revenue to be received from the
shipment. Both the revenue from the customer and the
owner-operator transportation costs are recognized at the time
of delivery.
The Company requires security deposits from its line-haul
owner-operators. Advances are made to owner-operators to
defray certain of their initial transportation costs and are
deducted from the final contract payment due at the time of
delivery. The net of these items is recorded as deposits from
line-haul operators as the Company has the right to offset
the two items.
(Continued)
<PAGE>
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(e) Property and Equipment
Property and equipment are recorded at cost. Major additions
and betterments are capitalized while minor replacements,
maintenance and repairs, which do not increase the useful life
of the property and equipment, are expensed as incurred.
Depreciation on equipment is calculated using the
straight-line method over the estimated useful lives of the
assets which range from five to ten years. Leasehold
improvements are amortized using the straight-line method over
the shorter of the lease term or estimated useful life of the
asset.
(f) Pro Forma Income Taxes
Effective April 1, 1988, the Company and its stockholders
elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. As such, the taxable income or
losses of the Company are included in the individual tax
returns of the stockholders in periods subsequent to April 1,
1988.
Pro forma income taxes have been recorded as of and for the
nine months ended September 30, 1996 based on the estimated
income taxes that the Company would have provided for on a
separate-company basis in accordance with Statement of
Accounting Standards No. 109, Accounting for Income Taxes.
Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on the deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(h) Advertising Costs
Advertising costs are expensed when incurred. Advertising
expense was $28,596 in 1996 and $68,050 in 1995.
(Continued)
<PAGE>
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(2) Liquidity
The Company has a combined net stockholders' deficit and its total
current liabilities exceed its total current assets at September 30,
1996 and December 31, 1995. Additionally as noted at note 4, the
Company was in violation of a covenant under its line of credit
agreement at September 30, 1996.
The Company's ability to continue as a going concern is dependent upon
its success in obtaining additional financing and, ultimately,
achieving profitable operations and positive operating cash flows. As
described in note 13, subsequent to September 30, 1996, the Company
entered into an agreement to sell substantially all of its assets and
certain liabilities. The accompanying combined financial statements
have been prepared on the basis that the Company will be able to
continue in existence as a going concern. These statements do not
include any adjustments that might result from the outcome of this
uncertainty.
(3) Property and Equipment
Property and equipment consists of the following:
September 30, December 31,
1996 1995
-----------------------------------
Equipment 557,269 639,936
Furniture and fixtures 213,078 245,786
Computer equipment 233,972 229,569
Leasehold improvements 198,369 168,337
---------- ---------
$1,202,688 1,283,628
========== =========
(4) Line of Credit
Through an agreement which expires March 25, 1997 with a finance
organization, the Company has credit available to the lesser of
$5,000,000, or 85% of qualifying trade accounts receivable, or 90% of
qualifying trade accounts receivable for a period of no longer than 30
consecutive days. Borrowings under the line of credit are
collateralized by the Company's trade accounts receivable, and
personally guaranteed by the Company's stockholders. The interest rate
on the line of credit is prime plus 5% (13.25% at September 30, 1996).
At September 30, 1996, the Company was not in compliance with certain
financial covenants under terms of the line of credit agreement. No
action has been taken by the lender, however, future borrowings under
the line of credit could be restricted or denied at the lender's
discretion.
(Continued)
<PAGE>
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(5) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Notes payable to outside parties,
collateralized by property and equipment,
average interest rate of approximately 12%,
principal due in monthly installments over
the next four years $185,330 257,114
Unsecured notes payable to outside party, interest at
approximately 7.6%, due within 12 months 125,838 12,197
-------- -------
Total long-term debt 311,168 269,311
Less current portion 207,109 95,595
-------- -------
Long-term debt, excluding current portion $104,059 173,716
======== =======
</TABLE>
Schedule of payments of long-term debt for the years ending September 30 are
as follows:
1997 $207,109
1998 46,898
1999 27,859
2000 29,302
--------
$311,168
========
(6) Stockholders' Equity
Common stock consists of the following:
Issued and
Par value Authorized outstanding
per share shares shares
--------- ------ ------------
Transit $1 200,000 87,000
Cambridge $1 500 500
On March 31, 1992, Transit purchased 58,000 shares of treasury stock
from its minority stockholders in exchange for cash and noncash
consideration totaling $50,127. There were 87,000 shares issued and
outstanding following this transaction.
(Continued)
<PAGE>
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(7) Pro Forma Income Tax Expense
Pro forma income tax expense for the nine months ended September 30,
1996 is as follows:
Federal - current $125,466
State - current 22,141
--------
$147,607
========
The pro forma income tax expense in the combined financial statements differs
from the amount of income tax determined by applying the applicable U.S.
statutory Federal income tax rate to pretax income as follows:
Expected income tax expense at U.S. statutory rates $104,218
State income taxes, net of Federal income tax benefit 14,613
Other, net 28,776
--------
$147,607
========
The tax effects of significant temporary differences which comprise deferred
tax assets and liabilities at September 30, 1996 is as follows:
Deferred tax assets - claims payable $694,233
Less valuation allowance 598,049
--------
Net deferred tax assets 96,184
Deferred tax liabilities - equipment 96,184
-------
$ ---
=======
The valuation allowance at December 31, 1995 was $601,281.
(8) Related Party Transactions
The Company occupies administrative offices and terminals leased from
its stockholders under noncancelable operating leases expiring over the
next four years. During the nine months ended September 30, 1996 and
the year ended December 31, 1995, the Company paid approximately
$125,000 and $127,000, respectively, in rent to its stockholders.
Future annual minimum lease payments are approximately $170,000,
$155,000, $93,000 and $57,000 for the years ending September 30, 1997,
1998, 1999 and 2000, respectively.
(Continued)
<PAGE>
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
(9) Claims Payable
The Company is routinely involved in a number of legal proceedings and
claims that cover a wide range of matters, including traffic accidents.
An estimate is recorded using the information available at the
respective reporting date for costs to be incurred relating to these
claims. The total amount of claims payable that the Company will
ultimately pay could differ materially in the near term from the
amounts assumed in arriving at the estimated claims payable for the
respective reporting dates. In the opinion of management, the outcome
of these matters is not expected to have any material adverse effect on
the combined financial position or results of operations of the
Company.
(10) Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
receivables, payables and bank debt. The Company believes that the fair
value of these financial instruments approximates their carrying
amounts based on current market indicators, such as prevailing market
rates.
(11) Significant Customers
Two customers accounted for approximately 30% and 11% of operating
revenues for the nine months ended September 30, 1996. One of these
customers also accounted for approximately 21% of operating revenues
for the year ended December 31, 1995.
(12) Defined Contribution Plan
Cambridge sponsors a defined contribution 401(k) plan covering
substantially all personnel of Cambridge after they meet certain length
of employment requirements. Employees may contribute up to 10% of their
salary. Cambridge will match 50% of the employee's contribution up to
2% of their salary. Cambridge contributed approximately $21,718 and
$30,736 to the plan for 1996 and 1995, respectively.
(13) Subsequent Event
An asset purchase agreement between Transit, Cambridge and Morgan Drive
Away, Inc. (Morgan) was signed on November 18, 1996, whereby
substantially all of the assets and certain liabilities of the Company
will be acquired by Morgan in exchange for cash and a note receivable.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma condensed Combined Balance Sheet is presented
to give effect to the acquisition of Transit Homes of America, Inc. as if it had
occurred on September 30, 1996 and combines the balance sheet of The Morgan
Group, Inc. with that of Transit Homes of America, Inc. as of September 30,
1996. The Unaudited Pro Forma Condensed Combined Statements of Operations assume
the transaction occurred at the beginning of the fiscal year ended December 31,
1996 and combines the statements of operations of The Morgan Group, Inc. for the
year ended December 31, 1996 and the nine months ended September 30, 1996 with
the statements of operations of Transit Homes of America, Inc. for the year
ended December 31, 1995 and the nine months ended September 30, 1996. The pro
forma information is based upon historical financial statement of Transit Homes
of America, Inc. and The Morgan Group, Inc. after giving effect to the proposed
transaction using the purchase method of accounting and assumptions and
adjustments in the accompanying notes to the pro forma financial statements.
The pro forma statements have been prepared by The Morgan Group, Inc.
based upon the financial statements of Transit Homes of America, Inc. (filed
with this report under Item 7a) which have been provided by Transit Homes of
America, Inc.'s management. These pro forma statements may not be indicative of
the results that would have actually occurred if the combination had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the audited
financial statements and notes of Transit Homes of America, Inc. and the audited
financial statements of The Morgan Group, Inc.
<PAGE>
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Sept. 30,
Sept. 30 Sept. 30, Sept. 30, 1996
1996 1996 1996 Condensed
Transit Transit Transit Adj. Morgan Combined
Balance Excluded Balance Balance Proforma Balance
Sheet Assets Sheet Sheet Adjustmens Sheet
----- ------ ----- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $267 ($267) --- $3,126 ($1,592) 2/ $1,534
Trade accounts receivable, less allowance 2,892 (2,892) --- 13,109 --- $13,109
for doubtful accounts of $44,000 in 1996
and $102,000 in 1995
Accounts receivable, other 57 (57) --- 388 --- $388
Prepaid expenses and other current assets 953 (853) 100 2,860 --- $2,960
Deferred income taxes --- --- --- 586 --- $586
----- ----- ----- --- ----- ----
Total current assets 4,169 4,069 100 20,069 (1,592) $18,577
Property and equipment, net 804 50 754 6,575 ($504) 1/ $6,825
Intangible assets, net --- --- --- 5,001 $5,001
Intangible assets, Transit $364 ($364) $442 1/ $4,488
$4,410 2/
Other assets 10 10 --- 607 --- $607
----- ----- ----- --- ----- ----
Total assets $4,983 $4,493 $490 $32,252 $2,756 $35,498
====== ====== ==== ======= ====== =======
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Sept. 30,
Sept. 30 Sept. 30, Sept. 30, 1996
1996 1996 1996 Condensed
Transit Transit Transit Adj. Morgan Combined
Balance Excluded Balance Balance Proforma Balance
Sheet Assets Sheet Sheet Adjustmens Sheet
----- ------ ----- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable to bank $1,581 ($1,581) --- $2,500 $2,500
Trade accounts payable 1,092 ($1,092) --- 2,622 $160 2/ $2,782
Accrued liabilities 200 ($200) --- 1,691 $900 2/ $2,591
Accrued driver pay --- --- --- 228 $228
Accrued claims payable 2,020 ($2,020) --- 4,169 $600 2/ $4,769
Refundable deposits 336 --- 336 1,768 ($62) 1/ $2,042
Current portion of long-term debt 207 ($157) 50 784 $411 2/ $1,245
------ ------- ---- ------- ------ -------
Total current liabilities 5,436 ($5,050) 386 13,762 $2,009 $16,157
Long-term debt, less current portion 104 --- 104 1,703 $747 2/ $2,554
Deferred income taxes 622 $622
Commitments and contingencies --- ---
Shareholders' equity
Common stock, Transit 145 ($145)
Common stock, $.015 par value
Class A:
Authorized shares - 7,500,000
Issued and outstanding shares -
1,489,010 and 1,449,554 23 $23
Class B:
Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 $18
Additional paid-in capital 12,441 $12,441
Retained earnings (652) 652 --- 5,160 --- $5,160
------ ------- ---- ------- ------ -------
(507) $507 (0) $17,642 $17,642
Less
- treasury stock, 116,543 shares, at cost (50) 50 --- ($973) ($973)
- loan to officer for purchase of stock --- --- --- ($504) --- ($504)
------ ------- ---- ------- ------ -------
Total shareholders' equity (557) $557 (0) $16,165 --- $16,165
------ ------- ---- ------- ------ -------
Total liabilities and shareholders' equity $4,983 ($4,493) $490 $32,252 $2,756 $35,498
====== ======== ==== ======= ====== =======
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Transit Morgan Adjustments Consolidated
------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Manufactured housing outsourcing $17,601 $55,525 $73,126
Specialized transport 1,891 20,991 $22,882
Driver outsourcing --- 17,978 $17,978
Other service revenues 8,003 8,015 $5,250 4/ $10,768
------ ------- ----- -------
Total operating revenues 27,495 102,509 5,250 124,754
Costs and Expenses:
Operating costs 20,381 93,826 ($500) 3/ $113,657
($5,250) 4/
$5,200 4/
Depreciation and amoritzation 0 1,095 $105 3/ $1,321
$121 4/
Selling, general and administrative 6,623 6,170 ($219) 3/ $7,253
($121) 4/
($5,200) 4/
------ ------- ----- -------
Operating income 491 1,418 $614 $2,523
Net interest income (expense) ($185) ($280) $79 ($386)
------ ------- ----- -------
Income before income taxes 306 1,138 $693 2,137
Income taxes $0 $217 $380 $537
------ ------- ----- -------
Net Income $306 $921 $373 $1,600
====== ======= ===== =======
Net Income per share:
Primary $0.34 $0.60
Fully diluated $0.34 $0.60
Average number of common shares and
common stock equivalents 2,682,837 2,682,837
========= =========
</TABLE>
See notes to unaudited pro forma condensed financial statements.
<PAGE>
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Transit Morgan Adjustments Consolidated
------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Operating Revenues:
Manufactured housing outsourcing $25,108 $63,353 $88,461
Specialized transport 2,500 29,494 $31,994
Driver outsourcing 0 19,842 $19,842
Other service revenues 12,139 9,614 8425 4/ $13,328
------- ------ ------ ------
Total operating revenues 39,747 122,303 8,425 153,625
Costs and Expenses:
Operating costs 29,599 110,408 ($1,000) 3/ $139,766
($8,425) 4/
$9,162 4/
Depreciation and amoritzation 0 1,264 $140 3/ $1,560
$156 4/
Selling, general and administrative 11,318 7,260 ($520) 3/ $8,740
($156) 4/
($9,162) 4/
------- ------ ------ ------
Operating income (1,170) 3,371 $1,380 $3,581
Net interest income (expense) ($247) ($87) $85 ($249)
------ ----- --- ------
Income before income taxes (1,417) 3,284 $1,465 $3,332
Income taxes $0 $1,015 $ 100 $1,115
------- ------ ------ ------
Net Income ($1,417) $2,269 $1,345 $2,217
less Preferred Dividends $221 $221
------- ------ ------ ------
Net Income applicable to Common Stock ($1,417) $2,048 $1,145 $1,996
======= ====== ====== ======
Net Income per share:
Primary $0.80 $0.77
Fully diluated $0.80 $0.77
Average number of common shares and
common stock equivalents 2,557,516 2,682,837
========= =========
</TABLE>
See notes to the unaudited pro forma condensed financial statements.
<PAGE>
The Morgan Group, Inc. and Transit Homes of America, Inc.
Notes to Pro Forma Statement of Operations
(Unaudited)
(In Thousands)
Note 1 The following pro forma adjustments are made to reflect estimated fair
value of assets purchased and liabilities assumed as of September 30,
1996.
Decrease in the fair market value of fixed assets $ (504)
Decrease in the refundable deposits assumed 62
--------
Investment in Transit $ 442
========
Note 2 The following pro forma adjustments reflect The Morgan Group, Inc.'s
purchase of Transit Homes of America, Inc.'s business.
Cash $1,592
Current portion of long-term debt 411
Long-term debt 747
Acquisition related payables 160
Unfavorable contracts 800
Cost of closing duplicative facilities 200
------
$3,910
======
<PAGE>
Note 3 The following adjustments are incorporated in the pro forma condensed
combined statements of operations (in thousands):
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
Dec. 31, Sept. 30,
1995 1996
-------- ------------
Increase/(Decrease)
in Income
<S> <C> <C>
Operating Cost Adjustments
Reduced insurance premium costs $ 400 $ 300
Amortization unfavorable contracts 600 200
----- -----
$1,000 $ 500
===== =====
General & Administrative Adjustments
Elimination of owner's board of directors
fees, life insurance policies, personal truck
payments, and other miscellaneous expenses $ 120 $ 90
Elimination of Transit's consulting costs
associated with the sale of the company --- 54
Elimination of duplicative overhead expenses 400 300
Incentive compensation to seller based upon
profitability --- (225)
----- -----
$ 520 $ 219
===== =====
Depreciation & Amortization - Purchase Price
Adjustments
Amortization over 20 years ($200) ($150)
Decrease in depreciation expense due to
evaluating assets at fair market value 60 45
----- -----
($140) ($105)
===== =====
Interest Expense Adjustments
Elimination of interest expense related to
Transit's line of credit charged at prime plus 5 $ 285 $ 210
Additional interest expense at prime 8.25
(as of September 30, 1996) based upon
closing payment of $1.6 million (137) (100)
Interest expense on seller's note (63) (31)
----- -----
$ 85 $ 79
===== =====
Income Tax Adjustment $(100) ($320)
===== =====
</TABLE>
<PAGE>
Note 4 To adjust and reclassify revenues and cost so pro forma financials are
reported on a basis consistent with Morgan (in thousands):
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
Dec. 31, Sept. 30,
1995 1996
------------ ----------
<S> <C> <C>
Reduce revenue and operating costs for billing which
should be netted into operating costs $8,425 $5,250
Increase operating cost and reduce general and
administrative expense for cost, Morgan classifies
as operating expenses 9,162 5,200
Reclass Transit depreciation expense from general
and administrative cost 156 121
</TABLE>
Note 5 The Employment Agreement entered into between Morgan Drive Away, Inc.
and Larry Kling provides for incentive payments up to $400,000;
$300,000; $200,000 in year 1997, 1998, and 1999, and $100,000 in year
2000 and 2001. The incentive payments are based upon achieving certain
profit levels in the Company's Manufactured Housing Group. No incentive
compensation was recorded in 1995 due to Transit's losses. Incentive
compensation for the nine months ended September 30, 1996 was recorded
at three-fourths(3/4) of the maximum year two payout of $300,000.
