<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 0-24210
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)
(713) 334-9700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares outstanding of each of the issuer's classes of common stock,
as of October 2, 1996.
Common Stock, Par Value $.05 Per Share 8,626,170
<PAGE> 2
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1996 and August 31, 1996 . . . . . . . . . . 2
Consolidated Statements of Operations - three months ended
August 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - three months ended
August 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,178,000 $ 17,408,000
Cash in transit from financial institutions . . . . . . . . . 22,148,000 21,697,000
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . 34,326,000 39,105,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 35,363,000 41,247,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 5,229,000 4,840,000
Manufacturer incentives receivable . . . . . . . . . . . . . . 1,143,000 939,000
Prepaid expenses and other current assets . . . . . . . . . . 4,625,000 4,126,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . 80,686,000 90,257,000
Property, plant and equipment, net . . . . . . . . . . . . . . . 19,569,000 20,738,000
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . 2,435,000 2,457,000
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 3,000,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165,000 3,563,000
------------ ------------
$108,855,000 $120,015,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . $19,886,000 24,228,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 10,924,000 12,230,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 12,037,000 13,892,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 263,000 316,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . 43,110,000 50,666,000
Notes payable, less current installments . . . . . . . . . . . . 3,663,000 3,593,000
Other long-term liabilities . . . . . . . . . . . . . . . . . . . 3,358,000 3,999,000
Minority interest in consolidated subsidiary . . . . . . . . . . 710,000 810,000
Shareholders' equity:
Preferred stock, no par value, authorized 5,000,000 shares; no
shares issued . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $0.05 par value; authorized 20,000,000 shares;
issued and outstanding 8,617,170 and 8,621,420 shares at May
31, 1996 and August, 31, 1996, respectively . . . . . . . . 431,000 431,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 36,112,000 36,028,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 21,471,000 24,488,000
------------ ------------
Total shareholders' equity 58,014,000 60,947,000
------------ ------------
$108,855,000 $120,015,000
============ ============
</TABLE>
2
<PAGE> 4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
------------------------------
1995 1996
----------- ----------
<S> <C>
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $53,770,000 $59,993,000
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 5,886,000 6,713,000
----------- -----------
Total revenues . . . . . . . . . . . . . . . . . . . . 59,656,000 66,706,000
----------- -----------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 40,707,000 44,200,000
Selling, general and administrative . . . . . . . . . . . . 14,514,000 16,862,000
----------- -----------
Total costs and expenses . . . . . . . . . . . . . . . 55,221,000 61,062,000
----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . 4,435,000 5,644,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (690,000) (578,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,000 40,000
----------- -----------
Income before items shown below . . . . . . . . . . . 3,774,000 5,106,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 1,513,000 2,010,000
----------- -----------
Income before items shown below . . . . . . . . . . . 2,261,000 3,096,000
Earnings in affiliate . . . . . . . . . . . . . . . . . . . . . -- 22,000
Minority interest in income of consolidated subsidiary . . . . (79,000) (100,000)
=========== ===========
Net income . . . . . . . . . . . . . . . . . . . . . . $ 2,182,000 $ 3,018,000
=========== ===========
Earnings per common share . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.34
=========== ===========
Weighted average number of shares outstanding . . . . . . . . . 7,663,315 8,978,947
=========== ===========
</TABLE>
3
<PAGE> 5
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,182,000 $ 3,018,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 318,000 536,000
Earnings in affiliate . . . . . . . . . . . . . . . . . . -- (22,000)
Minority interest in income of consolidated subsidiary . . 79,000 100,000
Compensation expense on sale of common stock . . . . . . . 12,000 15,000
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . (21,000) (33,000)
Decrease (increase) in accounts receivable . . . . . . . . (1,653,000) 389,000
Decrease in manufacturer incentive receivable . . . . . . 169,000 204,000
Decrease (increase) in inventories . . . . . . . . . . . . 1,305,000 (5,884,000)
Decrease in prepaid expenses and other current assets . . 234,000 499,000
Increase in other assets . . . . . . . . . . . . . . . . . (1,147,000) (365,000)
Increase in accounts payable . . . . . . . . . . . . . . . 744,000 1,306,000
Increase in accrued expenses and other . . . . . . . . . . 831,000 1,855,000
Increase in other liabilities . . . . . . . . . . . . . . 758,000 641,000
----------- -----------
Net cash provided by operating activities . . . . 3,811,000 2,259,000
----------- -----------
Cash flows from investing activities - purchases of property,
plant and equipment . . . . . . . . . . . . . . . . . . . (2,604,000) (1,705,000)
----------- -----------
Cash flows from financing activities:
Secondary public offering costs . . . . . . . . . . . . . . -- (129,000)
Borrowings under floor plan payable . . . . . . . . . . . . 32,601,000 40,024,000
Repayment of floor plan payable . . . . . . . . . . . . . . (34,897,000) (34,623,000)
Participations in floor plan payable . . . . . . . . . . . . (795,000) (1,059,000)
Principal payments on long-term debt . . . . . . . . . . . . (121,000) (17,000)
Borrowings under long-term debt . . . . . . . . . . . . . . 720,000 --
Exercise of stock options . . . . . . . . . . . . . . . . . -- 29,000
----------- -----------
Net cash provided by (used in) financing activities (2,492,000) 4,225,000
----------- -----------
Net increase (decrease) in cash and cash equivalents . . . . . (1,285,000) 4,779,000
Cash and cash equivalents, beginning of period . . . . . . . . 26,066,000 34,326,000
----------- -----------
Cash and cash equivalents, end of period . . . . . . . . . . . $24,781,000 $39,105,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . $ 603,000 $ 1,073,000
Cash paid for income taxes . . . . . . . . . . . . . . . . . 150,000 82,000
=========== ===========
Noncash investing and financing activity - purchase of property
through the issuance of long-term debt . . . . . . . . . . . $ 2,000,000 --
=========== ===========
</TABLE>
4
<PAGE> 6
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Homestar Corporation and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Because of the seasonal nature of the Company's business,
operating results for the three months ended August 31, 1996, are not
necessarily indicative of the results that may be expected for the fiscal year
ending May 31, 1997. These condensed consolidated financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
REPURCHASE AGREEMENTS
The Company has entered into agreements with various financial institutions and
other credit sources under which the Company has agreed to repurchase
manufactured homes sold to independent dealers in the event of default by a
dealer in its obligation to such credit sources. Under the terms of such
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from twelve to
fifteen months). At August 31, 1996, the Company's contingent repurchase
liability was approximately $8.6 million.
INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1996
----------- ------------
<S> <C> <C>
Manufactured homes:
New . . . . . . . . . . . . . . . . . . . . . $29,818,000 $33,446,000
Used . . . . . . . . . . . . . . . . . . . . 1,878,000 3,009,000
Furniture and supplies . . . . . . . . . . . 1,505,000 2,598,000
Raw materials and work-in-process . . . . . . 2,162,000 2,194,000
----------- -----------
$35,363,000 $41,247,000
=========== ===========
</TABLE>
EARNINGS PER SHARE
The consolidated financial statements, including all references to the number
of shares of common stock and all per share information, have been adjusted to
reflect the 5-for-4 stock split effected on January 18, 1996. Earnings per
common share are computed based on the weighted average number of shares
outstanding during the periods presented and are adjusted for common stock
equivalents when dilutive.
ACQUISITIONS SUBSEQUENT TO AUGUST 31, 1996
On September 3, 1996, the Company acquired all of the common stock of Heartland
Homes, Inc. (Heartland) and certain operating assets of Manu-Fac Homes, Inc.
(Manu-Fac) for a combination of cash and notes totaling $8.9 million.
Heartland is a single-plant manufactured housing producer in Henderson, North
Carolina. Heartland markets its homes through 65 independent retailers in
North Carolina and three surrounding states. Manu-Fac was a contractually
affiliated group of independent retailers throughout North Carolina, operating
under the CHOICENTER or WESTWOOD Homes trade names. In
5
<PAGE> 7
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
connection with the acquisition of such assets of Manu-Fac, these retailers
became franchisees of Associated Retailers Group, Inc., a wholly-owned
subsidiary of the Company, which will operate under the CHOICENTER or WESTWOOD
trade name.
On September 24, 1996, the Company completed the acquisition of Guerdon
Holdings, Inc. and its subsidiary, Guerdon Homes, Inc. (collectively,
"Guerdon"). Guerdon produces manufactured homes in four facilities located in
Oregon, Idaho, Nebraska and Mississippi, and sells its homes through
approximately 150 independent retailers located primarily in the Pacific
Northwest, Rocky Mountain, and South-Central regions.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
VERTICAL INTEGRATION AND INTERNALIZATION
Several elements of the Company's growth strategy are based on an increasing
degree of vertical integration over time. By combining its retail and
manufacturing operations in fiscal 1994 and then developing transportation,
insurance and finance subsidiaries, the Company potentially benefits from
multiple income sources as the result of each retail sale. Increasing the
degree of vertical integration will affect the Company's revenues and margins
in two important ways:
o A key element of the Company's growth strategy is to increase the rate of
"internalization" of its retail sales (i.e., the proportion of new homes
sold by Company-owned retail sales centers that are manufactured by the
Company). This strategy enables the Company to earn both a manufacturing
profit and a retailing profit on those home sales; however, only retail
sales revenue is recognized. Accordingly, increasing the internalization
rate (without otherwise affecting the Company's level of manufacturing and
retailing activity) has the effect of increasing gross margins and reducing
reported revenues; however, aggregate gross profit (in dollars) is not
materially affected by changes in the internalization rate.
o Another key element of the Company's growth strategy is to increase the
degree of retail penetration of its financial services. As insurance
product penetration increases, both reported revenues and earnings should
increase without a corresponding increase in retail unit sales. Similarly,
as 21st Century Mortgage Corporation, the Company's mortgage affiliate
("21st Century") finances more of the Company's retail sales, the Company's
earnings should increase without a corresponding increase in retail unit
sales.
The recent acquisition of Heartland Homes, Inc. and Guerdon Homes, Inc. will
have the effect of adding significant revenues to the Company with little, if
any, immediate benefits of vertical integration. Those benefits should reflect
gradually, over time, as the Company executes its vertical integration strategy
in the new regional markets which these acquisitions encompass.
RESULTS OF OPERATIONS
Three months ended August 31, 1996 compared to three months ended August 31,
1995
The following table summarizes certain key sales statistics for the three
months ended August 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1995 1996
-------- --------
<S> <C> <C>
Company-manufactured new homes sold at retail . . . . 508 769
Total new homes sold at retail . . . . . . . . . . . 994 1,153
Internalization rate (1) . . . . . . . . . . . . . . 51% 67%
Previously-owned homes sold at retail . . . . . . . . 221 320
Average retail selling price--new homes . . . . . . . $ 42,187 $ 44,191
Number of retail sales centers at end of period . . . 37 47
Manufacturing shipments . . . . . . . . . . . . . . . 854 1,026
Manufacturing shipments to independent dealers . . . 266 198
</TABLE>
(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.
7
<PAGE> 9
The following table summarizes the Company's historical operating results,
expressed as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
------------------
1995 1996
------ ------
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . 100.0% 100.0%
Gross profit . . . . . . . . . . . . . . . . . . 31.8% 33.7%
Selling, general and administrative . . . . . . . 24.3% 25.3%
Operating income . . . . . . . . . . . . . . . . 7.4% 8.5%
Net income . . . . . . . . . . . . . . . . . . . 3.7% 4.5%
</TABLE>
Net Sales. Net sales of manufactured homes were $60.0 million for the three
months ended August 31, 1996, compared to $53.8 million for the three months
ended August 31, 1995. The increase was primarily the result of a 21% increase
in the number of new and previously-owned homes sold at retail as well as a 5%
increase in the average selling price of new homes. The Company added three
new retail sales centers during the first quarter of fiscal 1997 in response to
continuing increases in demand for new manufactured homes.
Other Revenues. Transportation revenues for the three months ended August
31, 1996 were $3.9 million, an increase of 26% over $3.1 million for the three
months ended August 31, 1995. This increase was primarily due to an increase
in transportation activity in response to generally higher demand for
transportation services. Other revenues increased to $2.9 million (4.8% of net
sales) for the three months ended August 31, 1996, compared to $2.8 million
(5.3% of net sales) for the three months ended August 31, 1995. The decrease
in other revenues, expressed as a percentage of net sales, was primarily the
result of reduced finance participations received from independent lenders.
This decrease is consistent with the Company's vertical integration plan,
whereby, more of the Company's retail sales are being financed by the Company's
mortgage affiliate, 21st Century.
Cost of Sales. Cost of manufactured homes sold were $41 million (68.4% of
net sales) for the three months ended August 31, 1996, as compared to $38.2
million (71.0% of net sales) for the three months ended August 31, 1995. The
increase in cost of sales was primarily due to higher sales volume. The
decrease in cost of sales, expressed as a percentage of sales, was the result
of an increase in the internalization rate from 51% for the three months ended
August 31, 1995 to 67% for the three months ended August 31, 1996. Cost of
sales attributable to transportation operations for the three months ended
August 31, 1995 were $3.2 million (82.9% of transportation revenues), an
increase of 26% from $2.5 million (83.2% of transportation revenues) for the
three months ended August 31, 1995. This increase is due to increased
transportation activity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended August 31, 1996, were $16.9
million (25.3% of net revenues), as compared to $14.5 million (24.3% of total
revenues) for the three months ended August 31, 1995. The increase in selling,
general and administrative expenses is attributable to increased sales,
manufacturing, transportation and insurance activities as well as an increase
in fixed costs and expenses associated with new retail sales centers and
expanded manufacturing capacity. The increase in selling, general and
administrative expenses, expressed as a percentage of total revenues, was the
result of an increase in the internalization rate from 51% for the three months
ended August 31, 1995 to 67% for the three months ended August 31, 1996. This
increase was partially offset by a decrease in warranty expenses, expressed as
a percentage of net revenues.
8
<PAGE> 10
Interest Expense. Interest expense decreased 16% to $578,000 for the three
months ended August 31, 1996, from $690,000 for the three months ended August
31, 1995. This decrease is primarily attributable to increased participations
in floor plan debt resulting from the Company's public offering of common stock
in March 1996 and a decline in the Company's borrowing rate. This decrease was
partially offset by an increase in gross borrowings under its floor plan credit
facility to support a higher level of inventory due to the opening of new
retail sales centers.
LIQUIDITY AND CAPITAL RESOURCES.
Cash provided by operating activities was $2.3 million for the three months
ended August 31, 1996. Net income accounted for the significant cash provided
by operating activities for the three months ended August 31, 1996.
Substantial increases in inventory and other working capital items required to
open or acquire Company-owned retail sales centers accounted for most of the
cash used during these periods An important part of the Company's growth
strategy is to expand the number of Company-owned retail sales centers and
increase its manufacturing production. Management estimates the capital
required to open a new retail sales center to be approximately $1.0 to $1.25
million, primarily for inventory and working capital. Subject to continued
increases in demand, the Company may incur additional capital expenditures to
further increase its manufacturing capacity. Management currently plans to
open or acquire eight to ten retail sales centers each year for the next two
years and in connection therewith, will use cash to purchase inventory and
operating assets and for working capital purposes. Management expects
increased cash generated by the Company's retail sales centers and
manufacturing operations to substantially fund the working capital required to
open new retail sales centers.
The Company had capital expenditures of $1.7 million for the three months
ended August 31, 1996. These expenditures were used primarily to fund new
retail sales centers opened during the quarter.
The Company has a $75.0 million floor plan credit facility with Ford
Consumer Finance Company, Inc. ("Ford"), with an interest rate of prime. The
facility is similar to a revolving credit facility and is used to finance the
purchase of inventory of new homes at its retail sales centers. In order to
satisfy greater working capital requirements, and to fund capital expenditures
in connection with the Company's expanding operations, the Company increased
its gross borrowings under the facility by $5.4 million in the first quarter of
fiscal 1997. At August 31, 1996, the Company had net borrowings of $24.2
million (gross borrowings of $54.4 million less participations of $30.2
million). The Company's participations in its floor plan credit facility earn
interest at Ford's prime rate less .375%, and are immediately available to the
Company in cash. The Company believes that cash provided by operations and
available under its floor plan credit facility well be sufficient to satisfy
working capital and capital expenditure requirements over the next two years.
On September 24, 1996, the Company established a $25 million credit facility
through Bank One, Texas N.A. These funds, together with the capital raised in
the March 1996 common stock offering, will be used to support the Company's
internal growth as well as the Guerdon, Heartland and Manu-Fac acquisitions.
9
<PAGE> 11
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
- ----------- ------- ---------------------
<S> <C> <C>
Asset Purchase Agreement by and among Associated Retailers Group, 2.1 Filed herewith
Inc., Manu-Fac Homes, Inc. and Charles E. Rumbley.
Stock Purchase Agreement by and among American Homestar 2.2 Filed herewith
Corporation, Heartland Homes, Inc., James H. Johnson, III and
Charles E. Rumbley.
Employment Agreement by and between American Homestar Corporation 2.3 Filed herewith
and James H. Johnson, III.
Employment Agreement by and between American Homestar Corporation 2.4 Filed herewith
and Charles E. Rumbley.
Amendment No. 1 to Stock Purchase Agreement by and among American 2.5 Filed herewith
Homestar Corporation, Heartland Homes, Inc., James H. Johnson,
III and Charles E. Rumbley.
Exercise and Settlement Agreement, dated September 24, 1996, by 2.6 Form 8-K dated October 9,
and among American Homestar Corporation, Guerdon Homes, Inc., 1996
Guerdon Holdings, Inc. and certain security holders of Guerdon
Homes, Inc. and Guerdon Holdings, Inc.
Restated Articles of Incorporation of American Homestar 3.1 S-1 Registration Statement
Corporation. No. 33-78630
Amended and Restated Bylaws of American Homestar Corporation. 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate. 4.1 S-1 Registration Statement
No. 33-78630
Shareholders Agreement, dated as of August 31, 1993, by and among 4.2 S-1 Registration Statement
American Homestar Corporation and certain shareholders of No. 33-78630
American Homestar Corporation.
Form of Amendment to Shareholders Agreement. 4.3 S-1 Registration Statement
No. 33-78630
Statement Re Computation of Per Share Earnings 11 Filed herewith
None 18
None 19
None 22
None 24
Financial Data Schedules 27 Filed herewith
None 99
</TABLE>
(b) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed for the
three months ended August 31, 1996.
10
<PAGE> 12
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.
AMERICAN HOMESTAR CORPORATION
Date: October 10, 1996 By: /s/ Craig A. Reynolds
-------------------------------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer, Secretary and Director (Principal
Financial and Accounting Officer)
11
<PAGE> 13
EXHIBIT INDEX
EX 2.1 Asset Purchase Agreement by and among Associated Retailers Group,
Inc., Manu-Fac Homes, Inc. and Charles E. Rumbley.
EX 2.2 Stock Purchase Agreement by and among American Homestar
Corporation, Heartland Homes, Inc., James H. Johnson, III and
Charles E. Rumbley.
EX 2.3 Employment Agreement by and between American Homestar Corporation
and James H. Johnson, III.
EX 2.4 Employment Agreement by and between American Homestar Corporation
and Charles E. Rumbley.
EX 2.5 Amendment No. 1 to Stock Purchase Agreement by and among American
Homestar Corporation, Heartland Homes, Inc., James H. Johnson,
III and Charles E. Rumbley.
EX 11 Statement Re Computation of Per Share Earnings
EX 27 Financial Data Schedules
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
ASSOCIATED RETAILERS GROUP, INC.
MANU-FAC HOMES, INC.
AND
CHARLES E. RUMBLEY
JULY 25, 1996
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TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
PURCHASE AND SALE . . . . . . . . . . . . 4
Section 2.01. Purchase and Sale of Assets . . . . . . . . . . . 4
Section 2.02. Purchase Price . . . . . . . . . . . . . . . . . . 5
Section 2.03. Purchase Price Adjustment . . . . . . . . . . . . 5
Section 2.04. Allocation of Purchase Price . . . . . . . . . . . 5
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION AND SHAREHOLDER . . . . . . . . 6
Section 3.01. Ownership of the Assets . . . . . . . . . . . . . 6
Section 3.02. Organization and Good Standing; Qualification . . 6
Section 3.03. Authorization and Validity . . . . . . . . . . . . 6
Section 3.04. No Violation . . . . . . . . . . . . . . . . . . . 6
Section 3.05. Consents . . . . . . . . . . . . . . . . . . . . . 7
Section 3.06. Financial Statements . . . . . . . . . . . . . . . 7
Section 3.07. Absence of Certain Changes . . . . . . . . . . . . 7
Section 3.08. Commitments . . . . . . . . . . . . . . . . . . . 8
Section 3.09. Insurance . . . . . . . . . . . . . . . . . . . . 10
Section 3.10. Proprietary Rights . . . . . . . . . . . . . . . . 10
Section 3.11. Taxes . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12. Compliance with Laws . . . . . . . . . . . . . . . 10
Section 3.13. Finder's Fee . . . . . . . . . . . . . . . . . . . 11
Section 3.14. Litigation . . . . . . . . . . . . . . . . . . . . 11
Section 3.15. Accuracy of Information Furnished . . . . . . . . 11
Section 3.16. Books of Account . . . . . . . . . . . . . . . . . 11
Section 3.17. Ownership Interests of Interested Persons . . . . 11
Section 3.18. Investments in Competitors . . . . . . . . . . . . 11
Section 3.19. Environmental Matters . . . . . . . . . . . . . . 11
Section 3.20. Government Inquiries . . . . . . . . . . . . . . . 12
Section 3.21. Dealer Incentives . . . . . . . . . . . . . . . . 12
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . 12
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Section 4.01. Organization and Good Standing . . . . . . . . . . 12
Section 4.02. Authorization and Validity . . . . . . . . . . . . 12
Section 4.03. No Violation . . . . . . . . . . . . . . . . . . . 12
Section 4.04. Finder's Fee . . . . . . . . . . . . . . . . . . . 13
Section 4.05. Commission Reports . . . . . . . . . . . . . . . . 13
Section 4.06. Financial Statements . . . . . . . . . . . . . . . 13
Section 4.07. Absence of Certain Changes . . . . . . . . . . . . 13
ARTICLE V.
THE CORPORATION'S AND SHAREHOLDER'S COVENANTS . . . 13
Section 5.01. Consummation of Agreement . . . . . . . . . . . . 13
Section 5.02. Business Operations . . . . . . . . . . . . . . . 14
Section 5.03. Access . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.04. Environmental Audits . . . . . . . . . . . . . . . 14
Section 5.05. Leases and Dealership Agreements . . . . . . . . . 14
Section 5.06. Material Change . . . . . . . . . . . . . . . . . 14
Section 5.07. Approvals of Third Parties . . . . . . . . . . . . 14
Section 5.08. Contracts . . . . . . . . . . . . . . . . . . . . 15
Section 5.09. No Negotiation with Others . . . . . . . . . . . . 15
ARTICLE VI.
PURCHASER'S COVENANTS . . . . . . . . . . . 15
ARTICLE VII.
PURCHASER'S CONDITIONS PRECEDENT . . . . . . . . 15
Section 7.01. Representations and Warranties . . . . . . . . . . 15
Section 7.02. Covenants and Conditions . . . . . . . . . . . . . 15
Section 7.03. Proceedings . . . . . . . . . . . . . . . . . . . 15
Section 7.04. No Material Adverse Change . . . . . . . . . . . . 15
Section 7.05. Due Diligence Review . . . . . . . . . . . . . . . 16
Section 7.06. June Balance Sheet and Closing Assets . . . . . . 16
Section 7.07. Approvals . . . . . . . . . . . . . . . . . . . . 16
Section 7.08. Simultaneous Closings . . . . . . . . . . . . . . 16
Section 7.09. Closing Deliveries . . . . . . . . . . . . . . . . 16
Section 7.10. Licenses and Permits . . . . . . . . . . . . . . . 16
Section 7.11. Employees . . . . . . . . . . . . . . . . . . . . 16
Section 7.12. CHOICENTER Registration . . . . . . . . . . . . . 16
ARTICLE VIII.
THE CORPORATION'S AND SHAREHOLDER'S CONDITIONS PRECEDENT . . 17
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Section 8.01. Representations and Warranties . . . . . . . . . . 17
Section 8.02. Covenants and Conditions . . . . . . . . . . . . . 17
Section 8.03. Proceedings . . . . . . . . . . . . . . . . . . . 17
Section 8.04. Closing Deliveries . . . . . . . . . . . . . . . . 17
Section 8.05. Simultaneous Closings . . . . . . . . . . . . . . 17
Section 8.06. Dealer Response . . . . . . . . . . . . . . . . . 17
Section 8.07. Composition Schedule . . . . . . . . . . . . . . . 17
ARTICLE IX.
CLOSING DELIVERIES . . . . . . . . . . . . 17
Section 9.01. Deliveries of the Corporation and Shareholder
to Escrow Agent . . . . . . . . . . . . . . . . . 17
Section 9.02. Deliveries of Purchaser to Escrow Agent . . . . . 19
ARTICLE X.
POST CLOSING MATTERS . . . . . . . . . . . 20
Section 10.01. Further Instruments of Transfer . . . . . . . . . 20
Section 10.02. Employee Benefit Plans . . . . . . . . . . . . . 20
Section 10.03. Sales and Transfer Taxes . . . . . . . . . . . . 20
Section 10.04. Post Closing Operations and Agreements . . . . . 20
ARTICLE XI.
NONCOMPETITION . . . . . . . . . . . . . 21
Section 11.01. Prohibited Activities . . . . . . . . . . . . . . 21
Section 11.02. Damages . . . . . . . . . . . . . . . . . . . . . 22
Section 11.03. Reasonable Restraint . . . . . . . . . . . . . . 22
Section 11.04. Severability; Reformation . . . . . . . . . . . . 22
Section 11.05. Term . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XII.
REMEDIES . . . . . . . . . . . . . . 23
Section 12.01. Indemnification by Shareholder . . . . . . . . . 23
Section 12.02. Indemnification by Purchaser . . . . . . . . . . 23
Section 12.03. Indemnification Limitations . . . . . . . . . . . 23
Section 12.04. Conditions of Indemnification . . . . . . . . . . 24
Section 12.05. Waiver . . . . . . . . . . . . . . . . . . . . . 25
Section 12.06. Remedies Not Exclusive . . . . . . . . . . . . . 25
Section 12.07. Offset . . . . . . . . . . . . . . . . . . . . . 25
Section 12.08. Costs, Expenses and Legal Fees . . . . . . . . . 26
Section 12.09. Specific Performance . . . . . . . . . . . . . . 26
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Section 12.10. Tax Effect of Indemnification . . . . . . . . . . 26
ARTICLE XIII.
TERMINATION . . . . . . . . . . . . . . 26
Section 13.01. Termination . . . . . . . . . . . . . . . . . . . 26
ARTICLE XIV.
MISCELLANEOUS . . . . . . . . . . . . . 27
Section 14.01. Amendment . . . . . . . . . . . . . . . . . . . . 27
Section 14.02. Assignment . . . . . . . . . . . . . . . . . . . 27
Section 14.03. Parties In Interest; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . 27
Section 14.04. Entire Agreement . . . . . . . . . . . . . . . . 27
Section 14.05. Severability . . . . . . . . . . . . . . . . . . 27
Section 14.06. Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . . 28
Section 14.07. Governing Law . . . . . . . . . . . . . . . . . . 28
Section 14.08. Captions . . . . . . . . . . . . . . . . . . . . 28
Section 14.09. Gender and Number . . . . . . . . . . . . . . . . 28
Section 14.10. Reference to Agreement . . . . . . . . . . . . . 28
Section 14.11. Confidentiality; Publicity and Disclosures . . . 28
Section 14.12. Notice . . . . . . . . . . . . . . . . . . . . . 29
Section 14.13. Shareholder Guaranty . . . . . . . . . . . . . . 29
Section 14.14. Counterparts . . . . . . . . . . . . . . . . . . 29
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), dated as of July 25,
1996, is by and among Manu-Fac Homes, Inc., a North Carolina corporation (the
"Corporation"), Charles E. Rumbley, the holder of all of the outstanding
capital stock of the Corporation ("Shareholder"), and Associated Retailers
Group, Inc., a Texas corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, the Corporation desires to sell, and Purchaser desires to
purchase, certain assets of the Corporation; and
WHEREAS, American Homestar Corporation, a Texas corporation ("AHC"),
Shareholder, Heartland Homes, Inc., a North Carolina corporation ("HHI"), and
James H. Johnson, III ("Johnson") have entered into on the date hereof a Stock
Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which AHC
shall acquire all of the issued and outstanding shares of stock of HHI; and
WHEREAS, the transactions contemplated hereby are contingent upon the
consummation of the transactions contemplated by the Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Anniversary Date" shall mean the one year anniversary of the
Closing Date.
(b) "Assets" shall mean those personal assets, both tangible and
intangible, that are set forth on Schedule 1.01(b) hereof, which are used in
connection with and relate to the Business, together with the Business as a
going concern and its goodwill, the confidential information, the leasehold
interest, leasehold improvements, transferable licenses and permits, rights
under warranties, prepaid items (pro rated, as appropriate), rights of offset
and credits, rights under restrictive covenants and obligations, all as more
particularly set
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forth in Schedule 1.01(b) hereof. The parties agree that the fair market value
of the personal property set forth on Schedule 1.01(b) is not less than
$100,000. All assets not itemized on Schedule 1.01(b) hereof shall be retained
by the Corporation.