<PAGE>
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 thereunto duly authorized.
THE MORGAN GROUP, INC.
January 14, 1997 By: /s/ Richard B. DeBoer
-------------------------
Richard B. DeBoer
Chief Financial Officer
ASSET PURCHASE AGREEMENT
BETWEEN
TRANSIT HOMES OF AMERICA, INC.
(Seller)
and
CAMBRIDGE MANAGEMENT COMPANY, INC.
AND
MORGAN DRIVE AWAY, INC.
(Purchaser)
November 18, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
TRANSIT HOMES OF AMERICA, INC.
AND
MORGAN DRIVE AWAY, INC.
TABLE OF CONTENTS
1. DEFINITIONS ................................................ 1
2 PURCHASE AND SALE .......................................... 4
3. PURCHASE PRICE ............................................. 4
3.01 Payment of Purchase Price .................................. 4
3.02 No Assumption of Liabilities ............................... 4
3.03 Method of Payment .......................................... 5
3.04 Allocation of Purchase Price ............................... 5
3.05 Deposit; Escrow Arrangement ................................ 5
4. CLOSING .................................................... 5
4.01 Time and Place ............................................. 5
4.02 Sellers Obligations at Closing ............................. 5
4.03 Cambridge's Obligations at Closing ......................... 6
4.04 Purchaser's Obligation at Closing .......................... 6
4.05 Purchasers Conditions Precedent to Closing ................. 7
4.06 Seller's Conditions Precedent to Closing ................... 8
4.07 Further Assurances ......................................... 8
4.08 Operations Pending Closing ................................. 8
4.09 Cooperation in Satisfying Conditions Precedent ............. 8
5. ADDITIONAL COVENANTS ....................................... 9
5.01 Regulatory and Other Authorizations; Consents .............. 9
5.02 Sales, Etc. Taxes .......................................... 9
5.03 Risk of Loss ............................................... 9
5.04 Survival of Representations and Warranties ................. 9
5.05 Employees .................................................. 10
5.06 Access to Information ...................................... 10
5.07 Publicity .................................................. 10
5.08 Collection of Accounts Receivable .......................... 10
5.09 Preservation of and Access to Books and Records ............ 11
5.10 Audited Financial Statements ............................... 11
5.11 Unaudited Financial Statements ............................. 11
5.12 Environmental Surveys; Remediation ......................... 11
5.13 Related-Party Leases ....................................... 12
6. REPRESENTATIONS AND WARRANTIES OF SELLER ................... 12
6.01 Corporate Organization ..................................... 12
6.02 Authorization .............................................. 12
6.03 No Violation ............................................... 13
6.04 Consents ................................................... 13
6.05 Books and Records .......................................... 13
6.06 Financial Statements ....................................... 13
6.07 Taxes ...................................................... 14
6.08 Tangible Personal Property ................................. 14
6.09 Insurance; Claims .......................................... 14
6.10 Compliance with Law ........................................ 14
6.11 Licenses and Permits ....................................... 14
6.12 Title to Assets ............................................ 15
6.13 Assumed Agreements and Assumed Facility Leases ............. 15
6.14 Absence of Certain Changes ................................. 15
6.15 Accounts Receivable ........................................ 15
6.16 Intangibles ................................................ 16
6.17 No Litigation or Adverse Events ............................ 16
6.18 Contracts and Commitments .................................. 16
6.19 Customers .................................................. 16
<PAGE>
6.20 Environmental Matters ....................................... 17
6.21 Labor Matters 17
6.22 Employee Benefit Plans ...................................... 18
6.23 No Broker's or Finder's Fees 18
6.24 Material Misstatements or Omissions ......................... 18
7. REPRESENTATIONS AND WARRANTIES OF CAMBRIDGE ................. 18
7.01 Corporate Organization ...................................... 18
7.02 Authorization 19
7.03 No Violation ................................................ 19
7.04 Consents 19
7.05 Books and Records ........................................... 19
7.06 Financial Statements ........................................ 19
7.07 Taxes ....................................................... 19
7.08 Tangible Personal Property .................................. 20
7.09 Insurance; Claims ........................................... 20
7.10 Compliance with Law ......................................... 20
7.11 Licenses and Permits ........................................ 20
7.12 Title to Assets ............................................. 21
7.13 Assumed Agreements 21
7.14 Absence of Certain Changes .................................. 21
7.15 No Litigation or Adverse Events ............................. 21
7.16 Contracts and Commitments ................................... 22
7.17 Labor Matters 22
7.18 Employee Benefit Plans ...................................... 22
7.19 No Broker's or Finder's Fees 22
7.20 Material Misstatements or Omissions ......................... 23
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER ................. 23
8.01 Organization ................................................ 23
8.02 Authorization 23
8.03 No Violation ................................................ 23
8.04 Consents 23
8.05 Material Misstatements or Omissions ......................... 23
9. INDEMNIFICATION ............................................. 24
9.01 Indemnification by Seller ................................... 24
9.02 Indemnification by Cambridge 24
9.03 Indemnification by Purchaser 24
9.04 Procedure ................................................... 25
9.05 Costs and Expenses 25
9.06 Right of Offset ............................................. 25
9.07 Limitation on Claims ........................................ 26
10. MISCELLANEOUS ........................................... 26
10.01 Incorporation of Recitals, Exhibits, and Schedules .......... 26
10.02 Governing Law ............................................... 26
10.03 Headings .................................................... 26
10.04 Notices 26
10.05 Successors and Assigns 27
10.06 Assignment .................................................. 27
10.07 Entire Agreement; Amendments ................................ 27
10.08 Remedies for Breach ......................................... 27
10.09 Professional Fees 27
10.10 Counterparts 27
10.11 Arbitration of Disputes ..................................... 28
10.12 Time of the Essence ......................................... 28
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the 18th
day of November, 1996, by and between TRANSIT HOMES OF AMERICA, INC., an Idaho
corporation (Seller); CAMBRIDGE MANAGEMENT COMPANY, INC., an Idaho corporation
(Cambridge); and MORGAN DRIVE AWAY, INC., an Indiana corporation (Purchaser).
RECITALS
Seller is a provider of transportation services principally to the
manufactured housing industry and to a lesser extent to the recreational vehicle
industry, using personnel provided on a contract basis by Cambridge and
independent contractors who contract directly with Seller (the Transit
Business). Cambridge, which is under common ownership with Seller, in addition
to providing personnel on a contract basis to Seller, is engaged in other,
unrelated business (the Unrelated Cambridge Businesses). Seller and Cambridge
desire to sell and Purchaser desires to acquire substantially all of the assets
of Seller and Cambridge used in the Transit Business.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual promises of
the parties herein contained, the parties intending to be legally bound hereby
agree as follows:
1. DEFINITIONS. Except as otherwise expressly provided herein, the
following terms have the meanings set forth in this section:
1.01. Acquired Assets means the Business Records, the Intangibles, the
Prepaid Items, and the Tangible Personal Property. Specifically excluded from
such term are accounts receivable, cash, marketable securities, and other
cash-equivalents, insurance proceeds (except to the extent provided in section
5.03), insurance deposits, and the Excluded Assets.
1.02. Affiliate of a person means any other person who controls, is
controlled by, or is under common control with such person and, in the case of
an individual, also includes such persons spouse, siblings, ancestors,
descendants, and any persons controlled by any combination of the foregoing.
1.03. Assignment and Assumption Agreement means the Assignment and
Assumption Agreement between Purchaser and Seller in substantially the form of
Exhibit A. 1.04. Assumed Agreement means any of the license agreements, service
agreements, leases of tangible personal property, and other obligations of a
contractual nature (if any) identified in Schedule 1.04.
1.05. Assumed Facility Lease means any lease of real property identified in
Schedule 1.05 (subject to Purchasers right to reject any such lease pursuant to
section 5.11). 1.06. Assumed Liabilities means the liabilities and obligations
of Seller identified in Schedule 1.06. 1.07. Assumed Liabilities Balance means
the aggregate outstanding balance as of the Closing Date of the Assumed
Liabilities. 1.08. Audited Financial Statements means the combined balance
sheets as of September 30, 1996, and December 31, 1995, and the combined
statements of income, cash flows, and changes in stockholders equity for the
nine-month period ended September 30, 1996, and for the year ended December 31,
1995, of Seller and Cambridge (excluding the Unrelated Cambridge Businesses),
together with the report thereon of independent public accountants, prepared and
certified (as defined in Regulation S-X) without reservation or exception by
KPMG Peat Marwick LLP or another qualified firm of certified public accountants
reasonably acceptable to Purchaser.
1.09. Business Records means all files, records, documents, and other
written or otherwise recorded (including machine-readable) materials
<PAGE>
and information relating to the Transit Business but excluding charter
documents, bylaws, minutes of meetings of the board of directors and
stockholders of Seller or Cambridge, and other, similar corporate documents that
do not relate to the Acquired Assets.
1.10. Closing Date means the date on which Closing occurs as provided in
section 4.01.
1.11. Environmental Law means (i) the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq.;
(ii) the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et
seq.; (iii) the Toxic Substances Control Act, as amended, 15 U.S.C. 2601 et
seq.; and (iv) any other federal or state law, regulation, ordinance, or
governmental requirement relating to the protection of health or the
environment;
1.12. Excluded Assets means the tangible personal property identified in
Schedule 1.12.
1.13. Facility means the real property leased pursuant to an Assumed
Facility Lease.
1.14. Intangibles means all of Sellers rights to trademarks, logos, trade
names, contract rights, choses in action, goodwill, and customer lists, all
licenses, permits, authorizations, consents, and approvals, and all other items
of intangible personal property in any way relating to the Transit Business or
the Acquired Assets, including but not limited to the names Transit Homes and
Transit Homes of America, but excluding Sellers insurance proceeds (except to
the extent provided in section 5.03), insurance deposits, accounts receivable,
cash, marketable securities, and other cash-equivalents,
1.15. Kling Agreement means the Employment Agreement between Purchaser and
Larry Kling in substantially the form of Exhibit B.
1.16. Prepaid Items means the prepaid expenses, deposits, and similar items
identified in Schedule 1.16.
1.17. Related-Party Leases means leases of Facilities with Larry Kling in
substantially the form of Exhibit C.
1.18. Required Consent means the consent of any third party to the
assignment to and assumption by Purchaser of any of the Assumed Agreements or
Assumed Facility Leases, other than a consent that the parties have agreed need
not be obtained as indicated in Schedule 1.04 (with respect to the Assumed
Agreements) or Schedule 1.05 (with respect to the Assumed Facility Leases).
1.19. Sellers Knowledge and Cambridges Knowledge means the actual knowledge
of Rhona Hall or Victor Bremson or, after due inquiry, of Larry Kling.
1.20. Tangible Personal Property means all furniture, trade fixtures,
equipment, and other tangible personal property owned or leased by Seller or
Cambridge and used or held for use in the Transit Business, including but not
limited to the assets identified in Schedule 1.20, but excluding the Excluded
Assets.
1.21. Unaudited Financial Statements means (i) the unaudited financial
statements of Seller as at September 30, 1996, December 31, 1995, and December
31, 1994, and for the nine-month period and the years then ended and (ii) the
unaudited financial statements of Cambridge as at December 31, 1995, and
December 31, 1994, and for the years then ended, all of which are attached as
Schedule 1.21, together with any unaudited financial statements of Seller
delivered by Seller as provided in section 5.11.
The following additional terms are defined elsewhere in this
Agreement:
Benefit Plan Section 6.22
Breach of Warranty Claim Section 9.05
Closing Section 4.01
Closing Amount Section 3.01(a)
Code Section 3.04
Deposit Section 3.05
Effective Time Section 4.01
Encumbrances Section 6.12
ERISA Section 6.22
Essential Facility Section 5.12
Financial Statements Section 6.06
<PAGE>
GAAP Section 6.06
Hazardous Substance Section 6.20(e)
Indemnitee Section 9.04
Indemnitor Section 9.04
Morgan Section 3.01(b)
Outside Date Section 4.01
Phase I Survey Section 5.11
Purchase Price Note Section 3.01
Recognized Environmental
Condition Section 5.12(d)
Tangible Assets Section 5.03(a)
Third-Party Claim Section 9.04
Transit Business Recitals
Unrelated Cambridge Businesses Recitals
2. PURCHASE AND SALE.
Seller hereby agrees to sell and transfer the Acquired Assets to
Purchaser on the Closing Date, effective as of the Effective Time, and Purchaser
hereby agrees to purchase and accept the Acquired Assets from Seller, all on the
terms and subject to the conditions herein set forth.
3. PURCHASE PRICE.
3.01. Payment of Purchase Price. On the Closing Date, Purchaser shall:
(a) pay to Seller $900,000 of the following amount (the Closing Amount):
$1,660,000: (i) minus the amount by which the Assumed Liabilities Balance
exceeds $365,000 or (ii) plus the amount by which the Assumed Liabilities
Balance is less than $315,000, as the case may be; and
(b) execute and deliver to Seller a promissory note for an amount equal to
the sum of (i) $1,158,500 and (ii) the Closing Amount minus $900,000 in
substantially the form of Exhibit D (the Purchase Price Note), guaranteed by The
Morgan Group, Inc. (Morgan).
3.02. Limited Assumption of Liabilities. On the Closing Date Purchaser
shall assume the Assumed Liabilities by executing and delivering to Seller the
Assignment and Assumption Agreement. Except for (i) the Assumed Liabilities and
(ii) obligations under the Assumed Agreements and the Assumed Facility Leases
(but only to the extent that such obligations are assumed pursuant to the
Assignment and Assumption Agreement), Purchaser shall not assume or be liable
for any obligations of Seller or of Cambridge arising out of the Transit
Business. All liabilities and obligations not expressly assumed by Purchaser
that are incurred by either Seller or Cambridge, or that arise out of the
Transit Business before the Effective Time, or that otherwise accrue before the
Effective Time and relate to the Acquired Assets (including but not limited to
accrued compensation and other accrued expenses, federal and state fuel and
payroll taxes, and all amounts due on account of warranty, liability, or other
claims or obligations arising out of transactions, occurrences, or activities on
or before the Effective Time), shall be the responsibility of, and shall be
promptly discharged when due by, Seller or Cambridge, whichever incurred such
obligation or is responsible therefor.
3.03. Method of Payment. Except as may otherwise be agreed by the parties,
all payments due hereunder on the Closing Date shall be made by wire transfer of
federal funds and all other payments shall be made by check.
3.04. Allocation of Purchase Price. The parties agree that the purchase
price shall be allocated as set forth in Schedule 3.04 and that such allocation,
which reflects the parties mutual determination of the fair market values of the
Acquired Assets in accordance with
<PAGE>
section 1060 of the Internal Revenue Code of 1986, as amended (the Code) shall
be used for federal, state, and local income tax purposes. Neither party shall
adopt on any tax return or otherwise any allocation or position inconsistent
with such allocation. Not later than ten (10) days before the filing of a Form
8594 with respect to the transactions contemplated by this Agreement, each party
shall deliver to the other a copy of such Form 8594.
3.05. Deposit; Escrow Arrangement. At or before the execution by Seller of
this Agreement, Purchaser has deposited the sum of $200,000 (the Deposit) as
earnest money pursuant to an Escrow and Deposit Agreement among Purchaser,
Seller, and Mellon Bank, FSB as Escrow Agent. The Deposit shall be held in
accordance with the Escrow Agreement and applied against that portion of the
purchase price payable in cash at the Closing.
4. CLOSING.
4.01. Time and Place. The closing of the transactions contemplated by this
Agreement (the Closing) shall commence at 10:00 a.m. on December 29, 1996, and
continue thereafter until completed at a mutually agreeable location in Boise,
Idaho or at such other place, date, and time as the parties may agree in
writing. The Closing shall be deemed to have occurred and shall be effective as
of 12:01 a.m. Pacific time on the Monday next following the Closing Date (the
Effective Time). In the event that the Closing is not completed by December 31,
1996 (the Outside Date) on account of the failure of any of the conditions set
forth in sections 4.05 and 4.06, then, unless the parties have agreed in writing
to extend the date for Closing (and subject in any event to section 4.09), the
party whose obligations are subject to the condition that is not satisfied shall
have the absolute right in its sole discretion to terminate this Agreement
without any liability to the other party. Notwithstanding the foregoing, if such
failure of any such condition is beyond the reasonable control of the parties,
then the Outside Date shall be extended by the period of time reasonably
necessary for the satisfaction of such condition, but in no event beyond January
31, 1997.