(c) "Assignment and Assumption Agreements" shall have the meaning set
forth in Section 9.01(b).
(d) "Assumed Liabilities" shall mean those fixed and determinable
liabilities of the Corporation listed in Schedule 1.01(d), and all obligations
assumed by Purchaser under the Assignment and Assumption Agreements. Except
for the Assumed Liabilities, Purchaser shall not assume or agree to pay,
perform or discharge any liabilities or obligations of the Corporation, whether
accrued, absolute, contingent or otherwise, including without limitation
liabilities based on or arising out of or in connection with any pension or
other benefit liability relating to the Corporation's employees.
(e) "best knowledge", "have no knowledge of", or "do not know of" and
similar phrases shall mean (i) in the case of a natural person, the particular
fact was known, or not known, as the context requires, to such person after
diligent investigation and inquiry by such person and (ii) in the case of an
entity, the particular fact was known, or not known, as the context requires,
to any senior management level employee of such entity after diligent
investigation and inquiry by such persons.
(f) "Business" shall mean the operations and business of the
Corporation relating to the "CHOICENTER" and "WESTWOOD HOMES" businesses,
tradenames and products.
(g) "Business Employees" shall mean all employees of the Corporation
who provide services in connection with or relating to the Business.
(h) "Cash Consideration" shall have the meaning set forth in Section
2.02.
(i) "Closing" shall mean the closing of the transactions contemplated
by this Agreement, which shall occur at 10:00 a.m., local time, on the Closing
Date in the offices of Jackson & Walker, Suite 6000, 901 Main Street, Dallas,
Texas 75202, or at such other time and place as shall be mutually agreed in
writing by the parties hereto.
(j) "Closing Date" shall mean the date as soon as practicable after
the date hereof; provided that the date may not be later than August 30, 1996,
unless such date is extended by mutual agreement of all the parties hereto, and
shall be the same date as the closing date of the Stock Purchase Agreement.
(k) "Code" shall mean the Internal Revenue Code of 1986.
(l) "Commitments" shall have the meaning set forth in Section
3.08(a).
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(m) "Commission" means the Securities and Exchange Commission.
(n) "Commission Reports" shall have the meaning set forth in Section
4.05.
(o) "Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the Corporation used in
connection with or relating to the Business, including information derived from
reports, investigations, research, work in progress, codes, software, marketing
and sales programs, financial projections, cost summaries, pricing formula,
contract analyses, financial information, projections, maps, confidential
filings with any state or federal agency, and all other concepts, know-how
methods of doing business, ideas, materials or information prepared or
performed for, by or on behalf of such person by its employees, officers,
directors, agents, representatives, or consultants.
(p) "Damages" shall have the meaning set forth in Section 12.01.
(q) "Environmental Laws" shall have the meaning set forth in Section
3.19.
(r) "Escrow Agreement" shall mean that certain Escrow Agreement
between Purchaser, the Corporation and the escrow agent named therein, the form
of which is set forth on Exhibit A attached hereto.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Financial Statements" shall have the meaning set forth in
Section 3.06.
(u) "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and Securities and
Exchange Commission or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of determination.
(v) "Nonperforming Lots" shall mean the Transferred Retail Lots which
do not have gross retail sales of manufactured homes of at least $600,000 for
the twelve-month period ended the Anniversary Date; provided, however, that for
the purpose of the foregoing provision, only Retail Lot Numbers 1 through 14
reflected on Schedule 1.01(ad) shall be included in computing the Nonperforming
Lots unless the additional Retail Lots listed on Schedule 1.01(ad) hereof are
treated as a Replacement Lot pursuant to the provisions hereof, in which event
such Replacement Lots shall be included in computing the Nonperforming Lots.
In the event that a Transferred Retail Lot is not operating on the Anniversary
Date, but has been replaced by a Replacement Lot, the sales of the non-
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operating Transferred Retail Lot and the Replacement Lot shall be aggregated to
determine whether or not such Retail Lot is a Nonperforming Lot. A Transferred
Retail Lot which is included in a positive Retail Lot Difference shall not be
treated as a Nonperforming Lot.
(w) "Note" shall have the meaning set forth in Section 2.02.
(x) "Operating Retail Lots" shall mean the Transferred Retail Lots
that are operating on the Anniversary Date and each retail lot (a "Replacement
Lot") opened by Purchaser as a franchised retail sales center in the States of
North Carolina, South Carolina, Tennessee or Virginia or the Corporation (and
assigned to Purchaser) prior to the Anniversary Date in its operation of the
Business which produces comparable sales on an annualized basis to a
non-operating Transferred Retail Lot prior to its closing.
(y) "Personal Property" shall mean the assets identified on Schedule
1.01(y).
(z) "Purchase Price" shall have the meaning set forth in Section
2.02.
(aa) "Purchase Price Adjustment" shall have the meaning set forth in
Section 2.03.
(bb) "Purchaser Group" shall have the meaning set forth in Section
11.01(a).
(cc) "Retail Lot Difference" shall mean the difference determined by
subtracting the number of Operating Retail Lots on the Anniversary Date from
the lesser of: (i) the number of Transferred Retail Lots; or (ii) fourteen
(14); provided, however, that if such difference is a negative number, the
Retail Lot Difference shall equal zero.
(dd) "Retail Lots" shall mean the sale lots related to the Business as
of the Closing Date as more particularly set forth on Schedule 1.01(ad) hereof.
(ee) "Rights" shall mean any and all copyright rights (including,
without limitation, copyrights), trademarks, service marks, trade dress, trade
names, and other trade designations and proprietary rights (including, without
limitation, both common law and statutory rights for each of the foregoing and
all registrations and applications therefor) that are used in connection with
or relate to the Business (including, without limitation, "CHOICENTER" and
"WESTWOOD HOMES"), and the goodwill associated with such trademarks, service
marks, trade dress, trade names, and other trade designations and proprietary
rights, as well as all subsidiary rights therein (including, but not limited
to, derivative works and publication rights of any kind), and any renewals,
continuations and extensions thereof.
(ff) "Rumbley Employment Agreement" shall have the meaning set forth
in Section 9.01(j).
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(gg) "Transferred Retail Lots" shall mean Retail Lots and Replacement
Lots which have been transferred to Purchaser pursuant to this Agreement and
the Escrow Agreement.
ARTICLE II.
PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE OF ASSETS. Subject to and upon the
terms and conditions contained herein, on the Escrow Release Date (as defined
in Section 2.03(a) below) the Corporation shall sell, transfer, assign, convey
and deliver to Purchaser, free and clear of all security interests, liens,
claims and encumbrances, and Purchaser shall purchase, accept and acquire from
the Corporation, the Assets subject to the terms of the Escrow Agreement. At
the Closing, the Purchaser shall deliver the Purchase Price to the Escrow Agent
subject to the terms of the Escrow Agreement.
SECTION 2.02. PURCHASE PRICE. Subject to adjustment pursuant to
Section 2.03, the total purchase price for the Assets (the "Purchase Price")
shall be the aggregate of the following: (a) $1,574,300 in cash ("Cash
Consideration"); and (b) a Promissory Note of Purchaser issued to the
Corporation in the form attached hereto as Exhibit B (the "Note") in the
aggregate original principal amount of $500,000. In addition, Purchaser shall
assume, and agree to pay when due and payable, the Assumed Liabilities on the
Escrow Release Date, except for Assumed Liabilities pertaining to Retail Lots
which are not Transferred Retail Lots, which liabilities, as to any such
non-transferred Retail Lot, shall become Assumed Liabilities when such Retail
Lot becomes a Transferred Retail Lot.
SECTION 2.03. PURCHASE PRICE ADJUSTMENTS.
(a) On the Anniversary Date, the Purchase Price shall be reduced by
an amount equal to $100,000 multiplied by the sum of the Retail Lot Difference
plus the number of Nonperforming Lots (the "Purchase Price Adjustment"). The
Purchase Price Adjustment shall immediately be due and payable by the
Corporation and Rumbley to Purchaser in cash.
(b) The parties agree that all expenses and liabilities and revenues
and income of the Corporation prior to the Escrow Release Date (as defined in
the Escrow Agreement) (or, with respect to Retail Lots which are transferred to
Purchaser after the Escrow Release Date, prior to the time of such transfer)
shall be the obligation, or accrue for the benefit, of the Corporation (as the
case may be). In addition, the parties agree that, with respect to each Retail
Lot, except for the Assumed Liabilities, the Corporation shall be responsible
for all expenses and obligations (including dealer volume incentives) to
lessors, sublessees and dealers with respect to each Retail Lot, and the
Corporation shall have the benefit of its arrangements with such lessors,
sublessees and dealers; it being specifically
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acknowledged and agreed that Purchaser shall have no obligation to any dealer
of the Corporation for any past or future payments except for such obligations
set forth in a franchise agreement entered into between Purchaser and any
dealer as provided in the Escrow Agreement. The parties hereto agree that any
expenses pertaining to any Transferred Retail Lot billed after the date of such
transfer shall be pro rated, based upon the date of transfer.
SECTION 2.04. ALLOCATION OF PURCHASE PRICE. At or prior to the Escrow
Release Date, the Purchase Price shall be allocated among the Assets as agreed
to by Purchase and the Corporation, such allocation to be made as provided in
Section 1060 of the Code. Purchaser and the Corporation shall each file Form
8594 (Asset Acquisition Statement Under Section 1060) on a timely basis
reporting the allocation of the Purchase Price consistent with the allocation
agreed to by Purchaser and the Corporation, which allocation will reflect the
aggregate fair market values for each of Class I assets, Class II assets and
Class III assets, as such terms are defined in regulations promulgated pursuant
to Section 1060 of the Code. Purchaser and the Corporation shall file on a
timely basis any amendments required to such Form 8594 as a result of a
subsequent increase or decrease of the Purchase Price. Purchaser and the
Corporation shall not take any position on their respective income tax returns
that is inconsistent with the allocation of the Purchase Price as agreed to by
Purchaser and the Corporation or as adjusted as a result of a subsequent
increase or decrease in the Purchase Price.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION AND SHAREHOLDER
The Corporation and Shareholder jointly and severally represent and
warrant that the following are true and correct as of the date hereof and will
be true and correct through the Escrow Release Date as if made on that date,
except for representations and warranties pertaining or relating to any
Transferred Retail Lot, which representations and warranties will be true and
correct through the date such Retail Lot became a Transferred Retail Lot.
SECTION 3.01. OWNERSHIP OF THE ASSETS. The Corporation owns,
beneficially and of record, good and marketable title to the Assets, free and
clear of all security interests, liens, adverse claims and encumbrances. At
the Escrow Release Date, the Corporation will convey to Purchaser good and
marketable title to all of the Assets, free and clear of any security
interests, liens, adverse claims and encumbrances.
SECTION 3.02. ORGANIZATION AND GOOD STANDING; QUALIFICATION. The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with all requisite
corporate power and authority to carry on the
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business in which it is engaged, to own the properties it owns, to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Corporation is duly qualified and licensed to do business and is in good
standing in all jurisdictions where the nature of its business makes such
qualification necessary, which jurisdictions are listed in Schedule 3.02,
except where the failure to be qualified or licensed would not have a material
adverse effect on the business of the Corporation. The Corporation does not
have any assets, employees or offices in any state other than the states listed
in Schedule 3.02.
SECTION 3.03. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Corporation of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Corporation. This
Agreement and each other agreement contemplated hereby to which it is a party
have been or will be as of the Closing Date duly executed and delivered by the
Corporation and constitute or will constitute legal, valid and binding
obligations of the Corporation, enforceable against the Corporation in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies. This Agreement and each other
agreement contemplated hereby to which Shareholder is a party have been or will
be as of the Closing Date duly executed and delivered by Shareholder and
constitute and will constitute legal, valid and binding obligations of
Shareholder, enforceable in accordance with their respective terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 3.04. NO VIOLATION. Except as set forth in Schedule 3.04,
neither the execution, delivery or performance of this Agreement or the other
agreements contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby will (a) conflict with, or result in a violation
or breach of the terms, conditions or provisions of, or constitute a default
under, the Articles of Incorporation or Bylaws of the Corporation or any
agreement, indenture or other instrument under which the Corporation is bound
or to which the Assets are subject or result in the creation or imposition of
any security interest, lien, charge or encumbrance upon the Assets, or (b)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Corporation or the Assets. Except as
disclosed on Schedule 3.04, the Corporation has complied with all laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports.
SECTION 3.05. CONSENTS. Except as set forth in Schedule 3.05, no
consent, authorization, approval, permit or license of, or filing with, any
governmental or public body or authority, any lender or lessor or any other
person or entity is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Corporation or Shareholder.
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SECTION 3.06. FINANCIAL STATEMENTS. The Corporation has furnished to
Purchaser the audited balance sheet and related audited statements of income,
retained earnings and cash flows for each of the twelve-months ended December
31, 1994 and December 31, 1995, including the notes thereto, and will, prior to
the Closing Date, deliver to Purchaser an unaudited balance sheet (the "June
Balance Sheet) and related unaudited statements of income, retained earnings
and cash flow for the six-month period ended June 30, 1996 (collectively, the
"Financial Statements"). The Financial Statements are in accordance with the
books and records of the Corporation, fairly present the financial condition
and results of operations of the Corporation as of the dates and for the
periods indicated and have been prepared in conformity with GAAP applied on a
consistent basis with prior periods except as set forth on Schedule 3.06 hereof
and subject, in the case of the unaudited statements for the six month period
ending on June 30, 1996, to normal year end adjustments. All accounts
receivables shown in the most recent balance sheet contained in the Financial
Statements have arisen from bona fide transactions in the ordinary course of
business and are valid and enforceable claims subject to no presently asserted
right of set-off or counterclaim. Except as set forth in Schedule 3.06, the
Financial Statements reflect all liabilities of the Corporation accrued,
contingent or otherwise (known or unknown and asserted or unasserted), arising
out of transactions effected or events occurring on or prior to the date
hereof.
SECTION 3.07. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.07, since April 30, 1996 with respect to the Business, the
Corporation has not:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Corporation or Shareholder, in its
condition (financial or otherwise), operations, assets, liabilities, business
or prospects;
(b) incurred or discharged any liabilities or obligations except in
the ordinary course of business;
(c) suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has materially and adversely
affected, or could materially and adversely affect, the Business or Assets;
(d) acquired or disposed of any assets except in the ordinary course
of business;
(e) changed the costing system or depreciation methods of accounting
for the Assets;
(f) waived any material rights or forgiven any material claims;
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(g) lost or terminated any material leasehold interest, dealer,
customer or supplier;
(h) increased the compensation of any Business Employee except in the
ordinary course of business;
(i) entered into any agreement with any person or group, or modified
or amended in any material respect the terms of any such existing agreement
except in the ordinary course of business; or
(j) entered into any other commitment or transaction or experienced
any other event that is material to this Agreement or to any of the other
agreements and documents executed or to be executed pursuant to this Agreement
or to the transactions contemplated hereby or thereby, or that has materially
and adversely affected, or could materially and adversely affect, the Assets or
the Business.
SECTION 3.08. COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in Schedule 3.08, in
connection with its operation of the Business or otherwise relating thereto,
the Corporation has not entered into, nor are the Assets bound by, whether or
not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement or employee benefit plan;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent
to another;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys;
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(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee;
(x) agreement between the Corporation and any affiliate
of the Corporation;
(xi) agreement relating to any material matter or transaction
in which an interest is held by a person or entity that is an affiliate
of the Corporation;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property and involving more than $10,000 in
the aggregate;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $10,000 or that terminates more than
30 days after the date hereof;
(xvi) agreement relating to any material matter or transaction
in which an interest is held by any person or entity referred to in
Section 3.17; or
(xviii) any other agreement or commitment not made in the
ordinary course of business or that is material to the business or
financial condition of the Corporation.
All of the foregoing identified on Schedule 3.08 are hereinafter collectively
referred to as the "Commitments." True, correct and complete copies of the
written Commitments, and true, correct and complete written descriptions of the
oral Commitments, have heretofore been or will be delivered or made available
to Purchaser. To the best knowledge of the Corporation and the Shareholder,
there are no existing defaults, events of default or events, occurrences, acts
or omissions that, with the giving of notice or lapse of time or both, would
constitute defaults by the Corporation, and no penalties have been incurred nor
are amendments pending, with respect to the Commitments, except as described in
Schedule 3.08. To the best of the Corporation's and the Shareholder's
knowledge, the Commitments are in full force and effect and are valid and
enforceable obligations of the parties thereto in accordance with their
respective terms, and no defenses, off-sets or counterclaims have been asserted
or, to the best knowledge of the Corporation and Shareholder, may be made by
any party thereto, nor has the Corporation waived any rights thereunder, except
as described in Schedule 3.08. The Corporation has not received notice of any
default with respect to any Commitment.
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<PAGE> 16
(b) No Cancellation or Termination of Commitment. Except as
contemplated hereby, neither the Corporation nor Shareholder has received
notice of any plan or intention of any other party to any Commitment to
exercise any right to cancel or terminate any Commitment or agreement, and
neither the Corporation nor Shareholder knows of any fact that would justify
the exercise of such a right. Neither the Corporation nor Shareholder
currently contemplates, or has reason to believe any other person or entity
currently contemplates, any amendment or change to any Commitment. Except as
listed in Schedule 3.08, none of the customers or suppliers of the Corporation
has refused, or communicated that it will or may refuse, to purchase or supply
goods or services, as the case may be, or has communicated that it will or may
substantially reduce the amounts of goods or services that it is willing to
purchase from, or sell to, the Corporation.
SECTION 3.09. INSURANCE. The Corporation does not, and is not required
to, carry any property, liability, workers' compensation or other insurance in
connection with the Business.
SECTION 3.10. PROPRIETARY RIGHTS. Except as set forth on Schedule 3.10
hereof, the Corporation has the sole and exclusive right to use the Rights and
Confidential Information without infringing or violating the rights of any
third parties. Use of the Rights and Confidential Information does not require
the consent of any other person and the Rights and Confidential Information are
freely transferable. No claim has been asserted by any person to the ownership
of or right to use any Right and Confidential Information and neither the
Corporation nor Shareholder knows of any valid basis for any such claim. Each
of the Rights is valid and subsisting, has not been cancelled, abandoned or
otherwise terminated and, if applicable, has been duly issued or filed. The
Shareholder has no knowledge of any claim that, or inquiry as to whether, any
product, activity or operation of the Corporation in connection with the
Business infringes upon or involves, or has resulted in the infringement of,
any proprietary right of any other person, corporation or other entity; and no
proceedings have been instituted, are pending or are threatened that challenge
the rights of the Corporation with respect thereto. The Corporation has not
given and is not bound by any agreement of indemnification for any Right or
Confidential Information as to any property manufactured, used or sold by it in
connection with the Business.
SECTION 3.11. TAXES. All income, excise, corporate, franchise,
property, sales, use, payroll, withholding and other taxes related to taxable
periods or portions thereof ending prior to or on the Closing Date, including
without limitation governmental charges, assessments and required contributions
of the Corporation with respect to the Business that may result in the filing
of a lien on the Assets or that may result in the imposition of transferee or
other liability on Purchaser for the payment of such taxes, have been
accurately recorded and duly paid, collected or withheld and remitted to the
appropriate governmental agency, except for current taxes not due and payable
prior to or on the Closing Date (such taxes to be paid when due by the
Corporation). Since July 1, 1987, the Corporation has made a valid election to
be treated as an S corporation under Subchapter
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<PAGE> 17
S of the Code. The Corporation is an S corporation under Subchapter S of the
Code, and neither the Corporation nor Shareholder has taken or failed to take
any action that would result in the disqualification of the Corporation to be
treated as an S corporation under Subchapter S of the Code. Shareholder has
paid all income taxes related to taxable periods or portions thereof ending
prior to January 1, 1996, and will pay all income taxes related to taxable
periods after December 31, 1995, for income generated by the Corporation.
SECTION 3.12. COMPLIANCE WITH LAWS. In its operation of the Business
and use of the Assets, the Corporation has complied with all laws, regulations
and licensing requirements and has filed with the proper authorities all
necessary statements and reports. There are no existing violations by the
Corporation or Shareholder of any federal, state or local law or regulation
that could affect the Assets or the Business. Except as set forth on Schedule
3.12, the Corporation possesses all necessary licenses, franchises, permits and
governmental authorizations to conduct the Business as now conducted and own
the Assets, all of which are listed in Schedule 3.12.
SECTION 3.13. FINDER'S FEE. Neither the Corporation nor Shareholder
has incurred any obligation for any finder's, broker's or agent's fee in
connection with the transactions contemplated hereby.
SECTION 3.14. LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the best knowledge of the
Corporation and Shareholder threatened, against or affecting, or that could
affect, any of the Assets or the Business. Neither the Corporation nor
Shareholder are (a) subject to any continuing court or administrative order,
writ, injunction or decree applicable specifically to the Business or any of
the Assets or (b) in default with respect to any such order, writ, injunction
or decree. Neither the Corporation nor Shareholder know of any basis for any
such action, proceeding or investigation.
SECTION 3.15. ACCURACY OF INFORMATION FURNISHED. All information
furnished to Purchaser by the Corporation or Shareholder hereby or in
connection with the transactions contemplated hereby is true, correct and
complete in all material respects. To the best knowledge of Shareholder, such
information states all facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements are made, true, correct and complete.
SECTION 3.16. BOOKS OF ACCOUNT. The books of account of the
Corporation have been kept accurately in all material respects and in the
ordinary course of business, the transactions entered therein represent bona
fide transactions and the revenues, expenses, assets and liabilities of the
Corporation have been properly recorded in such books.
SECTION 3.17. OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Schedule 3.17, no officer, supervisory employee, director or
shareholder of the Corporation, or their respective spouses or children, owns
directly or indirectly, on an individual or
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<PAGE> 18
joint basis, any material interest in, or serves as an officer or director of,
any customer or supplier of the Corporation, or any organization that has a
material contract or arrangement with the Corporation.
SECTION 3.18. INVESTMENTS IN COMPETITORS. Except as set forth on
Schedule 3.18, Shareholder does not own directly or indirectly any interests or
has any investment in any corporation, business or other person that is a
competitor of the Corporation.
SECTION 3.19. ENVIRONMENTAL MATTERS. The Corporation is not currently
in violation of, or subject to any existing, pending or threatened
investigation or inquiry by any governmental authority or to any remedial
obligations under, any laws or regulations pertaining to health or the
environment (hereinafter sometimes collectively called "Environmental Laws"),
and this representation and warranty would continue to be true and correct
following disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Assets and
operations of the Corporation. To the best knowledge of the Corporation and
Shareholder, the Assets have never been used in a manner that would be in
violation of any of the Environmental Laws. Except as set forth in Schedule
3.19, the Corporation has not obtained and is not required to obtain, and the
Corporation has no knowledge of any reason Purchaser will be required to
obtain, any permits, licenses or similar authorizations to construct, occupy,
operate or use any buildings, improvements, fixtures and equipment owned or
leased by the Corporation by reason of any Environmental Laws. To the best
knowledge of the Corporation and Shareholder, none of the Assets are on any
federal or state "Superfund" list or subject to any environmentally related
liens.
SECTION 3.20. GOVERNMENT INQUIRIES. Since December 31, 1995, there
have been no inspection reports, questionnaires, inquiries, demands or requests
for information received by the Corporation or Shareholder from, or any
material statement, report or other document filed by the Corporation with, the
federal government or any federal administrative agency (including but not
limited to, the Commission, the Department of Housing and Urban Development,
the Justice Department, the Internal Revenue Service, the Department of Labor,
the Occupational Safety and Health Administration, the Federal Trade
Commission, the National Labor Relations Board and the Interstate Commerce
Commission), any state securities administrator or any local or state taxing
authority, with respect to an alleged violation of, non-compliance with, any
law, rule or regulation, including without limitation, under Subpart I of the
National Manufacturing Housing Code of the Department of Housing and Urban
Development.
SECTION 3.21. DEALER INCENTIVES. Schedule 3.21 contains a comparison
of 1995 and 1996: (i) volume and bonuses through June 30 of such year; and (ii)
annual volume and bonuses (actual for 1995 and projected for 1996).
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and
correct as of the date hereof and will be true and correct through the Closing
Date as if made on that date:
SECTION 4.01. ORGANIZATION AND GOOD STANDING. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
SECTION 4.02. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement, the Note and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Purchaser. This Agreement and
each other agreement contemplated hereby have been or will be as of the Closing
Date duly executed and delivered by Purchaser and constitute or will constitute
legal, valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their respective terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies.
SECTION 4.03. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Amended and Restated Articles
of Incorporation or Amended and Restated Bylaws of Purchaser or any agreement,
indenture or other instrument under which Purchaser is bound or (b) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over Purchaser or the properties or assets of Purchaser.
SECTION 4.04. FINDER'S FEE. Except for obligations to Rauscher Pierce
Refsnes, Inc., for which Purchaser agrees to be solely responsible, Purchaser
has not incurred any obligation for any finder's, broker's or agent's fee in
connection with the transactions contemplated hereby.
SECTION 4.05. COMMISSION REPORTS. Since May 31, 1995, AHC has filed
all forms, documents and reports with the Commission required to be filed by it
pursuant to federal securities laws and the Commission rules and regulations
thereunder (the "Commission Reports"), all of which complied in all material
respects with all applicable requirements of the Securities Act and the
Exchange Act. To the knowledge of AHC, the Commission Reports do not contain
any untrue statement of a material fact or omit to state a material
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<PAGE> 20
fact required to be stated therein to make the statements contained therein not
misleading.
SECTION 4.06. FINANCIAL STATEMENTS. The consolidated balance sheets
and the related statements of income, shareholders' equity and cash flow
(including the related notes thereto) of AHC and its consolidated subsidiaries
included in the Commission Reports complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the Commission with respect thereto, have been prepared in accordance with
GAAP applied on a basis consistent with prior periods (except as otherwise
noted therein) and present fairly the consolidated financial position of AHC
and its consolidated subsidiaries as of their respective dates, and the results
of their operations and their cash flow for the periods presented therein.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Commission Reports, since May 30, 1995, the business of AHC and its
subsidiaries has been carried on in the ordinary course and there has not been
any adverse change in their business, financial condition, results of
operations, assets or liabilities which could reasonably be expected to have a
material adverse effect on AHC and its consolidated subsidiaries, taken as a
whole.
ARTICLE V.
THE CORPORATION'S AND SHAREHOLDER'S COVENANTS
The Corporation and Shareholder jointly and severally agree that
between the date hereof and the Escrow Release Date:
SECTION 5.01. CONSUMMATION OF AGREEMENT. The Corporation and
Shareholder shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions.
SECTION 5.02. BUSINESS OPERATIONS. The Corporation shall operate the
Business in the ordinary course and will not introduce any new method of
management or operation. The Corporation and Shareholder shall use their best
efforts to preserve the Business intact, to retain the present, dealers,
customers and suppliers so that they will be available to Purchaser after the
Escrow Release Date. The Corporation and Shareholder shall not take any action
that could adversely affect the Assets or the Business without the prior
written consent of Purchaser or take or fail to take any action that would
cause or permit the representations made in Article III to be inaccurate or
preclude the Corporation and Shareholder from making such representations and
warranties as and when they are to be made pursuant to Article III. Except as
contemplated herein, the Corporation will not incur indebtedness or other
liabilities other than in the ordinary course of business and consistent with
past practice.
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SECTION 5.03. ACCESS. The Corporation and Shareholder shall permit
Purchaser and its authorized representatives full access to, and make available
for inspection, all of the Assets and the Business, including the Corporation's
employees, customers and suppliers, and permit Purchaser and its authorized
representatives to inspect and make copies of all documents, records and
information with respect to the affairs of the Corporation as Purchaser and its
representatives may request, all for the sole purpose of permitting Purchaser
to become familiar with the Business and Assets.
SECTION 5.04. ENVIRONMENTAL AUDITS. The Corporation and Shareholder
shall cooperate with and provide reasonable assistance to Purchaser in
obtaining any environmental studies or audits with respect to the property
owned and leased by the Corporation as requested by Purchaser.
SECTION 5.05. MATERIAL CHANGE. The Corporation and Shareholder shall
promptly inform Purchaser in writing of any material adverse change in the
condition (financial or otherwise) or prospects of the Business or Assets.
Notwithstanding the disclosure to Purchaser of any such material adverse
change, the Corporation and Shareholder shall not be relieved of any liability
for, nor shall the providing of such information by the Corporation to
Purchaser be deemed a waiver by Purchaser of, the breach of any representation
or warranty of the Corporation and Shareholder contained in this Agreement.
The Corporation shall not, without the prior written approval of Purchaser take
or fail to take any action with respect to any past or present employee of the
Corporation that could adversely affect the Business or Assets in any material
way.
SECTION 5.06. APPROVALS OF THIRD PARTIES. The Corporation and
Shareholder shall use their best efforts to secure, as soon as practicable
after the date hereof, all necessary approvals and consents of third parties to
the consummation of the transactions contemplated hereby.