4.02. Sellers Obligations at Closing. On the Closing Date, Seller shall:
(a) assign and transfer the Acquired Assets to Purchaser by executing and
delivering to Purchaser the Assignment and Assumption Agreement, together with
assignments of Sellers rights (i) under the Assumed Agreements to the extent set
forth in Schedule 1.04 and (ii) under the Assumed Facility Leases;
(b) cause the lessors under the Related-Party Leases to enter into the
Related-Party Leases with Purchaser;
(c) deliver or cause to be delivered to Purchaser the Kling Agreement duly
executed by Larry Kling;
(d) deliver or cause to be delivered to Purchaser an opinion of counsel in
form and substance reasonably satisfactory to Purchaser and its counsel with
respect to legal matters relating to the transactions contemplated hereby; and
(e) deliver such other documents, certificates, and instruments as
Purchaser may reasonably request, including but not limited to certificates of
resolutions and incumbency and certificates relating to the accuracy as of the
Closing Date of the representations and warranties made by Seller and Cambridge
in connection herewith. Simultaneously with the consummation of the transfer of
the Acquired Assets to Purchaser, Seller, through its officers, agents, and
employees, shall put Purchaser into full possession and enjoyment of the
Acquired Assets.
4.03. Cambridges Obligations at Closing. On the Closing Date, Cambridge
shall:
(a) assign and transfer the Acquired Assets owned by Cambridge to Purchaser
by executing and delivering to Purchaser the Assignment and Assumption
Agreement, together with assignments of Cambridges rights under the Assumed
Agreements to the extent set forth in Schedule 1.04;
<PAGE>
(b) deliver or cause to be delivered to Purchaser an opinion of counsel in
form and substance reasonably satisfactory to Purchaser and its counsel with
respect to legal matters relating to the transactions contemplated hereby; and
(c) deliver such other documents, certificates, and instruments as
Purchaser may reasonably request, including but not limited to certificates of
resolutions and incumbency and certificates relating to the accuracy as of the
Closing Date of the representations and warranties made by Cambridge in
connection herewith.
4.04. Purchaser's Obligations at Closing. On the Closing Date, Purchaser
shall pay to Seller that portion of the purchase price payable on the Closing
Date under section 3 and, in addition, shall:
(a) deliver to Seller the Purchase Price Note duly executed by Purchaser,
accompanied by the guaranty incorporated therein duly executed by Morgan;
(b) deliver to Seller the Assignment and Assumption Agreement duly executed
by Purchaser;
(c) deliver the Related-Party Leases with the lessors thereunder duly
executed by Purchaser;
(d) deliver the Kling Agreement duly executed by Purchaser;
(e) deliver or cause to be delivered to Seller an opinion of counsel in
form and substance reasonably satisfactory to Seller and its counsel with
respect to legal matters relating to the transactions contemplated hereby; and
(f) deliver such other documents, certificates, and instruments as Seller
may reasonably request, including but not limited to certificates of resolutions
and incumbency and certificates relating to the accuracy of as of the Closing
Date of the representations and warranties made by Purchaser in connection
herewith.
4.05. Purchaser's Conditions Precedent to Closing. Except to the extent
waived in writing by Purchaser, Purchaser's obligation to close the transactions
contemplated by this Agreement shall be subject to the satisfaction of all of
the following conditions precedent:
(a) Condition of Acquired Assets. No substantial portion of the Acquired
Assets shall have been destroyed or damaged before the Closing Date.
(b) No Material Adverse Changes. Nothing shall have occurred that affects
or would in Purchaser's reasonable opinion affect the operations or financial
condition of the Transit Business (including but not limited to the loss of any
material customer contract or the services of any key employee) in a materially
adverse manner (other than as is attributable to the actions of Purchaser or any
of its Affiliates).
(c) Governmental Consents and Approvals. Each consent or approval of any
federal, state, or local governmental or regulatory authority necessary for or
in connection with the consummation of the transactions contemplated hereby
shall have been obtained (except where the failure to obtain such consent or
approval would not have a material adverse effect on Purchasers ability to
conduct the Transit Business or to use any of the Acquired Assets).
(d) Required Consents. Each of the Required Consents shall have been
obtained.
(e) Representations and Warranties. The representations and warranties of
Seller and Cambridge contained in this Agreement and in any certificate or
document delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects on and as of the Closing Date as if made on the Closing Date (except
for representations and warranties made as of some other date, which shall be
true and correct in all material respects as of such date).
(f) Performance of Obligations. All of the agreements and covenants of
Seller and Cambridge set forth herein and which are to be performed at or before
the Closing Date shall have been duly performed.
(g) Kling Agreement. Larry Kling shall have executed and delivered to
Purchaser the Kling Agreement.
(h) Related-Party Leases. The lessors under the Related-Party Leases shall
have entered into the Related-Party Leases.
<PAGE>
(i) Audited Financial Statements. The financial position of Seller and
Cambridge and the results of operations of Seller and Cambridge as of the dates
and for the periods shown in the Audited Financial Statements shall not differ
materially from the financial position of Seller and Cambridge and the results
of their operations as of the same dates and for the same periods reflected in
the Unaudited Financial Statements (to the extent that they relate to or reflect
the Transit Business) as supplemented by Schedule 6.06.
4.06. Sellers Conditions Precedent to Closing. Except to the extent waived
in writing by Seller, the obligations of Seller and Cambridge to close the
transactions contemplated by this Agreement shall be subject to the satisfaction
of all of the following conditions precedent:
(a) Representations and Warranties. The representations and warranties of
Purchaser contained in this Agreement and in any certificate or document
delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects on and as of the Closing Date as if made on the Closing Date (except
for representations and warranties made as of some other date, which shall be
true and correct in all material respects as of such date).
(b) Performance of Obligations. All of the agreements and covenants of
Purchaser set forth herein and which are to be performed at or before the
Closing Date shall have been duly performed.
(c) Kling Agreement. Purchaser shall have executed and delivered to Larry
Kling the Kling Agreement.
(d) Related-Party Leases. The lessors under the Related-Party Leases and
Purchaser shall have entered into the Related-Party Leases.
4.07. Further Assurances. Seller and Cambridge, at any time and from time
to time after the Closing Date, shall execute, acknowledge, and deliver any
further deeds, assignments, conveyances, and other assurances, documents, and
instruments of transfer as may reasonably be requested by Purchaser and shall
take any other action consistent with the terms of this Agreement that may
reasonably be requested by Purchaser for the purpose of assigning, transferring,
granting, conveying, and confirming to Purchaser, or reducing to Purchaser's
possession, any or all of the Acquired Assets. Purchaser shall bear the cost of
preparing any and all such further documentation it may request but any
additional costs incurred by Seller or Cambridge in connection with their review
and execution of such documentation shall be borne by Seller and Cambridge. If
requested by Purchaser, Seller and Cambridge further agree to prosecute or
otherwise enforce in their own names for the benefit of Purchaser, and at
Purchasers expense, any claims, rights, or benefits that are transferred to
Purchaser pursuant to this Agreement and that require prosecution or enforcement
in the name of Seller or Cambridge; provided, however, that the foregoing
provision obligating Purchaser to pay the expense of any such action shall not
be deemed to limit in any way Purchasers rights to indemnification under section
8.
4.08. Operations Pending Closing. Pending Closing, Seller and Cambridge
shall use their best efforts to preserve substantially intact the Transit
Business; to conduct operations only in the ordinary course, without substantial
change; to take such steps as are necessary and appropriate to preserve their
existing relationships with customers, suppliers, and key employees; neither
negotiate for nor consummate the sale, transfer, or conveyance of any of the
Acquired Assets or any other assets used in the Transit Business or any right
thereto to any party other than Purchaser (except for sales in the ordinary
course of business); to inform Purchaser promptly of the occurrence of any event
which may in Sellers or Cambridges reasonable estimation result in any material
adverse change to the Transit Business, the Acquired Assets, or Sellers
financial condition or operations; and to maintain the Acquired Assets in their
current condition.
4.09. Cooperation in Satisfying Conditions Precedent. Each of the parties
agrees to provide the other with all reasonable cooperation and
<PAGE>
assistance necessary to satisfy the conditions to closing contained in sections
4.05 and 4.06.
5. ADDITIONAL COVENANTS.
5.01. Regulatory and Other Authorizations; Consents. Seller and Cambridge,
on the one hand, and Purchaser, on the other, shall use their reasonable best
efforts to obtain all authorizations, consents, orders and approvals of, and to
give all notices to and make all filings with, all governmental authorities and
other third parties that may be or become necessary for their or its execution
and delivery of, and the performance of their or its obligations pursuant to,
this Agreement and will cooperate fully with each other in promptly seeking to
obtain all such authorizations, consents, orders and approvals, giving such
notices, and making such filings. The parties hereto agree not to take any
action that will have the effect of unreasonably delaying, impairing, or
impeding the receipt of any required authorizations, consents, orders, or
approvals.
5.02. Sales, Etc. Taxes. Each party shall be fully responsible for any
applicable federal, state, and local sales, use, transfer, and documentary stamp
taxes and any income or similar taxes imposed by law upon it as a result of the
transactions contemplated by this Agreement.
5.03. Risk of Loss.
(a) The risk of loss or damage to the Business Records, the Tangible
Personal Property, and the leasehold improvements at the Facilities (together
the Tangible Assets) shall remain with Seller until Closing. If there occurs
after the date hereof and before the Closing any loss, casualty, or other damage
to or destruction of any of the Tangible Assets, (i) except with respect to
Tangible Assets designated in Schedule 1.20 as Nonessential, the purchase price
shall be reduced by the book value as set forth in Schedule 1.20 (or, if not
there set forth, as set forth on Sellers books) of the Tangible Assets so
damaged or destroyed or (ii) if and to the extent that Purchaser so elects, the
proceeds of any insurance covering such loss, casualty, or other damage shall be
applied by Seller to repair or replace such Tangible Assets or (at Purchasers
option) paid over to Purchaser, in which case the purchase price shall be
reduced only by the book value as of the Closing Date of the Tangible Assets not
so repaired or replaced. For purposes of this section 5.03(a), loss, casualty,
or other damage shall not include depletion or consumption of, or normal wear
and tear on, the Tangible Assets in the ordinary course of business.
(b) Notwithstanding any other provision hereof, the risk of liability to
third parties (for personal injury, property damage (including damage to
freight), or otherwise) arising from performance of a freight bill for which the
freight is loaded before the Effective Time or from a vehicle otherwise under
dispatch at the Effective Time shall in all respects remain with Seller until
such freight bill has been fully performed and such vehicle has returned to its
primary point of coordination and is otherwise no longer under dispatch (unless
Purchaser has rerouted or otherwise exercised control over performance of the
freight bill or the routing of such vehicle, in which case the risk of liability
shall pass to Purchaser at the time Purchaser reroutes or otherwise exercises
control over such vehicle). Seller shall maintain in force all policies of
insurance necessary to cover such risk.
5.04. Survival of Representations and Warranties. Except for the
undertaking by Seller to indemnify Purchaser with respect to the matters
described in subsection (c) of section 9.01 and the undertaking by Cambridge to
indemnify Purchaser with respect to the matters described in subsection (c) of
section 9.02 (which undertakings shall be of unlimited duration), and except as
may otherwise be expressly provided in any instrument or agreement delivered or
to be delivered pursuant to this Agreement in or in connection with the
consummation of the transactions contemplated hereby, the covenants, agreements,
representations, and warranties of the parties contained in this
<PAGE>
greement and in any document, statement, schedule, certificate, exhibit, or
other instrument delivered or to be delivered pursuant to this Agreement or in
connection with the consummation of the transactions contemplated hereby shall
survive the Closing Date for a period of two (2) years.
5.05. Employees. Although Purchaser currently contemplates causing one or
more of its subsidiaries to offer employment as of the Closing Date to many of
Cambridges current employees, Purchaser shall not be obligated to do so, nor
shall Purchaser or any of its subsidiaries be obligated, if employment is so
offered to any of Cambridges employees, to pay such employees any particular
compensation or benefits except as may be agreed upon between Purchaser or its
subsidiaries and such employees. Regardless of whether Purchaser or any of its
subsidiaries hires any of Cambridges employees, Seller and Cambridge shall
remain liable for and shall pay as and when due all compensation and benefits
(including but not limited to salary, earned commissions, vacation and sick pay,
and pension contributions or similar obligations) accruing on or before the
Closing Date. Without limiting the generality of the foregoing, the employment
by Seller or Cambridge, as the case may be, of any employee who is hired by
Purchaser shall be terminated by Seller or Cambridge, as the case may be, as of
the Closing Date, and Seller and Cambridge shall be solely responsible for all
claims and obligations arising out of or by virtue of such termination,
including severance obligations and accrued compensation and benefits. Cambridge
agrees to render such assistance to Purchaser as Purchaser may reasonably
request in order to effect a smooth transition for those of Cambridges employees
to whom Purchaser may offer employment.
5.06. Access to Information. Seller and Cambridge, upon reasonable notice,
shall: (i) give or cause to be given to Purchaser and to its accountants,
counsel, and other representatives, during regular business hours and in a
manner so as not to disrupt Sellers and Cambridges business activities,
reasonable access to all of the properties, facilities, employees, documents,
and records of Seller and Cambridge used in or relating to the Acquired Assets
or the Transit Business, and (ii) provide or cause to be provided to Purchaser
at its expense such copies or extracts of Sellers and Cambridges documents and
records relating to the Acquired Assets or the Transit Business as Purchaser may
reasonably request. Without limiting the generality of the foregoing, Purchaser
shall be entitled to make such surveys, assessments, and inspections of the
Tangible Personal Property and the Facilities as Purchaser deems appropriate,
provided Purchaser restores any damage to the foregoing that may be occasioned
by any such survey, assessment, or inspection. In addition, Purchaser shall be
entitled, upon not less than two (2) business days prior notice to Seller, to
contact any of Sellers customers for the purpose of obtaining or verifying such
information regarding Sellers relationship with such customer as Purchaser deems
relevant.
5.07. Publicity. Except as may be required by law, neither Purchaser, on
the one hand, nor Seller or Cambridge, on the other hand (nor any of their
Affiliates or anyone acting on their behalf) shall make any public announcement
concerning the transactions contemplated by this Agreement without the prior
approval of such announcement by the other or otherwise divulge the terms and
conditions of this Agreement. Seller and Cambridge acknowledge that Purchaser
intends and is entitled to make public announcements promptly after the
execution of this Agreement and following the Closing. Purchaser shall give
Seller a reasonable opportunity to review and comment upon the text thereof
before release.
5.08. Collection of Accounts Receivable.
(a) On the Closing Date Seller shall deliver to Purchaser an account
receivables aging report as of the day immediately preceding the Closing Date
(or such other recent date as is practicable), which report shall become part of
and be deemed incorporated into Schedule 6.15. Purchaser shall make reasonable
efforts in good faith to collect Sellers accounts receivables after the Closing
Date, and during the six (6) months following the Closing Date Seller shall
refrain from
<PAGE>
attempting to collect such accounts receivable except upon the express request
of Purchaser.
(b) Purchaser shall undertake such collection efforts consistent with the
procedures set forth in Schedule 5.08 and shall otherwise use efforts to collect
Sellers accounts receivable at least as extensive as it uses to collect its own
accounts receivable. Purchaser shall not, without Sellers prior written consent,
compromise any of Sellers accounts receivable.
(c) Unless a customer designates in writing some other method of
application with respect to a particular payment or otherwise indicates in
writing that an invoice is wholly or partially in dispute and as a result is not
being paid, each amount received shall be applied to the customers oldest
outstanding invoice. In the event that Seller receives (or there is deposited
into the lockbox maintained for the benefit of Sellers lender) any amount to
which Purchaser is entitled, then Seller shall promptly cause such amount to be
paid over to Purchaser, and if such amount is not paid over to Purchaser upon
demand Purchaser shall have the right to offset such amount against any payment
otherwise due to Seller or to Larry Kling.
(d) Purchaser shall give Seller prompt notice of any dispute with respect
to Sellers accounts receivables of which Purchaser becomes aware, whereupon
Seller may commence negotiations with or collection action against the account
debtor, and Purchaser shall endeavor to assist Seller in resolving such dispute,
but in no event shall Purchaser be obligated to commence legal proceedings or
take other action to collect any account receivable, all of which shall remain
Sellers sole responsibility. Purchaser shall in no event be liable to pay any
amount to Seller with respect to Sellers accounts receivable except such amounts
as Purchaser actually receives.
5.09. Preservation of and Access to Books and Records. Seller and
Cambridge, on the one hand, and Purchaser, on the other hand, agree to retain
for a period of six (6) years after the Closing Date, and to permit each other
to inspect and copy upon reasonable notice (and subject to reasonable
restrictions necessary to preserve the confidentiality of otherwise confidential
or proprietary information), all books, records, and information relating to the
Transit Business and the Acquired Assets (as conducted or existing as of the
Closing Date) that may reasonably be required by the other in connection with
any return, report, audit, examination, or other disclosure such other party may
by law or legal process be required to file or make.
5.10. Audited Financial Statements. Seller shall obtain and, not later than
ten (10) days before the date on which the Closing is to occur pursuant to
section 4.01, deliver to Purchaser the Audited Financial Statements. Seller
shall bear the cost of obtaining the Audited Financial Statements; provided,
however, that if such cost exceeds $40,000, Purchaser shall bear one-half of the
excess.
5.11. Unaudited Financial Statements. Until such time as Closing occurs,
Seller, within fifteen (15) days after the end of each calendar month beginning
on or after November 1, 1996, shall prepare and deliver to Purchaser unaudited
financial statements for such month in substantially the same form as the
unaudited financial statements attached as Schedule 1.21.