SECTION 5.07. CONTRACTS. Except with Purchaser's prior written consent,
the Corporation shall not waive any right or cancel any contract, debt or claim
or assume or enter into any contract, lease, license, obligation, indebtedness,
commitment, purchase or sale in connection with the Business or Assets except
in the ordinary course of business.
SECTION 5.08. NO NEGOTIATION WITH OTHERS. Neither the Corporation nor
Shareholder shall solicit or participate in negotiations with (and the
Corporation and Shareholder shall use their best efforts to prevent any
affiliate, shareholder, director, officer, employee or other representative or
agent of the Corporation from negotiating with, soliciting or participating in
negotiations with) any third party with respect to the sale of the Business or
Assets or any transaction inconsistent with those contemplated hereby.
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ARTICLE VI.
PURCHASER'S COVENANTS
Purchaser agrees that between the date hereof and the Escrow Release
Date, Purchaser shall use its best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions.
Such efforts shall include, but shall not be limited to, furnishing the
Shareholder with a Uniform Franchise Offering Circular and related franchise
agreement (the material terms of which shall be comparable as a whole to the
Corporation's existing Dealer Agreements with its dealers) of the Purchaser for
consideration by each dealer and assisting the Corporation, as the Corporation
may reasonably request, in communicating the terms and conditions of any such
franchise agreement and the effect of the transactions contemplated hereby to
such dealers.
ARTICLE VII.
PURCHASER'S CONDITIONS PRECEDENT
Except as may be waived in writing by Purchaser, the obligations of
Purchaser hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Corporation and Shareholder contained herein shall have been
true and correct in all material respects when initially made and shall be true
and correct in all respects as of the Closing Date.
SECTION 7.02. COVENANTS AND CONDITIONS. The Corporation and
Shareholder shall have performed and complied with all covenants and conditions
required by this Agreement to be performed and complied with by the Corporation
and Shareholder prior to the Closing Date.
SECTION 7.03. PROCEEDINGS. No action, proceeding or order by any court
or governmental body or agency shall have been threatened, orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
SECTION 7.04. NO MATERIAL ADVERSE CHANGE. No material adverse change
in the condition (financial or otherwise) or prospects of the Business and
Assets shall have occurred since May 31, 1996 whether or not such change shall
have been caused by the deliberate act or omission of the Corporation or
Shareholder.
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SECTION 7.05. DUE DILIGENCE REVIEW. Purchaser shall have completed a
due diligence review of the business, operations, prospects and financial
statements of the Corporation, the results of which shall be satisfactory to
Purchaser. Purchaser shall have received such environmental studies, audits,
reports or liability assessments of the Corporation and its owned and leased
properties as Purchaser considers necessary or desirable, which shall be
satisfactory to Purchaser.
SECTION 7.06. JUNE BALANCE SHEET AND CLOSING ASSETS. The June Balance
Sheet shall have been delivered to Purchaser by the Corporation and shall be in
form and substance satisfactory to Purchaser (including, without limitation,
based on its due diligence review and financial audit). The assets and
liabilities of the Corporation will not be materially different on the Closing
Date from, and shall be substantially equivalent to, the assets and liabilities
of the Corporation as shown on the June Balance Sheet.
SECTION 7.07. APPROVALS. All authorizations, approvals, consents and
waivers of any governmental authority or third party, each as Purchaser deems
necessary or desirable to consummate of the transactions contemplated by this
Agreement, shall have been obtained and shall not be terminated, suspended or
withdrawn as of the Closing Date.
SECTION 7.08. SIMULTANEOUS CLOSINGS. The Closing shall occur
simultaneously with the closing of the transactions contemplated by the Stock
Purchase Agreement.
SECTION 7.09. CLOSING DELIVERIES. Purchaser shall have received all
documents, duly executed in form satisfactory to Purchaser and its counsel,
referred to in Section 9.01.
SECTION 7.10. LICENSES AND PERMITS. Purchaser shall be qualified to do
business in the State of North Carolina and shall have obtained all licenses,
permits and approvals necessary or desirable for it to conduct the Business
after Closing.
SECTION 7.11. EMPLOYEES. Each employee of the Corporation identified
on Schedule 7.09, 7.09 shall have agreed to become an employee of Purchaser as
of the Closing Date on the terms and conditions offered by Purchaser.
SECTION 7.12. CHOICENTER REGISTRATION. Purchaser shall be reasonably
satisfied that the federal registration for the "CHOICENTER" service mark will
be approved and that no other use of such name will preclude Purchaser's use
thereof following the Escrow Release Date.
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ARTICLE VIII.
THE CORPORATION'S AND SHAREHOLDER'S CONDITIONS PRECEDENT
Except as may be waived in writing by the Corporation and Shareholder,
the obligations of the Corporation and Shareholder hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following
conditions:
SECTION 8.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained herein shall be true and correct in all
material respects as of the Closing Date.
SECTION 8.02. COVENANTS AND CONDITIONS. Purchaser shall have performed
and complied in all material respects with all covenants and conditions
required by this Agreement to be performed and complied with by it prior to the
Closing Date.
SECTION 8.03. PROCEEDINGS. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 8.04. CLOSING DELIVERIES. The Corporation or Shareholder, as
the case may be, shall have received all documents referred to in Section 9.02.
SECTION 8.05. SIMULTANEOUS CLOSINGS. The Closing shall occur
simultaneously with the closing of the transaction as contemplated by the Stock
Purchase Agreement.
SECTION 8.06. DEALER RESPONSE. The Corporation and Shareholder shall
have received a positive response (as determined by Shareholder) from a
majority of dealers with respect to their willingness to execute franchise
agreements with the Purchaser in accordance with the terms and conditions
furnished by the Purchaser pursuant to Article VI hereof.
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ARTICLE IX.
CLOSING DELIVERIES
SECTION 9.01. DELIVERIES OF THE CORPORATION AND SHAREHOLDER TO ESCROW
AGENT. At the Closing, the Corporation and Shareholder shall execute and
deliver the Escrow Agreement and shall deliver to Escrow Agent under the Escrow
Agreement the following, all of which shall be in form and content satisfactory
to Purchaser and its counsel and dated as of the appropriate date unless
otherwise specified:
(a) bills of sale (i.e., one for the deliveries to be made on the
Escrow Release Date and one for each other date that deliveries are made with
respect to each Transferred Retail Lot) conveying the Assets to Purchaser in
the form attached hereto as Exhibit C;
(b) assignment and assumption agreements assigning to Purchaser all
of the Corporation's rights and obligations in and to the Assumed Liabilities
(i.e., one for the deliveries to be made on the Escrow Release Date and one for
each other date that deliveries are made with respect to each Transferred
Retail Lot) (the "Assignment and Assumption Agreements");
(c) all assignments necessary for the transfer to Purchaser of the
Rights;
(d) a copy of resolutions of the Board of Directors of the
Corporation authorizing the execution, delivery and performance of this
Agreement and all related documents and agreements, certified by the Secretary
of the Corporation as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(e) a certificate of the President of the Corporation and of
Shareholder, each dated as of the Closing Date, as to the truth and correctness
of the representations and warranties of the Corporation and Shareholder
contained herein on and as of the Closing Date;
(f) a certificate of the President of the Corporation and of
Shareholder, each dated as of the Closing Date, (i) as to the performance of
and compliance by the Corporation and Shareholder with all covenants contained
herein on and as of the Closing Date and (ii) certifying that all conditions
precedent of the Corporation and Shareholder to the Closing have been
satisfied;
(g) a certificate of the Secretary of the Corporation, dated as of
the Closing Date, certifying as to the incumbency of the directors and officers
of the Corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of the Corporation;
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(h) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of North Carolina establishing that the Corporation is in
existence, has paid all franchise taxes and otherwise is in good standing to
transact business in its state of incorporation;
(i) certificates, dated within ten days of the Closing Date, of the
Secretaries of State of the states in which the Corporation is qualified to do
business, to the effect that the Corporation is qualified to do business and is
in good standing as a foreign corporation in each of such states;
(j) an Employment Agreement in the form attached hereto as Exhibit D
(the "Rumbley Employment Agreement"), duly executed by Charles E. Rumbley;
(k) an opinion of Wishart, Norris, Henninger & Pittman, P.A., counsel
to the Corporation and Shareholder, in form and substance reasonably acceptable
to Purchaser and their counsel;
(l) an agreement (the "Termination Agreement") between the Corporation
and each dealer of the Corporation terminating in its entirety the existing
Dealer Agreement between such parties, executed by Seller (but not any dealer);
and
(m) such other instrument or instruments of transfer as shall be
necessary or appropriate, as Purchaser or its counsel shall reasonably request,
to vest in Purchaser good and marketable title to the Assets.
SECTION 9.02. DELIVERIES OF PURCHASER TO ESCROW AGENT. At the Closing,
Purchaser shall execute and deliver the Escrow Agreement and shall deliver the
following to the Escrow Agent under the Escrow Agreement each of which shall be
dated as of the appropriate date unless otherwise specified:
(a) the Cash Consideration;
(b) the Note;
(c) the Assignment and Assumption Agreements;
(d) a copy of the resolutions of the Board of Directors of Purchaser
authorizing the execution, delivery and performance of this Agreement, the Note
and all related documents and agreements, each certified by Purchaser's
Secretary as being true and correct copies of the originals thereof subject to
no modifications or amendments;
(e) a certificate of the President of Purchaser, dated as of the
Closing Date, as to the truth and correctness of the representations and
warranties of Purchaser contained herein on and as of the Closing Date;
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(f) a certificate of the President of Purchaser, dated as of the
Closing Date, (i) as to the performance of and compliance by Purchaser with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Purchaser to the Closing have been satisfied;
(g) a certificate of the Secretary of Purchaser, dated as of the
Closing Date, certifying as to the incumbency of the directors and officers of
Purchaser and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of Purchaser;
(h) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of Purchaser's state of incorporation, establishing that
Purchaser is in existence, has paid all state taxes and otherwise is in good
standing to transact business in such state;
(i) the Rumbley Employment Agreement, duly executed by AHC; and
(j) an opinion of Jackson & Walker, L.L.P., counsel to Purchaser in
form and substance reasonably acceptable to the Corporation and its counsel.
ARTICLE X.
POST CLOSING MATTERS
SECTION 10.01. FURTHER INSTRUMENTS OF TRANSFER. Following the Closing,
and consistent with the terms of the Escrow Agreement, at the request of
Purchaser the Corporation and Shareholder shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate
to (a) vest in Purchaser good and marketable title to Assets and (b) transfer
to Purchaser all licenses and permits necessary for the operation of the
Assets.
SECTION 10.02. EMPLOYEE BENEFIT PLANS. After the Closing Date, the
Corporation shall remain liable under its medical and dental plans and
commitments for any claims incurred by Business Employees or their spouses and
dependents prior to the Closing Date. A claim shall be deemed to have been
incurred upon the occurrence of an injury or the diagnosis of an illness. An
incurred claim shall include any claim or series of claims related to a claim
incurred prior to the Closing Date. The Corporation shall retain all liability
for continuation coverage under Section 162(k) of the Code. The Corporation
shall take such steps as necessary to ensure that each Business Employee's
rights under any employee benefit plan of the Corporation shall be fully vested
and nonforfeitable after the Closing.
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SECTION 10.03. SALES AND TRANSFER TAXES. The Corporation shall timely
file all sales tax returns with respect to its sales and shall timely pay all
sales taxes applicable to the sales reported thereon. The Corporation shall be
liable for and shall indemnify Purchaser against all sales, transfer, use,
excise, registration or other taxes assessed or payable in connection with the
transfer of the Assets from the Corporation to Purchaser. The Corporation and
Purchaser shall sign, and otherwise shall cooperate in the preparation and
filing with the appropriate governmental agencies of, any affidavits or other
transfer documents that are required in connection with the transfer of
vehicles or trailers that constitute part of the Assets. Shareholder shall
timely file all income tax and information returns related to taxable periods
or portions thereof ending prior to or on the Closing Date with respect to the
Business.
SECTION 10.04. POST CLOSING OPERATIONS AND AGREEMENTS. From the
Closing until the Anniversary Date and thereafter with respect to any Retail
Lot which is not a Transferred Retail Lot: (i) the noncompetition provisions
set forth herein and any prohibitions on the use of trade secrets or
prohibitions against competition set forth in the Rumbley Employment Agreement,
the Stock Purchase Agreement or any other agreement to which the Corporation
and/or Shareholder are a party shall not apply with respect, and limited
solely, to any Retail Lot which is not a Transferred Retail Lot; and (ii) the
Corporation and the Corporation's dealers shall have a royalty free right and
license to use the "CHOICENTER" and "Westwood Homes" names (until, however, in
the case of a dealer, the expiration of the then existing term of its
dealership agreement with the Corporation with respect to the lots operated by
such dealer). With respect to any Retail Lot which is not a Transferred Retail
Lot, the Corporation may elect to become a franchisee of Purchaser on the same
terms initially offered by Purchaser to the Corporation's dealers. Prior to
the Anniversary Date and except in accordance with this Agreement, Purchaser
agrees not to permit any person who is a dealer of the Corporation at the date
hereof to become a franchisee of Purchaser without the prior written consent of
the Corporation. Prior to the Anniversary Date, the Corporation and its
dealers shall be entitled to purchase goods from Heartland Homes, Inc. in
accordance with prior practices (including quality, delivery, price and terms)
and the dealer advertising allowance previously made available to the
Corporation shall continue in effect with payments being made on a quarterly
basis. From the Closing until the Anniversary Date, the Corporation and
Rumbley shall use all reasonable commercial efforts to cause its landlords,
lessees and dealers to become landlords, lessees and franchisees of Purchaser.
ARTICLE XI.
NONCOMPETITION
SECTION 11.01. PROHIBITED ACTIVITIES. In consideration for Purchaser's
execution and delivery of this Agreement, and other good and valuable
consideration, Shareholder hereby agrees that, subject to adjustment pursuant
to Section 11.05, for a period of five (5)
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years following the Closing Date, Shareholder shall not knowingly, directly or
indirectly, for himself or on behalf of any other corporation, person, firm,
partnership, association, or any other entity (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(a) engage or participate in any business which engages in
competition with the business of Purchaser and its affiliates (the "Purchaser
Group"), except as permitted in (d) below (as used herein, a business in
competition with the business of the Purchaser Group is one which manufactures,
distributes, or sells manufactured housing or modular housing within the States
of North Carolina, South Carolina, Virginia, West Virginia, Maryland, Delaware,
Georgia, Tennessee, Arkansas, Florida, Alabama, Louisiana, Texas, Kansas,
Kentucky, Oregon, Idaho, Washington, Pennsylvania, Nebraska, Colorado,
Mississippi, Arizona, New Mexico, Nevada, Oklahoma, Missouri, Utah, Montana and
South Dakota, or any other State where the Purchaser Group conducts business
during such five-year period; provided, however, that this provision shall not
prohibit Shareholder from purchasing or holding an aggregate equity interest of
up to 1%, so long as Shareholder does not purchase or hold an aggregate equity
interest of more than 5%, in any business in competition with the Purchaser
Group; and provided further, however, that Shareholder may retail a park model
unit that is not (i) subject to Housing and Urban Development rules and
regulations and (ii) larger than 385 square feet;
(b) induce or attempt to influence any employee of the Purchaser
Group to terminate his or her employment, or to hire any person who is an
employee of the Purchaser Group, or was an employee of the Purchaser Group
during such five- year period, whether or not so induced or influenced, except
that any such employee may be hired with Purchaser's prior written consent;
(c) assist or finance any person or entity which competes (as defined
in subsection (a) hereof) with the Purchaser Group, except as provided in (d)
below.