5.12. Environmental Surveys; Remediation.
(a) Seller shall obtain and shall, not later than seven (7) days before the
date on which the Closing is to occur pursuant to section 4.01, deliver to
Purchaser a Phase I environmental survey/site assessment as described in
Schedule 5.12 (a Phase I Survey) with respect to each of the Facilities
identified in Schedule 5.12. Seller shall bear the entire cost of such Phase I
Surveys with respect to the Facilities subject to the Related-Party Leases and
up to $15,000 of the
<PAGE>
total aggregate cost of the Phase I Surveys with respect to the other
Facilities; Purchaser shall bear any remaining cost with respect to such other
Facilities.
(b) In the event that Purchaser, in its sole and absolute discretion, is
not satisfied with the matters reflected in any Phase I Survey, then Purchaser
may, by written notice to Seller, exclude the lease for such Facility from the
list of Assumed Facility Leases.
(c) If there exists (either as of the date hereof or as of the Closing
Date) a Recognized Environmental Condition (as hereinafter defined) with respect
to any Facility designated in Schedule 5.12 as an Essential Facility, then,
unless Purchaser determines to exclude the lease for such Facility from the list
of Assumed Facility Leases pursuant to subsection (b), the cost of such
additional testing, investigation, and remedial action (including but not
limited to the removal of underground storage tanks and contaminated soil) as
may in Purchasers reasonable judgment be necessary in order to bring such
Facility into compliance with Environmental Laws (collectively Remediation)
shall be borne as follows: (i) if the Recognized Environmental Condition was
caused solely by the actions of Seller or arose entirely during the period that
Seller was in possession of the Facility, then Seller shall bear the entire cost
of Remediation; (ii) if the extent or severity of the Recognized Environmental
Condition increased as a result of actions of Seller, then Seller shall bear the
cost of Remediation to the extent that the cost of Remediation is increased due
to the increase in the extent or severity of the Recognized Environmental
Condition resulting from Sellers actions and the balance of the cost of
Remediation shall be borne equally by Seller and Purchaser; and (iii) otherwise,
the entire cost of Remediation shall be borne equally by Seller and Purchaser.
(d) For purposes hereof, Recognized Environmental Condition means the
presence or likely presence of any Hazardous Substance on a property under
conditions that indicate an existing release, a past release, or a material
threat of a release of any Hazardous Substance into structures on the property
or into the ground, groundwater, or surface water of the property, but excluding
a substance that is or is likely to be present only in de minimis quantities
that generally do not present a material risk of harm to public health or the
environment and that generally would not be the subject of an enforcement action
if brought to the attention of appropriate governmental agencies.
5.13. Related-Party Leases. Purchaser agrees to enter into the
Related-Party Leases on the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants
to Purchaser that both as of the date hereof and (except as may otherwise be
expressly provided below) as of the Closing Date:
6.01. Corporate Organization. Each of Seller and Cambridge is a corporation
duly organized, validly existing, and in good standing under the laws of its
state of incorporation and each has the corporate power and authority to own its
properties and assets, to carry on its business as it is now being conducted, to
enter into this Agreement, to perform its obligations hereunder, and otherwise
to consummate the transactions contemplated hereby.
6.02. Authorization. The execution and delivery of this Agreement by Seller
and Cambridge and the due consummation by Seller and Cambridge of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and this Agreement constitutes a valid and legally binding
agreement of Seller and Cambridge, enforceable against each in accordance with
its terms, subject only to bankruptcy, insolvency, and other laws generally
affecting the rights of creditors and general principles of equity, whether
considered in a proceeding at law or in equity.
<PAGE>
6.03. No Violation. Neither the execution and delivery of this Agreement by
Seller and Cambridge nor the consummation by Seller and Cambridge of the
transactions contemplated hereby will constitute a violation of, or be in
conflict with, or constitute a default under:
(i) any term or provision of the corporate charter or bylaws of either
Seller or Cambridge;
(ii) except as disclosed in Schedule 1.04 (with respect to Assumed
Agreements) or Schedule 1.05 (with respect to Assumed Facility Leases), any
contract, agreement, indenture, lease, or other commitment to which either
Seller or Cambridge is a party or by which either Seller or Cambridge is bound;
or
(iii) any judgment, decree, or order of any court or governmental authority
or, to Sellers Knowledge, any statute, regulation, or rule of any governmental
authority.
6.04. Consents. To Sellers Knowledge, no consent of any court or of any
federal, state, or local authority or agency or, except as disclosed in Schedule
1.04 (with respect to Assumed Agreements) or Schedule 1.05 (with respect to
Assumed Facility Leases), of any other person is required in connection with the
execution and delivery by either Seller or Cambridge of this Agreement or the
performance by either Seller or Cambridge of the transactions contemplated
hereby.
6.05. Books and Records. Sellers books and records (including but not
limited to records relating to customer orders, accounts receivable, fixed
assets, accounts payable, and reserves for contingent or unliquidated
liabilities) are correct and complete in all material respects, reflect fairly
Sellers income, expenses, assets, and liabilities, and provide a fair basis for
the preparation of Sellers financial statements. To the extent that they relate
to or reflect transactions or matters concerning the Transit Business,
Cambridges books and records are correct and complete in all material respects,
reflect fairly Cambridges income, expenses, assets, and liabilities, and provide
a fair basis for the preparation of Cambridges financial statements.
6.06. Financial Statements. The Unaudited Financial Statements and the
Audited Financial Statements (together the Financial Statements) are, or upon
delivery thereof will be, in agreement in all material respects with the books
and records of Seller and Cambridge and, except as disclosed in Schedule 6.06,
present, or upon delivery will present, fairly in all material respects the
financial position of Seller and Cambridge and the results of their operations
as of the dates and for the periods there shown, in conformity with generally
accepted accounting principles (GAAP) and the past accounting practices of
Seller and Cambridge with respect to the Transit Business, consistently applied
during such periods, subject, in the case of the Unaudited Financial Statements
to normal year-end adjustments and the absence of notes. Except as disclosed in
Schedule 6.06, the Financial Statements make, or upon delivery will make, full
and adequate provision for all material obligations and liabilities of Seller
and Cambridge related to the Transit Business as of the respective dates
thereof, to the extent required by GAAP. Except (i) as otherwise disclosed
herein or in the Schedules hereto; (ii)as set forth in the respective balance
sheets included in the Financial Statements; (iii)for liabilities, debts,
claims, or obligations not required by GAAP to be reflected in the Financial
Statements; and (iv) liabilities and obligations arising in the ordinary course
of business after the periods covered by the Financial Statements, to Sellers
Knowledge, there are no liabilities, debts, claims, or obligations, whether
accrued, absolute, contingent, or otherwise, whether due or to become due,
relating to the Transit Business.
6.07. Taxes. There are no actions, suits, or proceedings, or to Sellers
Knowledge any investigations, audits, or claims, now pending against Seller or
Cambridge in respect of any tax assessment or proposed tax assessment in any way
relating to or affecting the Acquired Assets or the Transit Business. There are
no tax liens upon any property of Seller or Cambridge in any way relating to the
Transit Business, except for liens for current taxes not yet due.
<PAGE>
6.08. Tangible Personal Property. Schedule 1.20 identifies all tangible
personal property owned by Seller or Cambridge used in the Transit Business. The
Tangible Personal Property is sold to Purchaser AS IS, without warranty as to
its condition, except that Seller warrants that on the Closing Date the Tangible
Personal Property will be in the same condition and repair as on the date
hereof, reasonable wear and tear excepted. Except as disclosed in Schedule 6.12,
none of the Tangible Personal Property is subject to or held under any lease,
security agreement, conditional sales contract, or other title retention or
security agreement.
6.09. Insurance; Claims. Seller and Cambridge have maintained and now
maintain (a) insurance on all of the Acquired Assets against loss or damage by
fire or other casualty (including extended coverage) and (b) insurance
protection against all liabilities, claims, and risks arising out of or relating
to the Transit Business against which it is customary to insure. All such
policies are in full force and effect, and Seller and Cambridge have provided
true and correct copies of all such policies to Purchaser. To Sellers Knowledge,
all claims for loss or damage to any of the Acquired Assets and all claims for
liability to third parties that have been asserted against Seller or Cambridge,
and all occurrences that may give rise to such claims, which are or may be
covered by any policy of insurance now or heretofore maintained by Seller or
Cambridge have been reported in writing to the appropriate insurance carrier.
6.10. Compliance with Law. (a) Neither Seller nor Cambridge has violated,
and neither is in violation of, any law, statute, rule, governmental regulation,
or order, which violation might have a material adverse effect on the Acquired
Assets or the Transit Business; and (b) neither the execution and delivery of
this Agreement, nor the compliance or performance by Seller or Cambridge with
the terms and provisions of this Agreement, will: (i) give to any other party
any present or future interests or rights, including the right to terminate,
cancel, accelerate, modify, or abandon any duty or obligation to be performed or
any right or benefit to be received, in or with respect to any of the material
properties, assets, agreements, contracts, or leases used in or relating to the
Transit Business and having a material adverse effect thereon, or (ii) result in
the creation of any mortgage, pledge, lien, claim, charge, encumbrance, or other
adverse interest upon any of the Acquired Assets.
6.11. Licenses and Permits. Seller and Cambridge have obtained all
licenses, permits, and authorizations (Licenses) necessary for the conduct of
the Transit Business as now conducted (other than Licenses the failure to obtain
or maintain which will not have, either individually or in the aggregate, a
material adverse effect on the Acquired Assets or the Transit Business and will
not result in any cost or expense to Purchaser) and all such Licenses will be
maintained in good standing up to the Effective Time.
6.12. Title to Assets.
(a) As of the date hereof, Seller or Cambridge (as the case may be)
has good and marketable title to all of the Acquired Assets free and clear of
all mortgages, liens, claims, charges, options, or encumbrances of any nature
whatsoever, other than liens for current taxes not yet due and payable
(collectively, Encumbrances), except for (i) Encumbrances disclosed in Schedule
6.12 and (ii) Encumbrances that (1) do not secure obligations for borrowed
money, (2) do not arise other than in the ordinary course of business, (3) can
be discharged for an amount not exceeding $1,000 individually and $5,000 in the
aggregate, and (4) do not (either individually or in the aggregate) materially
detract from the value of the property subject thereto or materially impair the
use thereof in the Transit Business; and
(b) on the Closing Date Seller or Cambridge (as the case may be) will have,
and will convey to Purchaser pursuant to the Assignment and Assumption
Agreement, good and marketable title to all of the Acquired Assets free and
clear of all Encumbrances.
6.13. Assumed Agreements and Assumed Facility Leases. Seller or
<PAGE>
Cambridge has furnished to Purchaser true, correct, and complete copies of each
Assumed Agreement and each Assumed Facility Lease. Each Assumed Agreement and
each Assumed Facility Lease is a valid agreement, arrangement, or contract
enforceable by Seller or Cambridge (as the case may be) in accordance with its
terms (subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
to the effect of general principles of equity, whether considered in a
proceeding at law or in equity). Neither Seller or Cambridge nor, to Sellers
Knowledge, any other party is in default under, or in violation of, any material
provision in any Assumed Contract or any Assumed Facility Lease. Except as
disclosed in Schedule 1.04 (with respect to the Assumed Agreements) or Schedule
1.05 (with respect to Assumed Facility Leases), each Assumed Agreement and each
Facility Lease is assignable to Purchaser without the consent of any other party
thereto.
6.14. Absence of Certain Changes. Except as set forth in Schedule 6.14,
since the date of the latest balance sheet included in the Financial Statements:
(a) there has not been any change in the business or operations of
Seller or Cambridge which has had a material adverse effect on the Acquired
Assets or the Transit Business or any event that would materially impair the
ability of Seller or Cambridge to perform its obligations under this Agreement;
(b) neither Seller nor Cambridge has purchased, sold, or transferred
any assets or property used in conjunction with the Transit Business, other than
(i) purchases and sales of assets or property and dispositions of obsolete
property in the ordinary course of business or (ii) other purchases, sales, or
transfers of assets or property that do not have an aggregate value in excess of
$5,000;
(c) there has not been any material change in any method of accounting
or accounting practice used by Seller or Cambridge with respect to the Transit
Business, other than changes required by GAAP to be disclosed in the Audited
Financial Statements; and
(d) there has not been any agreement to take any of the actions
specified in this section 6.14, except as expressly contemplated by this
Agreement.
6.15. Accounts Receivable. Attached as Schedule 6.15 is an accounts
receivable aging report showing Sellers accounts receivable from customers as of
the date there shown. Except as disclosed in Schedule 6.15, each such account
receivable represents amounts validly owing to Seller or Cambridge on account of
services actually performed, and neither Seller nor Cambridge has received any
notice of, and to Sellers Knowledge there does not exist any basis for, any
material claim, reduction, or offset with respect thereto. Seller does not
customarily reflect reserves for doubtful accounts against specific accounts
receivable, and it is generally Sellers practice to write off accounts
receivable that are significantly uncertain of collection.
6.16. Intangibles. To Sellers Knowledge, Seller has the right to use in the
states identified in Schedule 6.16, and to assign to Purchaser for use by
Purchaser in the states identified in Schedule 6.16, in connection with the
conduct of the Transit Business the names Transit Homes and Transit Homes of
America without interference or claim of infringement by any third party. Seller
has used the name Transit Homes for more than 13 years without interference or
claim of infringement by any third party and, to Sellers Knowledge, Seller would
be entitled to continue such use without interference or claim of infringement
by any third party but for the assignment of its rights to such use to Purchaser
pursuant to this Agreement.
6.17. No Litigation or Adverse Events. There is no suit, action at law or
in equity, or legal, administrative, arbitration, or other proceeding or
governmental investigation by or before a federal, foreign, state, provincial,
or local court, governmental or regulatory commission, agency, or other
administrative authority, or arbitration forum pending or, to Sellers Knowledge,
threatened, which affects materially and adversely or would affect materially
and adversely the Acquired Assets or the Transit Business or the right to own or
use the
<PAGE>
Acquired Assets, or which attacks the validity or propriety of this Agreement or
the transactions contemplated hereby. To Sellers Knowledge there are no facts
that may reasonably be expected to give rise to any such action, suit,
proceeding, or investigation. Neither Seller nor Cambridge is operating the
Transit Business under or subject to, is restricted in carrying on the Transit
Business by, or is in default with respect to any judgment, order, writ,
injunction, ruling, or decree of any court or governmental agency or body,
domestic or foreign (except where such restriction is of general application) or
any agreement entered into (with or without acknowledgment of liability) in
order to settle or otherwise terminate any action or proceeding seeking any such
judgment, order, writ, injunction, ruling, or decree.
6.18. Contracts and Commitments. Neither Seller nor Cambridge has received
any notice of default and, except for defaults that would not (either
individually or in the aggregate) have a material adverse effect on the Acquired
Assets or the Transit Business, neither Seller nor Cambridge is in default, and
there is no basis for any claim of default, under any agreement or contract made
or obligation owed by Seller or Cambridge relating to the Acquired Assets or the
Transit Business; and to Sellers Knowledge no other party to any agreement or
contract made with Seller or Cambridge is in default, nor is there any basis for
any claim that any such party is in default, thereunder (except for defaults
that would not, either individually or in the aggregate, have a material adverse
effect on the Acquired Assets or the Transit Business).
6.19. Customers. Schedule 6.19 lists the top ten (10) customers of Seller
based on revenues received during the ten (10) months ended October 31, 1996. To
Sellers Knowledge, except as set forth on Schedule 6.19 no such customer has
expressed to Seller within the six (6) months immediately preceding the date of
this Agreement any material complaint or dissatisfaction with respect to the
services provided by Seller or advised Seller of its intention to terminate or
not renew any contract, commitment, or arrangement with Seller for the provision
of transportation services.
6.20. Environmental Matters.
(a) (i) To Sellers Knowledge, as of the date hereof and (except as may be
disclosed in the Phase I Surveys) as of the Closing Date, there are no Hazardous
Substances present at, under, or on any of the Facilities; (ii) except as
expressly authorized by an effective permit or by applicable law, Seller has not
caused, permitted, or suffered to occur, and to Sellers Knowledge there has not
been, any release, discharge, disposal, or emission, or any threat of release,
discharge, disposal, or emission, of any Hazardous Substance into, onto, under,
at, or from any of the Facilities.
(b) Seller has not conducted, engaged in, or permitted others to conduct or
engage in, any business, operation, or activity on or at any of the Facilities
involving the use, manufacture, treatment, storage, or disposal of any Hazardous
Substance, other than the use, storage, and disposal of petroleum products or
solvents in the ordinary course of business and in a manner that complies in all
material respects with all Environmental Laws.
(c) Seller is in full compliance with all Environmental Laws. Without
limiting the generality of the foregoing, Seller is in compliance with all laws,
rules, and regulations relating to (i) releases, discharges, emissions, or
disposals to air, water, land, or ground water; (ii) the use, manufacture,
importing, handling, or disposal of Hazardous Substances; (iii) the generation,
treatment, storage, transportation, disposal, or other management of Hazardous
Substances; (iv) the exposure of persons to Hazardous Substances; and (v) all
judicial and administrative orders, injunctions, judgments, declarations,
directives, notices, or demands with respect to the foregoing matters.
<PAGE>
(d) To Sellers Knowledge, there are no underground storage tanks located at
or under any of the Facilities or at or under any property adjacent to any of
the Facilities.