(d) engage or participate in any manufactured housing subdivision
project, except as set forth on Schedule 11.01 hereto, or in that certain
Manufactured Housing Purchase Agreement of even date herewith, by and among
Purchaser, Shareholder, Johnson and HHI.
SECTION 11.02. DAMAGES. Because of the difficulty of measuring
economic losses to the Purchaser as a result of the breach of the foregoing
covenant, and because of the immediate and irreparable damage that would be
caused to Purchaser for which it would have no other adequate remedy,
Shareholder agrees that, in the event of a breach by him of the foregoing
covenant, the covenant may be enforced by Purchaser or the Corporation by
injunctions and restraining orders.
SECTION 11.03. REASONABLE RESTRAINT. It is agreed by the parties that
the foregoing covenants in this Article XI impose a reasonable restraint on
Shareholder in light of the
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activities and business of the Corporation on the date of the execution of this
Agreement and the future plans of the Corporation and Purchaser. Shareholder
hereby agrees that this covenant is a material and substantial part of this
transaction.
SECTION 11.04. SEVERABILITY; REFORMATION. The covenants in this
Article XI are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
SECTION 11.05. TERM. It is specifically agreed that the period of five
(5) years stated above, shall be computed by excluding from such computation
any time during which Shareholder is in violation of any provision of this
Article XI. The covenants contained in this Article XI shall have no effect if
the transactions contemplated by this Agreement are not consummated, but
otherwise shall not be affected by any breach of any other provision hereof by
any party hereto. Notwithstanding anything contained herein to the contrary,
the provisions of Section 11.01 shall terminate and be of no force in effect
with respect to Shareholder in the event that an Event of Default (as such term
is defined in the Note) exists under the Note and such Event of Default has not
been cured within the applicable cure period.
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ARTICLE XII.
REMEDIES
SECTION 12.01. INDEMNIFICATION BY SHAREHOLDER. Subject to the terms
and conditions of this Article, Shareholder agrees to indemnify, defend and
hold Purchaser and its directors, officers, agents, attorneys and affiliates
harmless from and against all losses, claims, causes of action, obligations,
demands, assessments, penalties, liabilities, costs, damages, attorneys' fees
and expenses (collectively, "Damages"), asserted against or incurred by such
indemnitees by reason of or resulting from: (a) a breach of any representation,
warranty or covenant of the Corporation or Shareholder contained herein, in any
exhibit, schedule, certificate or financial statement delivered hereunder, or
in any agreement executed in connection with the transactions contemplated
hereby; (b) any studies, audits, investigation, testing, clean-up or
remediation work on, or permits required for, the properties owned or leased by
the Corporation which is necessary or advisable under or pursuant to
Environmental Laws (including, without limitation, any of the foregoing which
may arise out of the matters set forth in the reports provided or obtained
pursuant to Section 5.04) ("Environmental Matters"), but excluding the costs
and expenses to be borne by Purchaser for certain Phase I environmental studies
as provided in Section 12.07; (c) any liabilities of the Corporation,
contingent or otherwise (known or unknown and asserted or unasserted), except
for the Assumed Liabilities; (d) any tax filing or return or payment made, or
position taken, by the Corporation that any governmental authority challenges
and that results in an assertion of Damages against Purchaser; (e) all income,
excise, corporate, franchise, property, sales, use, payroll, withholding and
other taxes of the Corporation and/or Shareholder related to taxable periods or
portions thereof ending on or before the Closing Date ("Taxes"), except for the
Taxes deducted in computing the net working capital transferred to Purchaser;
(f) the purchase price adjustment, if any, as determined pursuant to Section
2.03; (g) any failure to comply with any applicable bulk transfer laws; (h) the
Corporation's past and present arrangements with its dealers, including any
violations of applicable franchise laws or any rights of any such dealers under
any applicable franchise law; and (i) Purchaser's having to register a new
federal service mark in the event the application for the "CHOICENTER" service
mark is rejected or materially modified or limited or, during the lapse of such
registration, some other person or entity utilizes such service mark or a
materially similar service mark (with such indemnification being limited to
search fees, filing fees and the like incurred by Purchaser in reviewing and
obtaining a new federal service mark and attorneys fees and expenses related
thereto).
SECTION 12.02. INDEMNIFICATION BY PURCHASER. Subject to the terms and
conditions of this Article, Purchaser hereby agrees to indemnify, defend and
hold the Corporation and Shareholder harmless from and against all Damages
asserted against or incurred by the Corporation and Shareholder by reason of or
resulting from (i) a breach of any representation, warranty or covenant of
Purchaser contained herein or in any exhibit, schedule or certificate delivered
hereunder, or in any agreement executed in connection
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with the transactions contemplated hereby; and (ii) any and all liabilities of
Purchaser, including, without limitation, the Assumed Liabilities.
SECTION 12.03. INDEMNIFICATION LIMITATIONS. Notwithstanding anything
contained in this Agreement to the contrary, the liability of the Corporation
and the Shareholder shall be subject to the following limitations: (a) the
Corporation and the Shareholder, in the aggregate, shall not be liable for any
Damages and/or in respect of the Purchase Price Adjustment in an aggregate
amount in excess of the Purchase Price (or such lesser amount if not all the
Purchase Price is released to the Corporation under the Escrow Agreement); (b)
on the day immediately following the Anniversary Date and except with respect
to Damages relating to Environmental Matters, Taxes and the representations and
warranties set forth in Sections 3.01, 3.03, 3.11 and 3.19 hereof, the
aggregate liability of the Corporation and the Shareholder in respect of
Damages shall be reduced to $400,000; provided, however, that such reduced
liability maximum shall not apply if prior to such date, the Corporation and/or
the Shareholder shall have been notified of a claim for indemnity hereunder
which potentially exceeds such reduced liability maximum, and such claim shall
not have been finally resolved or disposed of as of such date; (c) the
Corporation and the Shareholder, in the aggregate, shall not be liable for any
Damages (exclusive of the Purchase Price Adjustment) to Purchaser hereunder
until the aggregate amount of all such Damages exceeds $25,000, it being
understood and agreed by the Corporation and the Shareholder that when the
amount of such Damages exceeds $25,000, in the aggregate, indemnification may
be sought against the Corporation and the Shareholder in full for all such
Damages from the first dollar thereof; and (d) the Corporation and Shareholder
shall not be liable for Damages with respect to Environmental Matters which
relate to real estate not owned by the Corporation or Shareholder unless it is
claimed that such Environmental Matter was caused, in whole or in part, by the
actions or inactions of the Corporation or Shareholder.
SECTION 12.04. CONDITIONS OF INDEMNIFICATION. The respective
obligations and liabilities of the Corporation and Shareholder and Purchaser
(the "indemnifying party") to the other (the "party to be indemnified") under
Sections 12.01 and 12.02 with respect to claims resulting from the assertion of
liability by third parties shall be subject to the following additional terms
and conditions:
(a) Within 20 days (or such earlier time as might be required to
avoid prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or
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(iii) the named parties to any such action (including any impleaded parties)
include both the indemnifying party and the party to be indemnified and the
party to be indemnified has been advised by counsel that there may be one or
more legal defenses available to it that are different from or additional to
those available to the indemnifying party (in which case, if the party to be
indemnified informs the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the party to be indemnified, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the party to be indemnified, which firm shall be designated in writing
by the party to be indemnified). Except as set forth in Section 14.06, the
failure to promptly deliver a notice of an indemnity claim hereunder shall not
relieve the indemnifying party of its obligations to the indemnified party with
respect to such claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim.
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not
elect to defend against such claim, the party to be indemnified will (upon
further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party and at the indemnifying party's
expense, subject to the right of the indemnifying party to assume the defense
of such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified. The party to be indemnified and the indemnifying
party will each cooperate with all reasonable requests of the other.
SECTION 12.05. WAIVER. No waiver by any party of any default or breach
by another party of any representation, warranty, covenant or condition
contained in this Agreement, any exhibit or any document, instrument or
certificate contemplated hereby shall be deemed to be a waiver of any
subsequent default or breach by such party of the same or any other
representation, warranty, covenant or condition. No act, delay, omission or
course of dealing on the part of any party in exercising any right, power or
remedy under this Agreement or at law or in equity shall operate as a waiver
thereof or otherwise prejudice any of such party's rights, powers and remedies.
All remedies, whether at law or in
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equity, shall be cumulative and the election of any one or more shall not
constitute a waiver of the right to pursue other available remedies.
SECTION 12.06. REMEDIES NOT EXCLUSIVE. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity.
SECTION 12.07. OFFSET. Any and all amounts owing or to be paid by any
party hereto to any other party hereto, hereunder or otherwise, shall be
subject to offset and reduction pro tanto by any amounts that may be owing at
any time by such other party to such party in respect of the indemnification
provisions contained herein or any failure or breach of any representation,
warranty or covenant of such other party under or in connection with this
Agreement or any other agreement with such party or any transaction
contemplated hereby or thereby, as reasonably determined by such party. If
such party determines that such offset is appropriate, notice shall be given to
such other party of such determination at least 10 days prior to the due date
of the payment to be reduced. If the conditions upon which the reduction is
based are cured by such other party prior to such due date, as determined by
such party, the amount of such payment shall not be so reduced. With respect
to any payments which are due and owing to Purchaser pursuant to the provisions
of Sections 2.03 and 12.01, Purchaser agrees to first offset such amounts
against payments to be made by Purchaser under the Note to the extent any such
payments remain.
SECTION 12.08. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including accountants' and attorneys' fees and
expenses), except that (a) the costs and expenses for any Phase I environmental
study requested by Purchaser pursuant to Section 5.04 shall be borne one-half
by Purchaser and one-half by Shareholder and (b) each party hereto that is
shown to have breached this Agreement or any other agreement contemplated
hereby agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by any other party in successfully (i) enforcing
any of the terms of this Agreement against such breaching party or (ii) proving
that another party breached any of the terms of this Agreement.
SECTION 12.09. SPECIFIC PERFORMANCE. Each party hereto acknowledges
that a refusal by such party to consummate the transactions contemplated hereby
will cause irreparable harm to the other parties hereto, for which there may be
no adequate remedy at law and for which the ascertainment of damages would be
difficult. Therefore, the other parties hereto shall be entitled, in addition
to, and without having to prove the inadequacy of, other remedies at law, to
specific performance of this Agreement against the refusing party, as well as
injunctive relief (without being required to post bond or other security).
SECTION 12.10. TAX EFFECT OF INDEMNIFICATION. Notwithstanding any term
or provision of this Agreement to the contrary, any indemnity payments owed by
one party to another
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party to this Agreement shall be reduced by any tax benefits to the party
claiming indemnity hereunder and increased by any tax detriments to the party
claiming indemnity hereunder.
ARTICLE XIII.
TERMINATION
SECTION 13.01. TERMINATION. This Agreement may or shall be terminated:
(a) At any time prior to the Closing Date by mutual agreement of all
parties.
(b) At any time after August 30, 1996, by any party if the Closing
has not occurred (or such later date if extended pursuant to Section 1.01(j)
above).
(c) At any time prior to the Closing Date by Purchaser if any
representation or warranty of the Corporation or Shareholder contained in this
Agreement or in any certificate or other document executed and delivered by the
Corporation pursuant to this Agreement is or becomes untrue or breached in any
material respect or if the Corporation or Shareholder fail to comply in any
material respect with any covenant contained herein, and any such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within five days.
(d) At any time prior to the Closing Date by Shareholder if any
representation or warranty of Purchaser contained in this Agreement or in any
certificate or other document executed and delivered by Purchaser pursuant to
this Agreement is or becomes untrue or breached in any material respect or if
Purchaser fails to comply in any material respect with any covenant contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within five days.
(e) On or after the Closing Date by Purchaser if the conditions
stated in Article VII have not been satisfied or waived by Purchaser by the
Closing Date.
(f) On or after the Closing Date by the Corporation if the conditions
stated in Article VIII have not been satisfied or waived by the Corporation by
the Closing Date.
In the event this Agreement is terminated pursuant to subparagraph (b), (c),
(d), (e) or (f) above, Purchaser, the Corporation and Shareholder shall each be
entitled to pursue, exercise and enforce any and all remedies, rights, powers
and privileges available at law or in equity. In the event of a termination of
this Agreement under the provisions of this Article, a party not then in
material breach of this Agreement shall stand fully released and discharged of
any and all obligations under this Agreement.
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ARTICLE XIV.
MISCELLANEOUS
SECTION 14.01. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 14.02. ASSIGNMENT. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by Purchaser to an affiliate of Purchaser. In the event of an
assignment of this Agreement by Purchaser to an affiliate of Purchaser,
Purchaser agrees that it shall guarantee the obligations of such assignee to
the Corporation hereunder.
SECTION 14.03. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 14.04. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
SECTION 14.05. SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 14.06. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants contained herein shall survive
the Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Corporation, Shareholder or
Purchaser pursuant to this Agreement shall be deemed to have been
representations and warranties by the Corporation and Shareholder or Purchaser,
as the case may be, and, notwithstanding any provision in this Agreement
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to the contrary, shall survive the Closing for a period of two years, except
for (a) representations and warranties with respect to any tax or tax-related
matters, which shall survive the Closing until the running of any applicable
statutes of limitation, and (b) indemnification provisions for the violation of
any Environmental Law, shall survive the Closing and shall continue
indefinitely and (c) the non-competition provisions contained in Article XI,
which shall survive the Closing for a period of five years. Notwithstanding
the above, if prior to any expiration date the indemnifying party shall have
been notified of a claim for indemnity hereunder and such claim shall not have
been finally resolved or disposed of at such date, any representation or
warranty that is the basis for such claim shall continue to survive as to such
claim and shall remain a basis for indemnity, to the extent of such claim only,
until such claim is finally resolved or disposed of.
SECTION 14.07. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
SECTION 14.08. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
SECTION 14.09. GENDER AND NUMBER. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
SECTION 14.10. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 14.11. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES.