(e) For purposes of this Agreement, Hazardous Substance means any substance
included within the definition of hazardous substance, hazardous waste, toxic
substance, toxic pollutant, hazardous pollutant or any similar term under any
Environmental Law and specifically includes any petroleum product, excluding,
however, a substance present only in de minimis quantities that generally does
not present a material risk of harm to public health or the environment and that
generally would not be the subject of an enforcement action if brought to the
attention of appropriate governmental agencies.
6.21. Labor Matters. Neither Seller nor Cambridge has any collective
bargaining relationship or duty to bargain with any Labor Organization (as such
term is defined in section 2(5) of the National Labor Relations Act, as
amended), and neither Seller nor Cambridge has recognized any Labor Organization
as the collective bargaining representative of any of its employees. To Sellers
Knowledge, no senior executive, key employee, or group of employees has any
plans to terminate employment with Seller or Cambridge. There is no unfair labor
practice charge or complaint against Seller or Cambridge pending or, to Sellers
Knowledge, threatened before the National Labor Relations Board or any other
comparable authority. There is no litigation, arbitration proceeding,
governmental investigation, administrative charge, citation, or action of any
kind pending or, to Sellers Knowledge, proposed or threatened against Seller or
Cambridge relating to employment, employment practices, terms and conditions of
employment, or wages and hours.
6.22. Employee Benefit Plans.
(a) No Benefit Plan (as hereinafter defined) is a multiemployer plan within
the meaning of section 3(37) of the Employee Retirement Income Security Act of
1974, as amended (ERISA) or a defined benefit pension plan as defined in the
Code. All Benefit Plans are in compliance with the applicable provisions
(including, without limitation, any funding requirements or limitations) of
ERISA, the Code, and any other applicable laws and regulations the breach or
violation of which could have a material adverse effect on the Transit Business
or the Acquired Assets. No Benefit Plan provides for post-retirement medical
benefit obligations (without regard to COBRA obligations).
(b) Schedule 6.22 is a true and correct list of all Benefit Plans. Seller
and Cambridge have provided Purchaser with access to true and correct copies of
each governing document for each Benefit Plan, together with the most recent
summary plan description, annual report, and audited financial statement for
each such Benefit Plan, and the actuarial report for any Benefit Plan that is a
defined benefit pension plan or funded welfare benefit plan.
(c) Benefit Plan means any pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus, or other incentive plan, and all other employee programs, arrangements,
or agreements, whether arrived at through collective bargaining or otherwise;
all medical, vision, dental, and other health plans; all life insurance plans;
and all other employee benefit plans or fringe benefit plans, including, without
limitation, any employee benefit plan as that term is defined in section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by Seller or Cambridge or any Affiliate thereof for the benefit
of employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate.
<PAGE>
6.23. No Broker's or Finder's Fees. No agent, broker, person, or firm
acting on behalf of Seller or Cambridge or under the authority of Seller or
Cambridge is or will be entitled to any commission or brokers' or finders' fee
from Purchaser in connection with any of the transactions contemplated by this
Agreement.
6.24. Material Misstatements or Omissions. No representation or warranty by
Seller or Cambridge in this Agreement, or in any document, statement, schedule,
certificate, exhibit, or other instrument furnished or to be furnished by Seller
or Cambridge to Purchaser pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained therein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF CAMBRIDGE. Cambridge represents and
warrants to Purchaser that both as of the date hereof and (except as may
otherwise be expressly provided below) as of the Closing Date:
7.01. Corporate Organization. Cambridge is a corporation duly organized,
validly existing, and in good standing under the laws of its state of
incorporation and has the corporate power and authority to own its properties
and assets, to carry on its business as it is now being conducted, to enter into
this Agreement, to perform its obligations hereunder, and otherwise to
consummate the transactions contemplated hereby.
7.02. Authorization. The execution and delivery of this Agreement by
Cambridge and the due consummation by Cambridge of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and this
Agreement constitutes a valid and legally binding agreement of Cambridge,
enforceable against Cambridge in accordance with its terms, subject only to
bankruptcy, insolvency, and other laws generally affecting the rights of
creditors and general principles of equity, whether considered in a proceeding
at law or in equity.
7.03. No Violation. Neither the execution and delivery of this Agreement by
Cambridge nor the consummation by Cambridge of the transactions contemplated
hereby will constitute a violation of, or be in conflict with, or constitute a
default under:
(i) any term or provision of the corporate charter or bylaws of
Cambridge;
(ii) any contract, agreement, indenture, lease, or other commitment to
which Cambridge is a party or by which Cambridge is bound; or
(iii) any judgment, decree, or order of any court or governmental
authority or, to Cambridges Knowledge, any statute, regulation, or rule of
any governmental authority.
7.04. Consents. To Cambridges Knowledge, no consent of any court or
of any federal, state, or local authority or agency or of any other
person is required in connection with the execution and delivery by
Cambridge of this Agreement or the performance by Cambridge of the
transactions contemplated hereby.
7.05. Books and Records. To the extent that they relate to or reflect
transactions or matters concerning the Transit Business, Cambridges books and
records are correct and complete in all material respects, reflect fairly
Cambridges income, expenses, assets, and liabilities, and provide a fair basis
for the preparation of Cambridges financial statements.
7.06. Financial Statements. To the extent based upon the books and records
of Cambridge, the Financial Statements are, or upon delivery thereof will be, in
agreement in all material respects with the books and records of Cambridge and,
except as disclosed in Schedule 6.06, present, or upon delivery will present,
fairly in all material respects the financial position of Cambridge and the
results of its operations as of the dates and for the periods there shown, in
conformity with GAAP and the past accounting practices of Cambridge with respect
to the
<PAGE>
Transit Business, consistently applied during such periods, subject, in the case
of the Unaudited Financial Statements to normal year-end adjustments and the
absence of notes. Except as disclosed in Schedule 6.06, the Financial Statements
make, or upon delivery will make, full and adequate provision for all material
obligations and liabilities of Cambridge related to the Transit Business as of
the respective dates thereof, to the extent required by GAAP. Except (i) as
otherwise disclosed herein or in the Schedules hereto; (ii)as set forth in the
respective balance sheets included in the Financial Statements; (iii)for
liabilities, debts, claims, or obligations not required by GAAP to be reflected
in the Financial Statements; and (iv) liabilities and obligations arising in the
ordinary course of business after the periods covered by the Financial
Statements, to Cambridges Knowledge, there are no liabilities, debts, claims, or
obligations of Cambridge, whether accrued, absolute, contingent, or otherwise,
whether due or to become due, relating to the Transit Business.
7.07. Taxes. There are no actions, suits, or proceedings, or to Cambridges
Knowledge any investigations, audits, or claims, now pending against Cambridge
in respect of any tax assessment or proposed tax assessment in any way relating
to or affecting the Acquired Assets or the Transit Business. There are no tax
liens upon any property of Cambridge in any way relating to the Transit
Business, except for liens for current taxes not yet due.
7.08. Tangible Personal Property. Except for its books and records relating
to the Transit Business, Cambridge does not own or lease any tangible property
used in the Transit Business other than as specifically identified in Schedule
1.20. Any such Tangible Personal Property of Cambridge is sold to Purchaser AS
IS, without warranty as to its condition, except that Cambridge warrants that on
the Closing Date the Tangible Personal Property will be in the same condition
and repair as on the date hereof, reasonable wear and tear excepted. Except as
disclosed in Schedule 6.12, no such Tangible Personal Property of Cambridge is
subject to or held under any lease, security agreement, conditional sales
contract, or other title retention or security agreement.
7.09. Insurance; Claims. Cambridge has maintained and now maintains
insurance protection against all liabilities, claims, and risks to which
Cambridge may be subject that arise out of or relate to the Transit Business
against which it is customary to insure. All such policies are in full force and
effect, and Cambridge has provided true and correct copies of all such policies
to Purchaser. To Cambridges Knowledge, all claims for liability to third parties
arising out of or relating to the Transit Business that have been asserted
against Cambridge, and all occurrences that may give rise to such claims, which
are or may be covered by any policy of insurance now or heretofore maintained by
Cambridge have been reported in writing to the appropriate insurance carrier.
7.10. Compliance with Law. (a) Cambridge has not violated, and is not in
violation of, any law, statute, rule, governmental regulation, or order, which
violation might have a material adverse effect on the Acquired Assets or the
Transit Business; and (b) neither the execution and delivery of this Agreement
by Cambridge, nor the compliance or performance by Cambridge with the terms and
provisions of this Agreement, will: (i) give to any other party any present or
future interests or rights, including the right to terminate, cancel,
accelerate, modify, or abandon any duty or obligation to be performed or any
right or benefit to be received, in or with respect to any of the material
properties, assets, agreements, contracts, or leases used in or relating to the
Transit Business and having a material adverse effect thereon, or (ii) result in
the creation of any mortgage, pledge, lien, claim, charge, encumbrance, or other
adverse interest upon any of the Acquired Assets.
7.11. Licenses and Permits. Except for Licenses the failure to obtain or
maintain which will not have, either individually or in the aggregate, a
material adverse effect on the Acquired Assets or the Transit Business and will
not result in any cost or expense to
<PAGE>
Purchaser, Cambridge is not required to obtain any Licenses with respect to the
conduct of the Transit Business as now conducted.
7.12. Title to Assets.
(a) As of the date hereof, Cambridge has good and marketable title to
all of the Acquired Assets owned by Cambridge free and clear of Encumbrances,
except for (i) Encumbrances disclosed in Schedule 6.12 and (ii) Encumbrances
that (1) do not secure obligations for borrowed money, (2) do not arise other
than in the ordinary course of business, (3) can be discharged for an amount not
exceeding $1,000 individually and $5,000 in the aggregate, and (4) do not
(either individually or in the aggregate) materially detract from the value of
the property subject thereto or materially impair the use thereof in the Transit
Business; and
(b) on the Closing Date Cambridge will have, and will convey to
Purchaser pursuant to the Assignment and Assumption Agreement, good and
marketable title to all such Acquired Assets free and clear of all Encumbrances.
7.13. Assumed Agreements. Cambridge has furnished to Purchaser true,
correct, and complete copies of each Assumed Agreement (if any) to which
Cambridge is a party. Each such Assumed Agreement is a valid agreement,
arrangement, or contract enforceable by Cambridge in accordance with its terms
(subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and to the
effect of general principles of equity, whether considered in a proceeding at
law or in equity). Neither Cambridge nor, to Cambridges Knowledge, any other
party is in default under, or in violation of, any material provision in any
such Assumed Agreement. Except as disclosed in Schedule 1.04, each such Assumed
Agreement is assignable to Purchaser without the consent of any other party
thereto.
7.14. Absence of Certain Changes. Except as set forth in Schedule 6.14,
since the date of the latest balance sheet of Cambridge included in the
Financial Statements:
(a) there has not been any change in the business or operations of
Cambridge which has had a material adverse effect on the Acquired Assets or the
Transit Business or any event that would materially impair the ability of
Cambridge to perform its obligations under this Agreement;
(b) Cambridge has not purchased, sold, or transferred any assets or
property used in conjunction with the Transit Business, other than (i) purchases
and sales of assets or property and dispositions of obsolete property in the
ordinary course of business or (ii) other purchases, sales, or transfers of
assets or property that do not have an aggregate value in excess of $5,000;
(c) there has not been any material change in any method of accounting
or accounting practice used by Cambridge with respect to the Transit Business,
other than changes required by GAAP to be disclosed in the Audited Financial
Statements; and
(d) there has not been any agreement to take any of the actions
specified in this section 7.14, except as expressly contemplated by this
Agreement.
7.15. No Litigation or Adverse Events. There is no suit, action at law or
in equity, or legal, administrative, arbitration, or other proceeding or
governmental investigation by or before a federal, foreign, state, provincial,
or local court, governmental or regulatory commission, agency, or other
administrative authority, or arbitration forum pending or, to Cambridges
Knowledge, threatened against Cambridge, which affects materially and adversely
or would affect materially and adversely the Acquired Assets or the Transit
Business or the right to own or use the Acquired Assets, or which attacks the
validity or propriety of this Agreement or the transactions contemplated hereby.
To Cambridges Knowledge there are no facts that may reasonably be expected to
give rise to any such action, suit, proceeding, or investigation. To the extent
that the same relates to or may affect the Transit Business, Cambridge is not
operating under or subject to, is not restricted in carrying on its business by,
and is
<PAGE>
not in default with respect to any judgment, order, writ, injunction, ruling, or
decree of any court or governmental agency or body, domestic or foreign (except
where such restriction is of general application) or any agreement entered into
(with or without acknowledgment of liability) in order to settle or otherwise
terminate any action or proceeding seeking any such judgment, order, writ,
injunction, ruling, or decree.
7.16. Contracts and Commitments. Cambridge has not received any notice of
default and, except for defaults that would not (either individually or in the
aggregate) have a material adverse effect on the Acquired Assets or the Transit
Business, Cambridge is not in default, and there is no basis for any claim of
default, under any agreement or contract made or obligation owed by Cambridge
relating to the Acquired Assets or the Transit Business; and to Cambridges
Knowledge no other party to any agreement or contract made with Cambridge is in
default, nor is there any basis for any claim that any such party is in default,
thereunder (except for defaults that would not, either individually or in the
aggregate, have a material adverse effect on the Acquired Assets or the Transit
Business).
7.17. Labor Matters. Cambridge has no collective bargaining
relationship or duty to bargain with any Labor Organization (as such term is
defined in section 2(5) of the National Labor Relations Act, as amended), and
Cambridge has not recognized any Labor Organization as the collective bargaining
representative of any of its employees. To Cambridges Knowledge, no senior
executive, key employee, or group of employees has any plans to terminate
employment with Cambridge. There is no unfair labor practice charge or complaint
against Cambridge pending or, to Cambridges Knowledge, threatened before the
National Labor Relations Board or any other comparable authority. There is no
litigation, arbitration proceeding, governmental investigation, administrative
charge, citation, or action of any kind pending or, to Cambridges Knowledge,
proposed or threatened against Cambridge relating to employment, employment
practices, terms and conditions of employment, or wages and hours.
7.18. Employee Benefit Plans.
(a) No Benefit Plan of Cambridge is a multiemployer plan within the meaning
of section 3(37) of ERISA or a defined benefit pension plan as defined in the
Code. All Benefit Plans of Cambridge are in compliance with the applicable
provisions (including, without limitation, any funding requirements or
limitations) of ERISA, the Code, and any other applicable laws and regulations
the breach or violation of which could have a material adverse effect on the
Transit Business or the Acquired Assets. No Benefit Plan of Cambridge provides
for post-retirement medical benefit obligations (without regard to COBRA
obligations).
(b) Schedule 6.22 includes a true and correct list of all Benefit Plans of
Cambridge. Seller and Cambridge have provided Purchaser with access to true and
correct copies of each governing document for each Benefit Plan of Cambridge,
together with the most recent summary plan description, annual report, and
audited financial statement for each such Benefit Plan, and the actuarial report
for any Benefit Plan of Cambridge that is a defined benefit pension plan or
funded welfare benefit plan.
7.19. No Broker's or Finder's Fees. No agent, broker, person, or firm
acting on behalf of Cambridge or under the authority of Cambridge is or will be
entitled to any commission or brokers' or finders' fee from Purchaser in
connection with any of the transactions contemplated by this Agreement.
7.20. Material Misstatements or Omissions. No representation or warranty by
Cambridge in this Agreement, or in any document, statement, schedule,
certificate, exhibit, or other instrument furnished or to be furnished by
Cambridge to Purchaser pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any
<PAGE>
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller and Cambridge that both as of the date hereof and (except as
may otherwise be expressly provided below) as of the Closing Date:
8.01. Organization. Purchaser is a corporation, duly organized, validly
existing and in good standing under the laws of its state of incorporation and
has the power and authority to own its properties and assets, to carry on its
business as it is now being conducted, to enter into this Agreement, to perform
its obligations hereunder, and otherwise to consummate the transactions
contemplated hereby.
8.02. Authorization. The execution and delivery of this Agreement by
Purchaser and the due consummation by Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and this
Agreement constitutes a valid and legally binding agreement of Purchaser,
enforceable against Purchaser in accordance with its terms, subject only to
bankruptcy, insolvency, and other laws generally affecting the rights of
creditors and general principles of equity, whether considered in a proceeding
at law or in equity .
8.03. No Violation. Neither the execution and delivery of this Agreement by
Purchaser nor the consummation by Purchaser of the transactions contemplated
hereby will constitute a violation of, or be in conflict with, or constitute a
default under:
(i) any term or provision of the corporate charter or bylaws of Purchaser;
(ii) any contract, agreement, indenture, lease, or other commitment to which
Purchaser is a party or by which Purchaser is bound; or
(iii) any judgment, decree, or order of any court or governmental authority
or, to the knowledge or Purchaser, any statute, regulation, or rule of any
governmental authority.
8.04. Consents. No consent of any court or federal, state, or local
authority, or of any other person or entity, is required in connection with the
execution and delivery by Purchaser of this Agreement or the performance by
Purchaser of the transactions contemplated hereby.
8.05. Material Misstatements or Omissions. No representation or warranty by
Purchaser in this Agreement, or in any document, statement, schedule,
certificate, exhibit, or other instrument furnished or to be furnished by
Purchaser to Seller pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained therein not misleading.
9. INDEMNIFICATION.
9.01. Indemnification by Seller. Seller hereby covenants and agrees to
indemnify and defend Purchaser and to hold Purchaser harmless from and against
any and all losses, liabilities, damages, claims, costs (including court costs)
and expenses (including reasonable attorneys' fees) (Claims) that Purchaser
incurs as a result of or with respect to:
(a) any inaccuracy in or breach of any representation or warranty of
Seller or of Cambridge contained in this Agreement or in any document
(including, without limitation, any statement, schedule, certificate, exhibit,
or other instrument) delivered or to be delivered by Seller or by Cambridge
pursuant to this Agreement;
(b) any failure by Seller or by Cambridge to perform, carry out,
comply with, or abide by their obligations under this Agreement; or
(c) any and all debts, obligations, or liabilities of Seller or
Cambridge, whether direct or indirect, fixed or contingent, known or unknown,
whether existing at or as of the Closing Date or which arise after the Closing
Date (excluding, however, those obligations of Seller and Cambridge assumed by
Purchaser under the Assignment and Assumption Agreement).
<PAGE>
9.02. Indemnification by Cambridge. Cambridge hereby covenants and
agrees to indemnify and defend Purchaser and to hold Purchaser harmless
from and against any and all Claims that Purchaser incurs as a result
of or with respect to:
(a) any inaccuracy in or breach of any representation or warranty of
Cambridge contained in this Agreement or in any document (including, without
limitation, any statement, schedule, certificate, exhibit, or other instrument)
delivered or to be delivered by Cambridge pursuant to this Agreement;
(b) any failure by Cambridge to perform, carry out, comply with, or
abide by its obligations under this Agreement; or
(c) any and all debts, obligations, or liabilities of Cambridge,
whether direct or indirect, fixed or contingent, known or unknown, whether
existing at or as of the Closing Date or which arise after the Closing Date
(excluding, however, the obligations of Cambridge assumed by Purchaser under the
Assignment and Assumption Agreement).
9.03. Indemnification by Purchaser. Purchaser hereby covenants and agrees
to indemnify and defend Seller, Cambridge, and the Klings and to hold Seller,
Cambridge, and the Klings harmless from and against any and all claims that
Seller, Cambridge, or the Klings may incur as a result of or with respect to:
(a) any inaccuracy in or breach of any representation or warranty of
Purchaser contained in this Agreement or in any document (including, without
limitation, any statement, schedule, certificate, exhibit, or other instrument)
delivered or to be delivered by Purchaser pursuant to this Agreement;
(b) any failure by Purchaser to perform, carry out, comply with, or abide
by its obligations under this Agreement;
(c) those debts, obligations, or liabilities of Seller or Cambridge assumed
by Purchaser under the Assignment and Assumption Agreement; or
(d) any and all debts, obligations, or liabilities of Purchaser, whether
direct or indirect, fixed or contingent, known or unknown, whether existing at
or as of the Closing Date or which arise after the Closing Date.
9.04 Procedure. If a party entitled to indemnification hereunder (an
"Indemnitee") is threatened with a claim or a claim is asserted or any action or
proceeding commenced against the Indemnitee by a third party with respect to
which the Indemnitee claims it is entitled to indemnification hereunder (a
Third-Party Claim), the Indemnitee shall promptly give written notice thereof to
the party or parties from whom indemnification is sought (each an "Indemnitor"),
which notice shall fully describe the Third-Party Claim and the provisions of
this Agreement under which indemnification for the Third-Party Claim is sought.
The Indemnitors shall have the right to participate in and control the defense
of such Third-Party Claim and in connection therewith to conduct any proceedings
or negotiations relating thereto (subject to the provisions hereinafter set
forth), but the Indemnitee may participate in the defense or settlement thereof.
If an Indemnitor undertakes to compromise or defend any Third-Party Claim, the
Indemnitor shall so notify the Indemnitee in writing promptly of its intention
to do so, and the Indemnitee shall cooperate with the Indemnitor and its counsel
in compromising or in defending against such Third-Party Claim. Such cooperation
shall include, but not be limited to, the provision to the Indemnitor of
reasonable access to the Indemnitee's business records, research, documents, or
employees as they relate to the defense of the Third-Party Claim, subject to the
obligation of the Indemnitor to use such information solely for the defense or
compromise of such claim and to maintain the confidentiality of such information
to the extent confidential. In response to a bona fide settlement offer, the
Indemnitor may settle the monetary portion of a Third-Party Claim it has duly
elected to contest without the consent of the Indemnitee unless such settlement
has an adverse effect upon the Indemnitee, in which case such matter shall only
be settled with the consent of the Indemnitee, which consent shall not be
unreasonably withheld; The Indemnitor shall not have the right to agree
<PAGE>
to a settlement involving injunctive or other equitable relief against the
Indemnitee without obtaining the prior written consent of the Indemnitee. If the
Indemnitee unreasonably declines to consent to a monetary settlement, the
Indemnitee shall have no right to indemnification beyond the amount of the
proposed settlement. If the Indemnitee fails to notify the Indemnitors promptly
of any Third-Party Claim, the amount to which the Indemnitee would otherwise
have been entitled shall be reduced by the losses, damages, costs, and expenses
that would have been avoided, if any, had the Indemnitors been promptly notified
thereof.
9.05. Costs and Expenses. In any action or proceeding (including but not
limited to an arbitration proceeding) brought to enforce the provisions of this
Agreement or the rights of any party hereunder the prevailing party shall be
entitled to recover from the nonprevailing party or parties its costs and
expenses, including reasonable attorneys' fees.
9.06. Right of Offset. Without in any way limiting Purchasers rights of
indemnification under sections 9.01 and 9.02, Purchaser shall have the right to
offset any amount determined (either judicially or pursuant to an arbitration
proceeding commenced pursuant to section 10.11) to be due Purchaser under this
section 9 against any amount otherwise payable to Seller or to Larry Kling,
whether under this Agreement, the Purchase Price Note, the Kling Agreement, or
otherwise (other than Base Salary otherwise payable under the Kling Agreement).
Provided that Purchaser has made a demand for indemnification from Seller as
provided for herein and has commenced an arbitration proceeding with respect
thereto pursuant to section 10.11, Purchaser shall be entitled to deposit any
amount otherwise payable to Seller or Larry Kling under this Agreement, the
Purchase Price Note, or otherwise (other than an amount otherwise payable under
the Kling Agreement) to the extent of such indemnification claim into the
registry of any court of competent jurisdiction pending the resolution of such
claim. The arbitrator selected pursuant to section 10.11 shall, promptly after
the commencement of the arbitration proceeding upon not less than twenty (20)
days notice to Purchaser and after affording Purchaser an opportunity to be
heard within such period on such issue, order the release of the amount so
deposited by Purchaser unless the arbitrator determines that Purchaser is more
likely than not to prevail on the merits in such proceeding for substantially
the amount claimed (taking into account the costs and expenses of the
arbitration and reasonable attorneys fees that Purchaser is likely to be
awarded).
9.07. Limitation on Claims. No action or proceeding shall be commenced (i)
by Seller or Cambridge against Purchaser or (ii) by Purchaser against Seller or
Cambridge in respect of any claim for damages or indemnification solely by
reason of a breach or alleged breach of any warranty made herein (each such
claim a Breach of Warranty Claim) until such time, if any, as the aggregate
amount of losses and damages attributable to such Breach of Warranty Claims
exceeds $25,000, and no recovery shall be allowed with respect to Breach of
Warranty Claims for losses and damages aggregating up to such amount. Except as
expressly set forth in this section 9, no party hereto shall have any right to
money damages from any other party with respect to any violation or breach of
the provisions of this Agreement, including any inaccuracy in or breach of any
representation, warranty, or covenant contained herein.
10. MISCELLANEOUS.
10.01. Incorporation of Recitals, Exhibits, and Schedules. Each of the
recitals to this Agreement, and each of the exhibits and schedules attached
hereto, is a material part of and by this reference is incorporated in and made
a part of this Agreement.
10.02. Governing Law. This Agreement shall be construed under and in
accordance with the federal law of the United States and the laws of the State
of Indiana (exclusive of any provision that would result in the application of
the laws of any other state or jurisdiction).
<PAGE>
10.03. Headings. The headings and captions set forth herein are for
convenience of reference only and shall not affect the construction or
interpretation hereof.
10.04. Notices. Any notice or other communication required or permitted
hereunder shall be hand delivered (including delivery by a generally recognized
commercial courier service) or sent by United States registered or certified
mail, postage prepaid, addressed as follows:
To Seller: Transit Homes of America, Inc.
Cambridge Management Company, Inc.
P.O. Box 5155
5305 South Diamond
Boise, Idaho 83705
Attn: Larry Kling, President
With a copy to: Heller, Ehrman, White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Attn: Thomas S. Hodge, Esquire
To Purchaser: Morgan Drive Away, Inc.
2545 Wilkens Avenue
Baltimore, Maryland 212
Attn: Charles C. Baum
and Morgan Drive Away, Inc.
2746 Old U.S. 20 West
Elkhart, Indiana 46514
Attn: Terrence L. Russell
With a copy to: Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.
One South Street
27th Floor
Baltimore, Maryland 21202
Attention: Michael L. Quinn, Esquire
or such other addresses as shall be furnished in writing by the parties. Any
such notice or communication shall be deemed to have been given as of the date
it is so delivered in person or three business days after it is so mailed.
10.05. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of successors and permitted assigns of the parties hereto.
10.06. Assignment. Neither Seller nor Purchaser shall assign this Agreement
or its rights hereunder without the written consent of the other.
Notwithstanding the foregoing, however, (i) Purchaser shall be entitled to
assign this Agreement or any of its rights hereunder to a subsidiary or
Affiliate of Purchaser, but no such assignment shall relieve Purchaser of any of
its obligations under this Agreement and (ii) Seller shall be entitled to assign
the Purchase Price Note and all of its rights thereunder to its stockholders as
a dividend or a distribution in liquidation.
10.07. Entire Agreement; Amendments. This Agreement sets forth the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and there are no other prior or contemporaneous written or oral
agreements, undertakings, promises, warranties, or covenants not specifically
referred to, attached hereto, or contained herein. This Agreement may be
amended, modified, or terminated only by a written instrument signed by the
parties hereto.
10.08. Remedies for Breach. In the event of any breach of this
Agreement, the nonbreaching party shall be entitled to a decree of specific
enforcement or other equitable relief (without the necessity of posting any bond
or other security) or alternatively, at the nonbreaching partys option
(exercisable at any time before or after seeking such equitable relief), to
bring an action for damages caused by such breach.
<PAGE>
10.09. Professional Fees. Except as provided in section 8 or elsewhere in
this Agreement, each party shall bear its own expenses of counsel and
accountants.
10.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same Agreement. This Agreement may be delivered by facsimile
transmission of an originally executed copy to be followed by immediate delivery
of the original of such executed copy.
10.11. Arbitration of Disputes. Notwithstanding any other provision of this
Agreement, if there is any dispute, controversy, or claim arising between
Seller, Cambridge, or the Klings, on the one hand, and Purchaser, on the other
hand, arising out of or in relation to this Agreement (including without
limitation a claim for indemnification under section 9) (a Dispute), the parties
shall attempt to resolve and settle such Dispute by negotiation as soon as
possible. If no settlement is reached within twenty (20) days from the date that
a party first notifies the other in writing of the existence of the Dispute (the
Notice Date), the Dispute shall be resolved by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
then in effect conducted in Chicago, Illinois or such other place as the parties
shall mutually agree. The number of arbitrators shall be one. If the parties
cannot agree on a single arbitrator by the thirtieth (30th) day following the
Notice Date, Seller, Cambridge, and the Klings shall designate one arbitrator
and Purchaser shall designate another arbitrator, and each side shall give
written notice to the other of the identity of its chosen arbitrator by the
fortieth (40th) day after the Notice Date. The two arbitrators so designated
shall choose a third arbitrator who shall preside over the proceedings. If a
party fails to name an arbitrator within the time specified, the arbitrator
named by the other party shall decide the Dispute. If the two named arbitrators
are unable to agree upon the selection of the presiding arbitrator, the
selection shall be made by the Presiding Judge of the Circuit Court of Cook
County, Illinois upon the application of either party. Each party shall be
entitled to discovery in any such proceeding to the same extent as would be
available in a civil action pursuant to the Federal Rules of Civil Procedure and
the arbitrator shall have the authority to decide any disputes with respect
thereto. Any awards rendered by the arbitrator shall be final and binding upon
the parties, and judgment upon the award may entered in any court having
jurisdiction. All costs of the arbitrator and the proceedings shall be borne
equally by the parties. The party who substantially prevails in any arbitration
(as is determined by the arbitrator) shall also be awarded its reasonable costs
and expenses, including reasonable attorneys fees, at all levels of proceedings.
The parties agree that any arbitration hereunder shall proceed as expeditiously
as is reasonably possible and, in furtherance thereof, acknowledge that the
arbitrator shall have the authority to establish schedules and impose reasonable
deadlines for completion of various phases of the proceeding, including
discovery and the presentation of testimony and other evidence.
10.12. Time of the Essence. Time shall be of the essence of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ATTEST/ WITNESS: TRANSIT HOMES OF AMERICA, INC.
By: /s/ Larry Kling (SEAL)
- -------------------------- -----------------------------------
Larry Kling, President
CAMBRIDGE MANAGEMENT COMPANY, INC.
By: /s/ Larry Kling (SEAL)
- -------------------------- -----------------------------------
Larry Kling, President
MORGAN DRIVE AWAY, INC.
By: /s/ Terrence L. Russell (SEAL)
- -------------------------- -----------------------------------
Terrence L. Russell
President and CEO
[Balance of this page intentionally blank]
<PAGE>
A. LARRY KLING and COLLEEN KLING, (together the Klings) as a material
inducement to Purchaser to enter into this Agreement and to consummate the
transactions contemplated hereby, jointly and severally agree:
(a) to take, in their capacities as stockholders or directors, all
corporate action and otherwise use their reasonable best efforts to cause
Seller and Cambridge to perform all of the obligations to be performed by
each of them pursuant to the provisions of this Agreement on or before the
Closing date, and
(b) to indemnify Purchaser with respect to the matters described in
sections 9.01 and 9.02 (jointly and severally with Seller or Cambridge, as
the case may be), which indemnification shall survive the Closing Date
(subject to the limitation set forth in section 5.04) and inure to the
benefit of Purchaser, its successors and assigns.
B. Notwithstanding any other provision hereof, except as provided in
paragraph C, the aggregate amount that the Klings shall at any time be required
to pay on account of claims under clause (b) shall not exceed the sum of (1) the
total amount theretofore paid to (or for the benefit of) either or both of them
directly pursuant to the provisions of this Agreement, the Purchase Price Note,
and the Kling Agreement and (2) the total amount of all dividends,
distributions, payments, or other benefits made at any time after the date
hereof by Transit (x) to (or for the benefit of) either of them or (y) with
respect to stock or indebtedness of Transit held by either or both of them on
the date hereof. The foregoing, however, shall not limit or impair Purchasers
right to offset the amount of any such claim against any amount otherwise
payable to Seller or either of the Klings in accordance with section 9.06.
C. The liability of the Klings for any claim for indemnification by
Purchaser shall nevertheless be unlimited to the extent that it arises out of:
(i) the inaccuracy of any of Sellers or Cambridges representations
made herein of which Larry Kling has actual knowledge; or
(ii) fraud or other intentional misrepresentation on the part of
Larry Kling or on the part of Seller or Cambridge of which Larry Kling
has actual knowledge (whether asserted by Purchaser or by a third
party); or
[Balance of this page intentionally blank]
<PAGE>
(iii) an equitable remedy afforded to a third party based on an
act of either of the Klings which is not authorized in writing by
Purchaser on account of which Purchaser becomes liable for any debt,
liability, or obligation of Seller, Cambridge, or the Klings.
WITNESS:
/s/ Larry Kling (SEAL)
- -------------------------- -----------------------------------
Larry Kling, President
/s/ Colleen Kling (SEAL)
- -------------------------- -----------------------------------
Colleen Kling
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS:
Exhibit A Assignment and Assumption Agreement
Exhibit B Kling Agreement
Exhibit C Related-Party Leases
Exhibit D Purchase Price Note
SCHEDULES:
Schedule 1.04 Assumed Agreements
Schedule 1.05 Assumed Facility Leases
Schedule 1.06 Assumed Liabilities
Schedule 1.12 Excluded Assets
Schedule 1.16 Prepaid Items
Schedule 1.20 Tangible Personal Property
Schedule 1.21 Unaudited Financial Statements
Schedule 3.04 Allocation of Purchase Price
Schedule 5.08 Accounts Receivable Collection Procedures
Schedule 5.12 Environmental Surveys
Schedule 6.06 Financial Statements
Schedule 6.12 Encumbrances
Schedule 6.14 Absence of Certain Changes
Schedule 6.15 Accounts Receivable
Schedule 6.16 Intangibles
Schedule 6.19 Customers
Schedule 6.22 Benefit Plans
AMENDMENT
TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT TO ASSET PURCHASE AGREEMENT is made and entered into as
of the 29th day of December, 1996, by and among Transit Homes of America, Inc.,
an Idaho corporation ("Seller"); Cambridge Management Company, Inc., an Idaho
corporation ("Cambridge"); and Morgan Drive Away, Inc., an Indiana corporation
("Purchaser") and is joined in by Larry E. Kling, as landlord under the
Related-Party Leases ("Landlord"), for the purposes hereinafter set forth.
RECITALS
A. Seller, Cambridge, and Purchaser have heretofore entered into an
Asset Purchase Agreement dated November 18, 1996 (the "Asset Purchase
Agreement").