(a) All copies of any information delivered to Purchaser pursuant to
this Agreement shall, upon the written request of the Corporation, be promptly
returned to the Corporation in the event this Agreement is terminated, and
Purchaser agrees that it will use any information obtained from such review
which is confidential only for purposes of making its decision as to whether to
consummate the transactions contemplated herein and not for any other purposes.
For purposes of this Section 14.11(a), "confidential" information does not
include information which: (i) is or becomes generally available to the public
other than as a result of disclosure which is in violation of this Section;
(ii) was known by Purchaser on a nonconfidential basis prior to the disclosure
thereof; or (iii) is acquired by Purchaser from a third party who has no
confidential commitment to the Corporation with respect to the same.
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(b) Each party shall keep this Agreement and its terms confidential,
and shall make no press release or public disclosure, either written or oral,
regarding the transactions contemplated by this Agreement without the prior
knowledge and consent of the other parties hereto; provided that the foregoing
shall not prohibit any disclosure (i) by press release, filing or otherwise
that is required by law (including, without limitation, federal securities
laws), regulation or court or administrative order, (ii) to advisors,
financiers or lenders of any party or to any party's directors, officers,
employees and representatives involved in the transactions contemplated herein
or (iii) by Purchaser in connection with obtaining financing for the
transactions contemplated by this Agreement and conducting an examination of
the operations and assets of the Corporation.
SECTION 14.12. NOTICE. Any notice or demand which is permitted or
required hereunder will be deemed to have been received (except as otherwise
provided herein) (a) upon receipt when personally delivered, (b) or one day
after sent by overnight delivery by a nationally recognized courier or telecopy
providing confirmation or receipt of delivery, or (c) three days after being
sent by certified or registered mail, postage and charges prepaid, return
receipt requested to the addresses listed on Schedule 14.12 attached hereto, or
at any other address designated by any party hereto to all other parties hereto
in writing.
SECTION 14.13. SHAREHOLDER GUARANTY. Shareholder hereby guarantees,
absolutely and unconditionally, the obligations of the Corporation hereunder,
including, without limitation, the payment of the Purchase Price Adjustment,
and the prompt performance by the Corporation of its obligations hereunder.
SECTION 14.14. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
ASSOCIATED RETAILERS GROUP, INC.
By:
--------------------------------
Its:
-------------------------------
MANU-FAC HOMES, INC.
By:
--------------------------------
Its:
-------------------------------
-----------------------------------
CHARLES E. RUMBLEY
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<PAGE> 40
GUARANTY
American Homestar Corporation, a Texas corporation (the "Guarantor"), as
the sole shareholder of Purchaser, in consideration of the commitments made by
the Corporation and the Shareholder in this Agreement, hereby guarantees
performance, when and as due, of all of Purchaser's obligations under the
Agreement and the Note. Such guaranty is absolute and irrevocable. Such
guaranty is unconditional subject only to the following:
(a) This Guaranty will become effective, and Guarantor shall be
liable for the obligations of Purchaser under the Agreement, only
if and at such time as the Escrow Release Date occurs;
(b) The obligations of Guarantor shall be equal to and shall not be
greater than the liability of Purchaser under the Agreement and
the Note; and
(c) Guarantor shall have the right to assert any defenses which
Purchaser might assert; provided, however, that the liability of
Guarantor under this Guaranty shall not be affected or reduced by
the bankruptcy or insolvency of Purchaser.
The liability of Guarantor shall not be released or otherwise affected by
reason of any modification of any terms of the Agreement or the Note, any delay
by the Corporation or Shareholder in demanding payment or performance by
Purchaser or Guarantor, any waiver by the Corporation or Shareholder of any
claims against Purchaser or the institution of any suit against Purchaser.
Guarantor hereby expressly waives any notice of acceptance of this Guaranty or
any notice of any actions taken pursuant to the Agreement, the Note or pursuant
to this Guaranty. Guarantor acknowledges and agrees that, subject to the
conditions stated above, this Guaranty extends to all obligations of Purchaser
under the Agreement, including, without limitation, those obligations for
indemnity under Article XI of the Agreement.
Dated as of the date first set forth above.
AMERICAN HOMESTAR CORPORATION
By:
-------------------------------------
Laurence A. Dawson, Jr., President
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<PAGE> 41
INDEX OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1.01(b) Assets
Schedule 1.01(d) Assumed Liabilities
Schedule 1.01 (ad) Retail Lots
Schedule 1.01(y) Personal Property
Schedule 2.01 Form of Escrow Agreement ("2.01" not set out in Agreement)
Schedule 2.04 Asset Allocation
Schedule 3.02 Foreign Jurisdictions
Schedule 3.04 Violations
Schedule 3.05 Consents
Schedule 3.06 Liabilities
Schedule 3.07 Absence of Changes
Schedule 3.08 Commitments
Schedule 3.10 Proprietary Rights
Schedule 3.12 Permits and Licenses
Schedule 3.17 Ownership Interests of Interested Persons
Schedule 3.18 Investment in Corporation
Schedule 3.19 Environmental Permits and Licenses
Schedule 3.21 Dealer Incentives
Schedule 7.12 Employees
Schedule 9.02(a) Leases and Subleases
Schedule 11.01 Prohibited Activities
Schedule 14.12 Addresses
</TABLE>
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<PAGE> 42
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Escrow Agreement
Exhibit B Promissory Note
Exhibit C Bill of Sale
Exhibit D Rumbley Employment Agreement
</TABLE>
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<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERICAN HOMESTAR CORPORATION,
HEARTLAND HOMES, INC.,
JAMES H. JOHNSON, III
AND
CHARLES E. RUMBLEY
JULY 25, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
PURCHASE AND SALE . . . . . . . . . . . . 4
Section 2.01. Purchase and Sale of Stock . . . . . . . . . . . . 4
Section 2.02. Purchase Price . . . . . . . . . . . . . . . . . . 4
Section 2.03. Purchase Price Adjustment . . . . . . . . . . . . 4
Section 2.04. Section 338(h)(10) Election . . . . . . . . . . . 5
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION AND SHAREHOLDERS . . . . . . . . 6
Section 3.01. Ownership of the Stock . . . . . . . . . . . . . . 6
Section 3.02. Organization and Good Standing; Qualification . . 7
Section 3.03. Capitalization . . . . . . . . . . . . . . . . . . 7
Section 3.04. Corporate Records . . . . . . . . . . . . . . . . 7
Section 3.05. Authorization and Validity . . . . . . . . . . . . 7
Section 3.06. Subsidiaries . . . . . . . . . . . . . . . . . . . 8
Section 3.07. No Violation . . . . . . . . . . . . . . . . . . . 8
Section 3.08. Consents . . . . . . . . . . . . . . . . . . . . . 8
Section 3.09. Financial Statements . . . . . . . . . . . . . . . 8
Section 3.10. Liabilities and Obligations . . . . . . . . . . . 9
Section 3.11. Employee Matters . . . . . . . . . . . . . . . . . 9
Section 3.12. Employee Benefit Plans . . . . . . . . . . . . . . 10
Section 3.13. Absence of Certain Changes . . . . . . . . . . . . 12
Section 3.14. Title; Leased Assets . . . . . . . . . . . . . . . 13
Section 3.15. Commitments . . . . . . . . . . . . . . . . . . . 14
Section 3.16. Insurance . . . . . . . . . . . . . . . . . . . . 16
Section 3.17. Proprietary Rights . . . . . . . . . . . . . . . . 16
Section 3.18. Taxes . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.19. Compliance with Laws . . . . . . . . . . . . . . . 17
Section 3.20. Finder's Fee . . . . . . . . . . . . . . . . . . . 18
Section 3.21. Litigation . . . . . . . . . . . . . . . . . . . . 18
Section 3.22. Accuracy of Information Furnished . . . . . . . . 18
Section 3.23. Condition of Fixed Assets . . . . . . . . . . . . 18
Section 3.24. Inventory . . . . . . . . . . . . . . . . . . . . 18
Section 3.25. Books of Account . . . . . . . . . . . . . . . . . 18
Section 3.26. Backlog . . . . . . . . . . . . . . . . . . . . . 18
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<PAGE> 3
Section 3.27. Distributions and Repurchases . . . . . . . . . . 19
Section 3.28. Customers and Suppliers . . . . . . . . . . . . . 19
Section 3.29. Product Warranties . . . . . . . . . . . . . . . . 19
Section 3.30. Ownership Interests of Interested Persons . . . . 19
Section 3.31. Investments in Competitors . . . . . . . . . . . . 19
Section 3.32. Environmental Matters . . . . . . . . . . . . . . 19
Section 3.33. Certain Payments . . . . . . . . . . . . . . . . . 20
Section 3.34. Government Inquiries . . . . . . . . . . . . . . . 20
Section 3.35. Dealer Incentives . . . . . . . . . . . . . . . . 20
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . 20
Section 4.01. Organization and Good Standing . . . . . . . . . . 20
Section 4.02. Authorization and Validity . . . . . . . . . . . . 21
Section 4.03. No Violation . . . . . . . . . . . . . . . . . . . 21
Section 4.04. Finder's Fee . . . . . . . . . . . . . . . . . . . 21
Section 4.05. Commission Reports . . . . . . . . . . . . . . . . 21
Section 4.06. Financial Statements . . . . . . . . . . . . . . . 21
Section 4.07. Absence of Certain Changes . . . . . . . . . . . . 22
ARTICLE V.
THE SHAREHOLDERS' COVENANTS . . . . . . . . . . 22
Section 5.01. Consummation of Agreement . . . . . . . . . . . . 22
Section 5.02. June Balance Sheet . . . . . . . . . . . . . . . . 22
Section 5.03. Business Operations . . . . . . . . . . . . . . . 22
Section 5.04. Access . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.05. Environmental Audits . . . . . . . . . . . . . . . 23
Section 5.06. Material Change . . . . . . . . . . . . . . . . . 23
Section 5.07. Approvals of Third Parties . . . . . . . . . . . . 23
Section 5.08. Employee Matters . . . . . . . . . . . . . . . . . 23
Section 5.09. Employee Benefit Plans . . . . . . . . . . . . . . 23
Section 5.10. Contracts . . . . . . . . . . . . . . . . . . . . 24
Section 5.11. Changes in Inventory . . . . . . . . . . . . . . . 24
Section 5.12. Capital Assets; Payments of Liabilities . . . . . 24
Section 5.13. Mortgages, Liens and Guaranties . . . . . . . . . 24
Section 5.14. No Negotiation with Others . . . . . . . . . . . . 24
Section 5.15. Backlog . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI.
PURCHASER'S COVENANTS . . . . . . . . . . . 24
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<PAGE> 4
ARTICLE VII.
PURCHASER'S CONDITIONS PRECEDENT . . . . . . . . 25
Section 7.01. Representations and Warranties . . . . . . . . . . 25
Section 7.02. Covenants and Conditions . . . . . . . . . . . . . 25
Section 7.03. Proceedings . . . . . . . . . . . . . . . . . . . 25
Section 7.04. No Material Adverse Change . . . . . . . . . . . . 25
Section 7.05. Due Diligence Review . . . . . . . . . . . . . . . 25
Section 7.06. Employment Agreements . . . . . . . . . . . . . . 25
Section 7.07. June Balance Sheet and Closing Assets . . . . . . 25
Section 7.08. Approvals . . . . . . . . . . . . . . . . . . . . 25
Section 7.09. Simultaneous Closings . . . . . . . . . . . . . . 26
Section 7.10. Elimination of Plan . . . . . . . . . . . . . . . 26
Section 7.11. Closing Deliveries . . . . . . . . . . . . . . . . 26
ARTICLE VIII.
THE CORPORATION'S AND SHAREHOLDERS' CONDITIONS PRECEDENT . . 26
Section 8.01. Representations and Warranties . . . . . . . . . . 26
Section 8.02. Covenants and Conditions . . . . . . . . . . . . . 26
Section 8.03. Proceedings . . . . . . . . . . . . . . . . . . . 26
Section 8.04. Closing . . . . . . . . . . . . . . . . . . . . . 26
Section 8.05. Closing Deliveries . . . . . . . . . . . . . . . . 26
ARTICLE IX.
CLOSING DELIVERIES . . . . . . . . . . . . 26
Section 9.01. Deliveries of the Corporation and Shareholders . . 26
Section 9.02. Deliveries of Purchaser . . . . . . . . . . . . . 28
ARTICLE X.
NONCOMPETITION . . . . . . . . . . . . . 29
Section 10.01. Prohibited Activities . . . . . . . . . . . . . . 29
Section 10.02. Damages . . . . . . . . . . . . . . . . . . . . . 30
Section 10.03. Reasonable Restraint . . . . . . . . . . . . . . 30
Section 10.04. Severability; Reformation . . . . . . . . . . . . 30
Section 10.05. Term . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XI.
REMEDIES
SECTION 11.01. INDEMNIFICATION BY SHAREHOLDERS . . . . . . . . . 30
Section 11.02. Indemnification by Purchaser . . . . . . . . . . 31
Section 11.03. Conditions of Indemnification . . . . . . . . . . 31
Section 11.04. Limitations of Indemnification . . . . . . . . . 33
Section 11.05. Several Liability . . . . . . . . . . . . . . . . 33
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<PAGE> 5
Section 11.06. Waiver . . . . . . . . . . . . . . . . . . . . . 33
Section 11.07. Remedies Not Exclusive . . . . . . . . . . . . . 33
Section 11.08. Offset . . . . . . . . . . . . . . . . . . . . . 33
Section 11.09. Costs, Expenses and Legal Fees . . . . . . . . . 34
Section 11.10 Specific Performance . . . . . . . . . . . . . . . 34
Section 11.11. Tax Effect of Indemnification . . . . . . . . . . 34
ARTICLE XII.
TERMINATION . . . . . . . . . . . . . . 34
Section 12.01. Termination . . . . . . . . . . . . . . . . . . . 34
ARTICLE XIII.