B. In connection therewith, Morgan has agreed to enter into leases (the
"Related-Party Leases") of Facilities located at 500 North King Road, Nampa,
Idaho (the "Nampa Facility"), at 10647 County Road 2, State Highway 13,
Middlebury, Indiana (the "Middlebury Facility"), and at 3787 Consor Road, N.E.,
Millersburg, Oregon (the "Millersburg Facility") (each a "Related-Party
Facility" and together the "Related-Party Facilities").
C. In anticipation of and in order to facilitate the Closing of the
transactions contemplated by the Asset Purchase Agreement, the parties wish to
amend the Asset Purchase Agreement in certain respects as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties herein contained, and other good and valuation
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties intending to be legally bound hereby agree as follows:
1. Definition. Except as otherwise provided herein,
capitalized terms used in this Amendment have the same meanings
ascribed to them in the Asset Purchase Agreement.
2. Related-Party Leases; Environmental Assessments.
2.01 Nampa. The parties acknowledge that the Nampa Facility was
inadvertently omitted from Schedule 5.12 to the Asset Purchase Agreement and
that, as a result, no environmental survey has been performed with respect to
the Nampa Facility. Accordingly, notwithstanding any contrary provision of the
Asset Purchase Agreement, Purchaser shall be entitled to obtain, at Purchaser's
expense (except to the extent of $1,350, which Landlord agrees to pay to
Purchaser to defray a portion of such expense), such environmental survey/site
assessment as Purchaser deems appropriate
<PAGE>
with respect to the Nampa Facility. If Purchaser is not reasonably satisfied
with the results thereof due to the presence at the Nampa Facility or a nearby
property of a Recognized Environmental Condition, then Purchaser shall be
entitled to terminate the Related-Party Lease for the Nampa Facility upon thirty
(30) days' written notice to the landlord thereunder, which notice, in order to
be effective, shall be given not later than January 31, 1997.
2.02 Middlebury and Millersburg. With respect to the Middlebury
Facility and the Millersburg Facility, the Environmental Assessment Report of
SECOR International Incorporated (the "SECOR Report") and Purchaser's inquiries
have raised concerns about the possibility of environmental contamination of the
Middlebury Facility and the Millersburg Facility from conditions or activities
at nearby properties. In order to induce Purchaser to enter into the leases for
the Related-Party Facilities, Landlord hereby represents and Warrants to Morgan
as follows:
(a) (i) To Landlord's knowledge, as of the date hereof, there
are no Hazardous Substances present at, under or on any of the Related-Party
Facilities; (ii) except as expressly authorized by an effective permit or by
applicable law, Landlord has not caused, permitted or suffered to occur, and to
Landlord's knowledge there has not been, any release, discharge, disposal or
emission, or any threat of release, discharge, disposal or emission, of any
Hazardous Substance into, onto, under, at or from any of the Related-Party
Facilities.
(b) Landlord has not conducted, engaged in, or permitted
others to conduct or engage in, any business, operation or activity on or at any
of the Related-Party Facilities involving the use, manufacture, treatment,
storage or disposal of any Hazardous Substance, other than the use, storage, and
disposal of petroleum products or solvents in the ordinary course of business
and in a manner that complies in all material respects with all Environmental
Laws.
(c) Landlord is in full compliance with all Environmental Laws
with respect to the Related-Party Facilities. Without limiting the generality of
the foregoing, Landlord is in compliance with respect to the Related-Party
Facilities with all laws, rules and regulations relating to (i) releases,
discharges, emissions or disposals to air, water, land or ground water; (ii) the
use, manufacture, importing, handling or disposal of Hazardous Substances; (iii)
the generation, treatment, storage, transportation, disposal or other management
of Hazardous Substances; (iv) the exposure of persons to Hazardous Substances;
and (v) all judicial and administrative orders, injunctions, judgments,
declarations, directive, notices, or demands with respect to the foregoing
matters.
<PAGE>
(d) There are no underground storage tanks located at or under
any of the Related-Party Facilities or, to Landlord's knowledge, except as may
be disclosed in the SECOR Report at or under any property adjacent to any of the
Related-party Facilities.
3. Other Leases; Environmental Assessments. With respect to the
Facility located at 5724 West Buckeye Road, Phoenix, Arizona (the "Phoenix
Facility") and the Facility located at Route #7, Belton, Texas (the
"Belton/Pilkington Facility"), the SECOR Report and Purchaser's inquiries have
raised concerns about the possibility of environmental contamination of the
Phoenix Facility and the Belton/Pilkington Facility which purchaser needs
additional time to investigate. Accordingly, notwithstanding any contrary
provision of the Asset Purchase Agreement, Purchaser shall have the right in its
sole and absolute discretion, exercisable by written notice to Seller given at
any time on or before January 15, 1997, to exclude the leases for either or both
such Facilities from the list of Assumed Facility Leases, effective as of the
Closing Date.
4. Nondisturbance Agreements. Landlord has advised Purchaser that (i)
Landlord's ownership of the Millersburg Facility is subject to the operation and
effect of a Real Estate Sale Contract dated August 25, 1995, with Palm Harbor
Homes, Inc. ("Palm Harbor"); (ii) the Nampa Facility is subject to the lien of a
deed of trust; and (iii) the Middlebury Facility is subject to the lien of a
deed of trust, each of which is or may be superior to the operation and effect
of the Related-Party Lease for such Facility. In order to induce Purchaser to
enter into the Related-Party Lease for each such Facility, Landlord agrees to
use its reasonable best efforts to obtain a consent and nondisturbance agreement
in form and substance reasonably satisfactory to Purchaser to be executed and
delivered to Purchaser by Palm Harbor or the holder of the deed of trust, as the
case may be, not later than March 31, 1997, providing that Purchaser's peaceful
possession of such Facility will not be disturbed in the event of a default
under such Real Estate Sale Contract or deed of trust, as the case may be,
provided that Purchaser attorns to Palm Harbor or the holder of such deed of
trust (or its successor or assignee), as the case may be. Notwithstanding any
contrary provision of the applicable Related- Party Lease, Landlord's failure to
deliver any such consent and nondisturbance agreement shall constitute a default
under such Related-Party Lease which, if not cured within thirty (30) days after
written notice thereof from Purchaser, shall entitle Purchaser to terminate such
Related-Party Lease.
5. Asset Purchase Agreement Unimpaired. Except as set forth in this
Amendment, the provision of the Asset Purchase Agreement remain in full force
and effect.
[Balance of this page intentionally blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
ATTEST/WITNESS: TRANSIT HOMES OF AMERICA, INC.
By: /s/ Larry Kling (SEAL)
- ---------------------------- -------------------------------------
Larry Kling, President
CAMBRIDGE MANAGEMENT COMPANY, INC.
By: /s/ Larry Kling (SEAL)
- ---------------------------- -------------------------------------
Larry Kling, President
MORGAN DRIVE AWAY, INC.
By: /s/ Terrence L. Russell (SEAL)
- ---------------------------- -------------------------------------
Terrence L. Russell
President and CEO
LARRY KLING joins in the execution of this Amendment as Landlord for
the purposes herein set forth.
/s/ Larry Kling
-------------------------------------
Larry Kling
EMPLOYMENT AGREEMENT
THIS AGREEMENT is dated as of December 29, 1996 (the Agreement), by
and between Morgan Drive Away, Inc., an Indiana corporation (Employer) and Larry
E. Kling (the Employee). In consideration of the mutual covenants and conditions
set forth herein, the parties agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer subject to the covenants and
conditions of this Agreement.
2. DUTIES AND REPORTING RELATIONSHIP.
(a) Duties and Reporting. Throughout the term of this Agreement,
Employee shall serve in the capacity of President-Transit Homes Division (the
Division) of Employers Manufactured Housing Group (the Group) with duties
including but not limited to: (i) retaining key personnel and customers that
were personnel or customers of Transit Homes of America, Inc. (Transit)
immediately prior to the date hereof; (ii) coordinating marketing and customer
relations within the Group; (iii) managing the day to day operations of the
Division; (iv) developing new products and services to be offered to the
manufactured housing industry; and (v) such other duties and responsibilities as
may reasonably be assigned from time to time by the President and Chief
Executive Officer of Employer (the CEO) or such other person so designated by
the CEO that are consistent and commensurate with Employees experience and
responsibilities (the Position), and Employee hereby accepts such engagement,
upon the terms and conditions set forth herein. Employee shall report directly
to the CEO or, following the third anniversary of the date hereof or such
earlier date as shall be mutually agreed upon in writing by the CEO and
Employee, such other person so designated by the CEO. During the Contract
Period, Employee shall use his skills and render services to the best of his
ability.
(b) Location. Employee shall perform his duties under this
Agreement principally in the Boise, Idaho metropolitan area except that Employer
may require Employee to travel in the furtherance of Employer's business to an
extent consistent with the Position.
(c) Other Activities. During the Contract Period, Employee may
conduct business activities other than those which are the subject of this
Agreement only to the extent that such other activities do not interfere with or
cause Employee to fail to perform or comply with Employees duties and
obligations under this Agreement; provided, however, that this section 2(c)
shall in no way limit Employees obligations under section 9 hereof.
3. TERM. The term of this Agreement shall commence on the date first
written above (the Effective Date) and shall end on the last day of the 60th
calendar month following the date first written above, unless terminated earlier
pursuant to the provisions of section 6 below; provided, however, that unless
Employees employment has been
<PAGE>
previously terminated as provided below, the term of this Agreement shall
automatically be renewed upon the expiration of the initial or any renewal term
hereof for successive one-year periods unless either party hereto shall have
given written notice to the other of nonrenewal at least 60 days prior to
expiration of the initial term hereof or any renewal period. The initial term of
this Agreement is referred to herein as the Initial Contract Period. The Initial
Contract Period and any renewal period is collectively referred to herein as the
Contract Period.
4. COMPENSATION. Employee shall receive compensation at the rate of
$100,000 per year through December 31, 1997, payable biweekly in substantially
equal payments in accordance with Employer's usual payroll policies and
procedures (Base Salary). It is expected that Employee will work for Employer on
a full-time basis during 1997 and 1998, on approximately a three-quarters time
basis in 1999 and 2000 and on approximately a half time basis in 2001. Base
Salary for fiscal years ended after December 31, 1997 shall be determined by
mutual agreement of Employer and Employee. If an agreement cannot be reached,
such Base Salary shall not be less than $100,000 for the fiscal year ended
December 31, 1998, $75,000 for the fiscal years ended December 31, 1999 and 2000
and $50,000 for the fiscal year ended December 31, 2001.
5. BONUSES AND ADDITIONAL BENEFITS.
(a) Expenses. Subject to the applicable reimbursement policies of
Employer, Employer shall reimburse Employee for all reasonable and necessary
business expenses incurred and advanced by him in carrying out his duties under
this Agreement promptly following presentation of receipts and other supporting
information.
(b) Benefits. During the term of employment hereunder, Employee
shall be entitled to participate fully in any benefits and policies, including
but not limited to medical, dental, disability, life insurance, pension and
401(k) savings plan, which are made available to the employees or officers of
Employer generally. Employee shall be entitled to six weeks of paid vacation
each calendar year during the Contract Period, which shall accrue pro rata
during the calendar year.
(c) Bonus.
(i) During the Initial Contract Period, Employee shall be
entitled to receive for all services rendered hereunder, an annual cash bonus
(Incentive Compensation) equal to the amounts specified in the incentive
compensation tables (the Incentive Compensation Tables) included in Annex A
attached hereto in the event that the Groups Profit (as defined below) reaches
the levels indicated therein. For example, if Profit for the fiscal year ended
December 31, 1997 is greater than or equal to $5,700,000, then Incentive
Compensation payable to Employee shall be $400,000. If Profit for such period is
equal to $5,300,000, then Incentive Compensation payable to Employee shall be
$200,000.
(ii) For purposes hereof, Profit for any fiscal year during
the Initial Contract Period means the earnings before interest, taxes,
depreciation and amortization for the Group (EBITDA) of such fiscal year as
calculated by Employer in good faith based on Employers statement of operations
which is included in its audited financial statements for that fiscal year.
Employer shall use its reasonable best efforts to achieve the Profit goals
specified in the Incentive Compensation Tables, but nothing in this Agreement
shall be deemed to require Employer to act in a manner that it reasonably
believes is or may be inconsistent with its exercise of reasonable business
judgment or the best interests of its stockholders or those of The Morgan Group,
Inc. ("Morgan"). In calculating EBITDA, all expenses of the Group
<PAGE>
shall be taken into account including general and administrative expenses of the
Group and allocation of indirect expenses to the Group, each allocated in
accordance with the Expense Allocation Table included in Annex A and consistent
with the pro forma entitled Morgan Drive Away, Inc. Proposed Combination with
Transit Homes attached hereto as Annex B; provided, however that, for purposes
of calculating EBITDA, general and administrative expenses and indirect income
or expenses in the aggregate shall not exceed 5.8% and 5.3% of the Groups
linehaul revenue for the fiscal years ended December 31, 1997 and 1998,
respectively and shall be fixed at 5% of the Groups linehaul revenue for the
fiscal years ended December 31, 1999, 2000 and 2001.
(iii) All Incentive Compensation shall be paid within thirty
(30) days of receipt of Employers completed audit from its independent auditors
of the fiscal year for which the Incentive Compensation was earned, but no later
than the March 31st following such fiscal year. If the employment of Employee is
terminated pursuant to section 6(c)(ii) and Employer maintains any insurance for
the benefit of Employee, then, with respect to any amounts due to Employee under
this section 5(c), Employer shall be entitled to apply any proceeds from such
insurance thereto and shall be obligated to pay Employee only that portion
thereof not covered by such insurance.
(iv) In the event that the amount of Profit realized for any
fiscal year is less than the amount required for Employee to receive the Maximum
Incentive Compensation for such fiscal year, as provided in the Incentive
Compensation Tables, but is greater than that amount of Profit required for
Employee to receive the Minimum Incentive Compensation for such fiscal year, as
provided in the Incentive Compensation Tables, then Incentive Compensation
payable to Employee for such fiscal year shall be prorated. For example, if
Profit for the fiscal year ended December 31, 1997 equals $5,600,000, then the
Incentive Compensation payable to Employee for such fiscal year shall be
$350,000.
(v) If the employment of Employee is terminated pursuant to
section 6(a) or 6(d), Employee shall forfeit any Incentive Compensation
otherwise due and payable hereunder.
(d) Option. Attached hereto as Annex C is a copy of the Stock
Option, dated as of November 18, 1996, previously entered into between Employee
and Morgan relating to an option to purchase 25,000 shares of the class A common
stock, without par value (the Class A Stock) of The Morgan Group, Inc. Shares of
the Class A Stock issuable upon exercise of the Stock Option will be registered
under the Securities Act of 1933.
6. TERMINATION.
(a) Termination by Employer for Cause. This Agreement and
Employee's employment by Employer may be terminated for Cause. For purposes of
this Agreement, Cause means: (i) any dishonesty or intentional misconduct which
causes significant injury to Employer; (ii) conviction of Employee for a felony;
(iii) any knowing violation of law by Employee which has a material adverse
effect on Employer; (iv) use of narcotics or alcohol which impairs Employee's
performance of his duties which is not remedied within 15 days after the receipt
of the Termination Notice (as defined below); (v) theft or embezzlement by
Employee from Employer; or (vi) unexcused habitual absence from work or repeated
failure to perform his duties under this Agreement for reasons unrelated to
illness, family crisis or disability which is not remedied within 15 days after
the receipt of the Termination Notice. For purposes of the definition of Cause,
no act or failure to act on Employee's part shall be considered intentional or
knowing unless done, or omitted to be done, by Employee in bad faith and without
the reasonable belief that his action or omission was in the best interests
<PAGE>
of Employer or any of its subsidiaries or affiliates and no act of Employee
shall constitute theft or embezzlement unless done knowingly or in bad faith.
Employee may not be terminated for Cause unless and until he has been given
written notice which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination for Cause pursuant to this section 6
(the Termination Notice). Employee shall be deemed terminated on the 15th day
following his receipt of the Termination Notice, such date (together with the
dates referred to in sections (b), (c), (d) and (e) below) being referred to
herein as the Termination Date.
(b) Termination by Employer Without Cause. Employer may terminate
Employee without Cause upon 30 days prior written notice, the 30th day also is
referred to in this Agreement as a Termination Date.
(c) Death or Disability.
(i) This Agreement and Employee's employment hereunder shall
terminate upon the death of Employee. The date of Employee's death also is
referred to in this Agreement as a Termination Date.
(ii) If Employee is Disabled for an uninterrupted period of
one hundred eighty (180) days, Employer shall have the right and may elect to
terminate the services of Employee by written notice. The day after such written
notice has been delivered to Employee is also referred to herein as a
Termination Date. For purposes of this Agreement, Disabled shall mean that
Employee is unable to perform the duties of the Position for Employer by reason
of any medically determinable physical or mental impairment. Any disagreement as
to whether Employee is disabled shall be resolved by a competent physician
mutually acceptable to Employee and Employer.
(d) Voluntary Resignation. Should Employee wish to resign from
his position with Employer for other than Good Reason (as defined below), he
shall give thirty (30) days written notice to Employer, setting forth the
reasons and specifying the date as of which his resignation is to become
effective The date specified in such written notice is also referred to herein
as a Termination Date. Failure to provide such notice shall entitle Employer to
fix the Termination Date as of the last business day on which Employee reported
for work at the principal offices of Employer.
(e) For Good Reason. Should Employee wish to resign from his
position with Employer for Good Reason during the term of his employment,
Employee shall give fifteen (15) days prior written notice to Employer, setting
forth the reasons and specifying the date as of which his resignation is to
become effective. The date specified in such written notice is referred to
herein as a Termination Date. For purposes of this Agreement, Good Reason means,
unless remedied by Employer by the Termination Date: (i) the assignment to
Employee of any duties inconsistent with his education, training, duties or
employment experiences during the three years preceding the Effective Date or
any material diminution of Employee's present position, duties, responsibilities
or status with Employer or any removal of Employee from or failure to reelect
Employee to the positions specified in section 2(a) above, except in connection
with the termination of Employee pursuant to paragraphs (a), (b) or (c) of this
section 6; (ii) Employer's requirement that Employee perform his duties
hereunder or otherwise be present in locations outside the Boise, Idaho
metropolitan area except for travel in the furtherance of Employer's business to
an extent consistent with the Position; (iii) the failure by Employer to obtain
an assumption of the obligations of Employer to perform this Agreement by any
successor to Employer; (iv) a reduction in or failure of Employer to pay
Employee the Base Salary and/or bonus and benefits as in effect from time to
time pursuant to sections 4 or 5 above except with the prior consent of
Employee; (v) any demand by any director or
<PAGE>
officer of Employer or any of its subsidiaries or affiliates that Employee take
any action or refrain from taking any action where such action or inaction, as
the case may be, would, in the reasonable judgment of Employee, violate any law,
rule, regulation or other governmental pronouncement, court order, decree or
judgment, or breach any agreement or fiduciary duty; or (vi) any material breach
by Employer of this Agreement.
7. COMPENSATION AND BENEFITS UPON TERMINATION.
(a) If the employment of Employee is terminated pursuant to
section 6(a) above, Employee shall be entitled to receive only Base Salary
payments to the Termination Date and any vested portion of Employees 401(k) Plan
account.
(b) If the employment of Employee is terminated pursuant to
section 6(c) above, Employee or his estate shall be entitled to receive (i) Base
Salary payments to the Termination Date, (ii) within 30 days of the Termination
Date, a lump sum payment for all accrued but unused vacation, (iii) other vested
benefits described in section 5(b) and (iv) bonus payments, if any, for the
remainder of the Initial Contract Period calculated pursuant to section 5(c).
(c) If the employment of Employee is terminated pursuant to
section 6(d) above, Employee shall be entitled to receive (i) Base Salary
payments to the Termination Date, (ii) within 30 days of the Termination Date, a
lump sum payment for all accrued but unused vacation and (iii) other vested
benefits described in section 5(b).
(d) If the employment of Employee is terminated by Employee for
Good Reason pursuant to section 6(e) above or by Employer without Cause pursuant
to section 6(b) above, Employee shall be entitled to receive the following
compensation and benefits:
(i) Employer shall continue to pay Employee for the
remainder of the Contract Period (the Severance Period) the Base Salary at the
rate in effect as of the Termination Date payable at the same time such
compensation would otherwise have been payable.
(ii) Employer shall maintain in full force and effect for
Employee's continued benefit until the end of the Severance Period all benefits
described in section 5(b) (including, but not limited to, insurance and all
employee benefit plans, programs or arrangements) in which Employee was
participating immediately prior to the Termination Date, provided that
Employee's continued participation is permitted under the terms and provisions
of the plans, programs or arrangements pursuant to which such benefits are
provided. If Employee's participation in any plan, program or arrangement is not
permitted, Employer shall arrange to provide Employee with benefits
substantially similar to those which Employee would be entitled to receive under
such plans, programs or arrangements or compensation.
(iii) Employer shall pay to Employee the bonus payments, if
any, for the remainder of the Initial Contract Period calculated pursuant to
section 5(c).
(iv) Employer shall pay to Employee within 30 days of the
Termination Date, a lump sum payment for all accrued but unused vacation.
8. NONDISCLOSURE OF PROPRIETARY INFORMATION. Employee recognizes and
acknowledges that the nature of his duties will enable him to obtain and become
familiar with trade secrets, customer relationships and other confidential or
secret aspects of Employers business (collectively, Proprietary Information).
Because of the competitive environment in which Employer functions, Employee is
aware that material and irreparable injury would be suffered by Employer if he
<PAGE>
divulges Proprietary Information to competitors of Employer. Employee recognizes
and acknowledges that the Proprietary Information, as it may exist from time to
time, is a valuable, special and unique asset of the business of Employer.
Employee further acknowledges that Employer has advised him that, in general, a
trade secret includes within its scope any technique, method or compilation of
information which is used in Employers business and which may give Employer an
opportunity to obtain an advantage over competitors who do not know or use it
and that Employers knowledge or information with respect to confidential or
secret improvements, plans, material, ideas, know-how (whether patentable or
not), and Employers rates, customer lists, marketing strategies and techniques
constitute trade secrets. Employee agrees that if at any time during the term of
this Agreement he has any doubt whatsoever whether any information constitutes
Proprietary Information, Employee will ask Employer. Except as specifically
otherwise provided in this section 8, Employee will not, during the Contract
Period and for a period of five years thereafter (the Restricted Period),
disclose, furnish or make available to anyone or use, for his own benefit or for
the benefit of any Person other than Employer, any Proprietary Information,
whether or not originally formulated or used by Employee or any affiliate of
Employee, to any person, firm, corporation, association or other entity for any
reason or purpose whatsoever. If at any time Employee is requested or required
(by oral questions, interrogatories, requests for information or documents,
subpoenas or similar legal process) to disclose any Proprietary Information,
Employee shall promptly notify Employer and shall refrain from making such
disclosure so that Employer may, at its own expense, seek an appropriate
protective order in a prompt manner and/or waive compliance with the provisions
hereof. If, in the absence of a protective order or the receipt of a waiver
hereunder, in the reasonable opinion of counsel to Employee, disclosure of
Proprietary Information to any tribunal or any governmental agency is required
to avoid liability for contempt or any other penalty, then Employee may disclose
such Proprietary Information to such tribunal or agency without liability
hereunder; provided, however, that Employer shall promptly be notified of such
decision. The provisions of this section 8 shall not apply to any Proprietary
Information to the extent that such information can be shown to be or have been
(i) in the public domain through no fault of Employee, (ii) lawfully acquired,
without an obligation of confidence by Employee, from other sources not
breaching an obligation of confidence or (iii) known to Employee prior to
receiving the same from Employer.
9. NONCOMPETITION.
(a) Notwithstanding anything herein to the contrary, during the
Contract Period and for a period of three years thereafter or for a period of
seven years from the date hereof, whichever is longer, Employee will not, and
will use reasonable efforts so as to cause his Affiliates (as defined below) not
to, engage or participate in, directly or indirectly (whether as a lender,
investor, shareholder, consultant or partner, or in any other manner or
capacity, exclusive of any passive investment constituting less than 5% of the
equity of any publicly-owned entity), any business which is, or as a result of
Employees or his respective Affiliates engagement, or participation therein
would become, competitive in any product in geographic markets in which Employer
is conducting any material aspect of its business. An Affiliate shall be a
person controlled by or under common control with Employee.
(b) During the Contract Period, and for a period of three years
thereafter, Employee shall not for any reason, either directly or indirectly,
for himself or for any other person or entity, (i) solicit, induce, recruit or
encourage any of Employers employees to leave their employment, or take away
such employees, or attempt to solicit, induce, recruit, encourage or take away
employees of Employer; (ii)
<PAGE>
solicit, interfere with or endeavor to entice away from Employer any of its
customers or suppliers for any purpose; or (iii) materially interfere in any
manner with the business of Employer.
If Employer has defaulted in its payment obligations under section 7(d)
when such become due and payable for any continuous period of thirty (30) days
or more, the covenants set forth in this section 9 shall be suspended until such
time as the default has been cured by Employer.
10. PROPERTY. Upon termination of the Contract Period, Employee or his
personal representative shall promptly deliver to the Company all books,
memoranda, plans, records and data in any form (whether written, electronic or
otherwise) and of every kind relating to the business and affairs of Employer
and all other property owned by Employer which is then in Employees possession.
11. INSURANCE. Employer shall have the right at its own cost and
expense to apply for and to secure in its own name, or otherwise, life or
accident insurance (or health insurance in addition to insurance provided for in
section 5(b) hereof) or any or all of them covering Employee, and Employee
agrees to submit to usual and customary medical examinations and otherwise to
cooperate with Employer in connection with the procurement of any such insurance
(and the health insurance provided for in section 5(b) hereof), and any claims
thereunder.
12. SPECIFIC PERFORMANCE. Employee acknowledges that, in the event of
any breach of section 8, 9 or 10 of this Agreement by Employee, the remedy of
Employer at law would be inadequate. Employee agrees, after carefully
considering the restrictions of such sections, that such restrictions are fair
and reasonable and required for the protection of the interests of Employer.
Employee therefore agrees that Employer shall be entitled to enforce its rights
under section 8, 9 or 10 of this Agreement not only by an action or actions for
damages but also by an action or actions for injunctive and other equitable
relief without the necessity of proving irreparable harm or actual damage or
posting any bond in excess of $5,000.
13. EFFECT OF ASSET PURCHASE AGREEMENT. Employee agrees that the
exercise by Employer of any of its rights or entitlements under section 5.08 or
9.06 of the Asset Purchase Agreement between Transit Homes of America, Inc. and
Cambridge Management Co., Inc. and Morgan Drive Away, Inc., dated as of November
18, 1996 shall not be deemed to be a breach, material or otherwise, by Employer
of any of its obligations under this Agreement.
14. SUCCESSORS, BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit
of the parties hereto, the successors and assigns of Employer and, to the extent
provided for in this section 14 and sections 7, 10 and 18 hereof, the heirs,
legal representatives, successors and assigns of Employee.
(b) Employee may not delegate the performance of any duties and
responsibilities imposed nor assign any rights and benefits created by this
Agreement; provided, however, that any amounts which are due and owing to
Employee at the time of his death shall be paid in accordance with the terms of
this Agreement to Employees devisee, legatee or other designee or, if there be
no such designee, to Employees estate.
(c) Employee represents that the execution and delivery of this
Agreement and the performance of his duties hereunder do not and shall not
conflict with the terms of any agreement or obligation to his prior employer or
to any other party.
<PAGE>
15. ENTIRE AGREEMENT. The provisions contained herein constitute the
entire agreement between the parties with respect to the subject matter hereof
and supersede any and all prior agreements, understandings and communications
between the parties, oral or written, with respect to such subject matter.
16. MODIFICATION. Any waiver, alteration, amendment or modification of
any provisions of this Agreement shall not be valid unless in writing and signed
by both parties. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any provision of this Agreement
to be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party or any
other party which are not set forth expressly in this Agreement
17. VALIDITY. It is the intention of Employee and Employer that the
provisions of this Agreement (including, without limitation, those of sections
8, 9, 10 and 12 hereof) shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which such
enforcement is sought. The invalidity or unenforceability of any provision or
provisions of this Agreement in any jurisdiction shall not affect the validity
or enforceability of such provision or provisions in any other jurisdiction or
affect the validity or enforceability of any other provision of this Agreement
in any jurisdiction, which shall remain in full force and effect. If any
tribunal of competent jurisdiction shall decide that any of the provisions of
this Agreement should be deemed illegal or unenforceable because they are for
too long a period or too broad a geographic area, or for any reason whatsoever,
the restrictions shall be effective for such a period of time and for such area
and to such extent as they may be enforceable.
18. SURVIVAL. The provisions of sections 7, 8, 9, 10 and 12 hereof
shall survive the termination of this Agreement and shall be binding upon
Employees personal or legal representatives, executors, administrators,
successors, heirs, distributes, devises and legatees and Employer and its
successors in the case of section 7.
19. NOTICES. All notices and other communications called for or
required by this Agreement shall be in writing and shall be addressed to the
parties at their respective addresses stated below or to such other address as a
party may subsequently specify and shall be deemed to have been received (1)
upon delivery in person, (ii) five days after mailing it by U.S. certified or
registered mail, return receipt requested and postage prepaid, or (iii) two days
after depositing it with a commercial overnight carrier which provides written
verification of delivery:
To Employer: Morgan Drive Away, Inc.
2746 Old U.S 20 West
Elkhart, Indiana 46514
Attn: President
To Employee: 8600 West Highridge Lane
Eagle, Idaho 83616
20. GOVERNING LAW. This Agreement, including all matters of construction,
validity and performance, shall be governed by and construed and enforced in
accordance with the laws of the State of Indiana without regard to its conflict
of law provisions which might otherwise require the application of the law of
any other jurisdiction.
<PAGE>
21. ARBITRATION OF DISPUTES. Notwithstanding any other provision of this
Agreement, if there is any dispute, controversy, or claim arising between
Employee and Employer arising out of or in relation to this Agreement (a
Dispute), the parties shall attempt to resolve and settle such Dispute by
negotiation as soon as possible. If no settlement is reached within twenty (20)
days from the date that a party first notifies the other in writing of the
existence of the Dispute (the Notice Date), the Dispute shall be resolved by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect conducted in Chicago, Illinois
or such other place as the parties shall mutually agree. The number of
arbitrators shall be one. If the parties cannot agree on a single arbitrator by
the thirtieth (30th) day following the Notice Date, Employee shall designate one
arbitrator and Employer shall designate another arbitrator, and each side shall
give written notice to the other of the identity of its chosen arbitrator by the
fortieth (40th) day after the Notice Date. The two arbitrators so designated
shall choose a third arbitrator who shall preside over the proceedings.
If a party fails to name an arbitrator within the time specified, the
arbitrator named by the other party shall decide the Dispute. If the two named
arbitrators are unable to agree upon the selection of the presiding arbitrator,
the selection shall be made by the Presiding Judge of the Circuit Court of Cook
County upon the application of either party. Each party shall be entitled to
discovery in any such proceeding to the same extent as would be available in a
civil action pursuant to the Federal Rules of Civil Procedure and the arbitrator
shall have the authority to decide any disputes with respect thereto. Any awards
rendered by the arbitrator shall be final and binding upon the parties, and
judgment upon the award may be entered in any court having jurisdiction. All
costs of the arbitrator and the proceedings shall be borne equally by the
parties. The party who substantially prevails in any arbitration (as is
determined by the arbitrator) shall also be awarded its reasonable costs and
expenses, including reasonable attorneys fees, at all levels of proceedings. The
parties agree that any arbitration hereunder shall proceed as expeditiously as
is reasonably possible and, in furtherance thereof, acknowledge that the
arbitrator shall have the authority to establish schedules and impose reasonable
deadlines for completion of various phases of the proceeding, including
discovery and the presentation of testimony and other evidence.
22. HEADINGS. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
this Agreement.
23. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and as so executed shall constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above mentioned.
MORGAN DRIVE AWAY, INC. EMPLOYEE
By: /s/ Terrence L. Russell /s/ Larry E. Kling
----------------------------- -----------------------------------
Terrence L. Russell Larry E. Kling
President and CEO
<PAGE>
ANNEX A
Incentive Compensation Tables
Year Maximum Incentive Compensation Profit
1997 $400,000 $ 5,700,000
1998 $300,000 $ 6,700,000
1999 $200,000 $ 7,900,000
2000 $100,000 $ 9,000,000
2001 $100,000 $10,500,000
Year Maximum Incentive Compensation Profit
1997 $200,000 $5,300,000
1998 $150,000 $5,900,000
1999 $100,000 $6,700,000
2000 $ 50,000 $7,600,000
2001 $ 50,000 $8,400,000
Expense Allocation Table
Expense Method of Allocation
- ------- --------------------
General & Administrative Percentage of Group Revenue
Fuel and Other Use Taxes Percentage of Group Mileage
Licensing Cost Percentage of Group Revenue
Safety Cost Percentage of Group Revenue
Bobtail Insurance Profit Percentage of Group Independent Contractors
Occupational Accident Profit Percentage of Group Independent Contractors
Physical Damage Profit Percentage of Group Independent Contractors
Incentive Pay 100% to Group
The expenses above are further defined as including all items listed below
OPERATING CONTRIBUTION BEFORE UNALLOCATED AND G & A EXPENSES and above NET
PROFIT BEFORE EXTRAORDINARY ITEMS in accordance with Annex B. These items are
identified on Annex B with an (A). All of these items are part of general and
administrative expense for purposes of the limits thereon set forth in section
5(c)(ii) of the Employment Agreement.
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors
The Morgan Group, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-72996 and 33-72998) on Form S-8 of the Morgan Group, Inc. of our report
dated December 10, 1996, with respect to the combined balance sheets of Transit
Homes of America, Inc. and affiliate as of September 30, 1996 and December 31,
1995, and the related combined statements of operations, stockholders' deficit
and cash flows for the nine months ended September 30, 1996 and the year ended
December 31, 1995, which report appears in the Form 8-K of The Morgan Group,
Inc. dated December 30, 1996.
Our report dated December 10, 1996, contains an explanatory paragraph that
states that the Company has a net capital deficiency and its total current
liabilities exceed its total current assets, which raise substantial doubt about
its ability to continue as a going concern. The combined financial statements do
not include any adjustments that might result for the outcome of that
uncertainty.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
January 14, 1997