MISCELLANEOUS . . . . . . . . . . . . . 35
Section 13.01. Amendment . . . . . . . . . . . . . . . . . . . . 35
Section 13.02. Assignment . . . . . . . . . . . . . . . . . . . 35
Section 13.03. Parties In Interest; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . 36
Section 13.04. Entire Agreement . . . . . . . . . . . . . . . . 36
Section 13.05. Severability . . . . . . . . . . . . . . . . . . 36
Section 13.06. Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . . 36
Section 13.07. Governing Law . . . . . . . . . . . . . . . . . . 36
Section 13.08. Captions . . . . . . . . . . . . . . . . . . . . 37
Section 13.09. Gender and Number . . . . . . . . . . . . . . . . 37
Section 13.10. Reference to Agreement . . . . . . . . . . . . . 37
Section 13.11. Confidentiality; Publicity and Disclosures . . . 37
Section 13.12. Notice . . . . . . . . . . . . . . . . . . . . . 37
Section 13.13. Further Instruments of Transfer . . . . . . . . . 37
Section 13.14. Counterparts . . . . . . . . . . . . . . . . . . 38
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of July 25,
1996, is by and among Heartland Homes, Inc., a North Carolina corporation (the
"Corporation"), James H. Johnson, III and Charles E. Rumbley ("Rumbley"), the
holders of all of the outstanding capital stock of the Corporation
(collectively, the "Shareholders"), and American Homestar Corporation, a Texas
corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Shareholders hold all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock"), and desire to sell, and
Purchaser desires to purchase, the Stock;
WHEREAS, Associated Retailers Group, Inc., a Texas corporation ("ARG"),
Rumbley and Manu-Fac Homes, Inc., a North Carolina corporation ("Manu-Fac"),
have entered into on the date hereof an Asset Purchase Agreement (the "Asset
Purchase Agreement"), pursuant to which ARG shall acquire certain assets of
Manu-Fac; and
WHEREAS, the transactions contemplated hereby are contingent upon the
consummation of the transactions contemplated by the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "best knowledge", "have no knowledge of", or "do not know of" and
similar phrases shall mean (i) in the case of a natural person, the particular
fact was known, or not known, as the context requires, to such person after
diligent investigation and inquiry by such person and (ii) in the case of an
entity, the particular fact was known, or not known, as the context requires,
to any senior management level employee of such entity after diligent
investigation and inquiry by such persons.
(b) "Cash Compensation" shall have the meaning set forth in Section
3.11(a).
(c) "Cash Consideration" shall have the meaning set forth in Section
2.02.
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<PAGE> 7
(d) "Closing" shall mean the closing of the transactions contemplated
by this Agreement, which shall occur at 10:00 a.m., local time, on the Closing
Date in the offices of Jackson & Walker, Suite 6000, 901 Main Street, Dallas,
Texas 75202, or at such other time and place as shall be mutually agreed in
writing by the parties hereto. The Closing shall be effective as of the
Closing Date for all purposes.
(e) "Closing Date" shall mean the date as soon as practicable after
the date hereof; provided that the date may not be later than August 30, 1996,
unless such date is extended by mutual agreement of all of the parties hereto,
and shall be the same date as the closing date of the Asset Purchase Agreement.
(f) "Code" shall mean the Internal Revenue Code of 1986.
(g) "Commission" shall mean the Securities and Exchange Commission.
(h) "Commission Reports" shall have the meaning set forth in Section
4.05.
(i) "Commitments" shall have the meaning set forth in Section
3.15(a).
(j) "Compensation Plans" shall have the meaning set forth in Section
3.11(b).
(k) "Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including
information derived from reports, investigations, research, work in progress,
codes, software, marketing and sales programs, financial projections, cost
summaries, pricing formula, contract analyses, financial information,
projections, maps, confidential filings with any state or federal agency, and
all other concepts, know-how, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
(l) "Controlled Group" shall have the meaning set forth in Section
3.12(d).
(m) "Damages" shall have the meaning set forth in Section 11.01.
(n) "December Balance Sheet" shall mean the balance sheet of the
Corporation as at December 31, 1995 which is included in the Financial
Statements.
(o) "December Net Worth" shall mean the sum of the assets of the
Corporation as shown on the December Balance Sheet less the sum of the
liabilities of the Corporation as shown on the December Balance Sheet.
(p) "Employee Benefit Plan" shall have the meaning set forth in
Section 3.12(a).
(q) "Employee Policies and Procedures" shall have the meaning set
forth in Section 3.11(d).
(r) "Employment Agreements" shall have the meaning set forth in
Section 3.11(c).
-2-
<PAGE> 8
(s) "Environmental Laws" shall have the meaning set forth in Section
3.32.
(t) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(u) "Financial Statements" shall have the meaning set forth in
Section 3.09.
(v) "Form" shall have the meaning set forth in Section 2.02.
(w) "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and Securities and
Exchange Commission or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of determination.
(x) "Johnson Employment Agreement" shall have the meaning set forth
in Section 9.01(k).
(y) "Joint Election" shall have the meaning set forth in Section
2.04.
(z) "June Balance Sheet" shall mean the balance sheet of the
Corporation at June 28, 1996 which is prepared and delivered in accordance with
Section 5.02 and approved by Purchaser in accordance with Section 7.07.
(aa) "June Net Worth" shall mean the sum of the assets of the
Corporation as shown on the June Balance Sheet less the sum of the liabilities
of the Corporation as shown on the June Balance Sheet. The accounting methods
and practices employed in computing the December Balance Sheet shall be
utilized in computing the June Balance Sheet. In order to compute the June Net
Worth and the EBIT during the EBIT Period, the reserve for warranty and service
expense shall be deemed a constant equal to the amount reflected on the
December Balance Sheet. Furthermore, in computing the June Net Worth there
shall not be deducted any fines or penalties relating or pertaining to the OSHA
Citation (as defined in Section 2.03(b)(ii) below), or any costs, expenses or
liabilities relating or pertaining to the lawsuit described in Schedule 3.21,
Item A.
(bb) "Notes" shall have the meaning set forth in Section 2.02.
(cc) "ordinary course of business" means the usual and customary way
in which the Corporation has conducted its business in the past.
(dd) "Personal Property" shall have the meaning set forth in Section
3.14(b).
(ee) "Proprietary Rights" shall have the meaning set forth in Section
3.17(a).
(ff) "Purchase Agreement" shall have the meaning set forth in Section
9.01(l).
(gg) "Purchase Price" shall have the meaning set forth in Section
2.02.
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<PAGE> 9
(hh) "Purchaser Group" shall have the meaning set forth in Section
10.01.
(ii) "Real Property" shall have the meaning set forth in Section
3.14(a).
ARTICLE II.
PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE OF STOCK. Subject to and upon the
terms and conditions contained herein, at the Closing, Shareholders shall sell,
transfer, assign, convey and deliver to Purchaser, free and clear of all
adverse claims, security interests, liens, claims and encumbrances and
Purchaser shall purchase, accept and acquire from Shareholders, the Stock.
SECTION 2.02. PURCHASE PRICE. Subject to adjustment pursuant to
Section 2.03, the total purchase price for the Stock (the "Purchase Price")
shall be the aggregate of the following: (a) $5,300,000 in cash ("Cash
Consideration"); and (b) promissory notes of Purchaser issued to each
Shareholder in the form attached hereto as Exhibit A (the "Notes") in the
aggregate original principal amount of $1,500,000;.
SECTION 2.03. PURCHASE PRICE ADJUSTMENT.
(a) Net Worth. In the event that the June Net Worth is less than or
greater than the December Net Worth, the Cash Consideration shall be reduced or
increased on a dollar-for-dollar basis at the Closing by an amount equal to
such difference. The purchase price adjustment pursuant to this Section, if
any, shall be made on the later of (a) the Closing or (b) the date on which the
June Balance Sheet is agreed to by Purchaser and attached hereto as Schedule
5.02. In the event the adjustment is made after Closing, Shareholders or
Purchaser, as the case may be, agree to promptly pay the amount of such
adjustment to the party entitled thereto.
(b) EBIT Adjustment.
(i) If the earnings before interest and taxes ("EBIT") for the
twelve month period beginning on January 1, 1996 and ending on December 31,
1996 (the "EBIT Period") derived from the operation of the Corporation's
business (the "Business") by the Corporation through the Closing and thereafter
by Purchaser in accordance with Section 2.03(b)(ii) hereof is less than
$1,365,000 (the "EBIT Target Amount"), then up to $800,000 of the principal
amount of the Notes shall be offset and reduced by $100,000 for each whole
$25,000 sum that the actual EBIT during the EBIT Period is below the EBIT
Target Amount. EBIT shall, except for such modifications as are specifically
set forth in Section 2.03(b)(ii) of this Agreement, be determined in accordance
with the accounting principles, procedures and methods utilized by the
Corporation in computing its income for the 1995 calendar year. If Purchaser
and Shareholders cannot agree on the appropriate adjustment by April 1, 1997,
then such issue shall be submitted to binding arbitration in Atlanta,
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<PAGE> 10
Georgia, pursuant to the Commercial Rules of the American Arbitration
Association, the decision of which arbitrators shall be final and binding on
Purchaser and the Shareholders.
(ii) Purchaser shall at all times after the Closing and through
the end of the EBIT Period operate the Business in a commercially reasonable
manner. Following the Closing and through the end of the EBIT Period (i)
Purchaser shall own and operate the business formally conducted by the
Corporation in substantially the same manner as it was operated by the
Corporation prior to the Closing; (ii) subject to the foregoing and provided
that Purchaser shall not undertake any fundamental changes having a negative
impact on EBIT during the EBIT Period, if Purchaser makes material changes in
operating the Business in the ordinary course of business, then Purchaser and
the Shareholders shall agree on the methodology for allocating the financial
impact of such changes; (iii) James H. Johnson, III and those other key
employees of the Corporation as shall be identified by James H. Johnson, III
shall be allowed to devote an amount of time to the Business as was
historically devoted to the Business prior to the Closing; (iv) pursuant to the
terms and conditions of the Employment Agreement attached hereto as Exhibit C,
James H. Johnson, III shall serve as the Chief Operating Officer of the
Business; (v) charges in the nature of "corporate overhead", "corporate expense
allocation" or inter-company charges or other expenses which would not have
been incurred by the Corporation (or in excess of amounts which would have been
incurred) had the sale and change of control of the Corporation not occurred,
shall not be included in computing EBIT; (vi) depreciation and amortization and
inventory valuation shall be computed as if the sale had not occurred; (vii)
Purchaser shall use all reasonable commercial efforts to (a) assist the
Business in reducing its cost of materials and supplies through bulk purchases;
(b) assist the Business in reducing the cost of insurance coverage; and (c)
supply the business with adequate working capital; and (viii) a non-recurring
accounting fee of $85,000 (paid or payable to the accountants of the Company as
a fee for assisting in the procurement of a jobs tax credit) and any fines or
penalties imposed as a consequence of the OSHA citation issued on May 31, 1996
shall not be deducted in computing EBIT (the "OSHA Citation").
SECTION 2.04. SECTION 338(h)(10) ELECTION. Shareholders agree that
Purchaser may require Shareholders to join Purchaser in making an election
under Section 338(h)(10) of the Code and similar state statutes with respect to
the purchase of the Stock (a "Joint Election"). If Purchaser requires that a
Joint Election be made, Shareholders and Purchaser shall, within 30 days after
the Closing Date exchange completed and executed copies of Form 8023-A and all
required schedules thereto (the "Form"), and Shareholders and Purchaser agree
to take all other action and file all other necessary reports to elect validly
pursuant to Section 338(h)(10) of the Code to treat the transaction as a sale
of assets as opposed to a sale of stock. Purchaser and Shareholders shall each
file a copy of the Form in a timely manner and shall provide assurance to the
other party that it has done so. Purchaser and Shareholders agree to use their
best efforts to agree upon the allocation of the Purchase Price in accordance
with Section 338 of the Code and the regulations thereunder, and any comparable
provisions of state or local law, as appropriate, for purposes of the Joint
Election and all other federal income and applicable state income tax purposes;
provided that if Shareholders and Purchaser cannot so agree within 30 days
after the Closing Date, each shall be free to determine its own allocation and
neither shall be bound by any partial or preceding agreement. If Purchaser and
Shareholders are able to agree on the allocation of the Purchase Price, they
shall each file all tax returns in accordance with such allocation and shall
take no position in any tax return, tax proceeding or tax audit which is
inconsistent therewith. If any modifications or amendments of the
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Form are required after the date of its execution and exchange, Purchaser and
Shareholders shall use their best efforts to promptly agree upon such and make
any necessary amended filings. Nothing in this Section shall be construed as
requiring that either Shareholders or Purchaser hire appraisers or otherwise
incur out-of-pocket expenses in order to reach agreement as to any of the
allocations described above.
Within thirty (30) days after the Closing, Purchaser shall allocate the
Purchase Price as it shall so determine, and provide such allocation to the
Shareholders, and the Shareholders shall utilize such allocation in the
preparation of their tax returns. The Shareholders are aware that the Joint
Election will result in a portion of the Purchase Price being treated as
ordinary income as opposed to capital gains. The Shareholders have agreed to
assume the additional tax liability attributable to depreciation recapture;
however, the Shareholders have not agreed to assume any additional tax
liability attributable to the conversion of any other items from capital gains
to ordinary income. Accordingly, in the event that the Purchase Price is
allocated by Purchaser or reallocated by the Internal Revenue Service in a
manner which results in the treatment of items (other than depreciation
recapture) as ordinary income to the Shareholders as opposed to the capital
gains treatment which the Shareholders would have had in the absence of the
Joint Election, Purchaser agrees to indemnify and hold harmless Shareholders
from and against the additional tax liability so incurred by them (the "Tax
Imdemnity"). The Tax Indemnity shall be payable by Purchaser to Shareholders
on or before April 15 of the year in which such tax is payable (or should have
been paid) by the Shareholders. The obligation of the Purchaser to pay the Tax
Indemnity shall include interest thereon at the rate of 8% per annum on
payments which are not paid as and when due. In the event that Purchaser and
Shareholders are unable to agree upon the appropriate amount of the Tax
Indemnity, then such issue shall be submitted to binding arbitration in
Atlanta, Georgia, pursuant to the commercial rules of the American Arbitration
Association, the decision of which arbitrators shall be final and binding on
Purchaser and Shareholders.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION AND SHAREHOLDERS
The Shareholders jointly and severally represent and warrant that the
following are true and correct as of the date hereof and will be true and
correct through the Closing as if made at such time:
SECTION 3.01. OWNERSHIP OF THE STOCK. Shareholders own, beneficially
and of record, good and valid title to the Stock, which constitutes all of the
issued and outstanding capital stock of the Corporation, free and clear of all
security interests, liens, adverse claims, encumbrances, equities, proxies,
options or shareholders' agreements. At the Closing, Shareholders will convey
to Purchaser good and valid title to all of the issued and outstanding capital
stock of the Corporation, free and clear of any security interests, liens,
adverse claims, encumbrances, equities, proxies, options, shareholders'
agreements or restrictions.
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SECTION 3.02. ORGANIZATION AND GOOD STANDING; QUALIFICATION. The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with all requisite
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The Corporation is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its business makes such qualification
necessary, which jurisdictions are listed in Schedule 3.02, except where the
failure to be qualified or licensed would not have a material adverse effect on
the business of the Corporation. The Corporation does not have any assets,
employees or offices in any state other than the states listed in Schedule
3.02.
SECTION 3.03. CAPITALIZATION. The authorized and issued capital stock
of the Corporation and the ownership interests of the Shareholders is set forth
on Schedule 3.03. No shares of the capital stock of the Corporation are held
in the treasury of the Corporation. All of the issued and outstanding shares
of capital stock of the Corporation are duly authorized, validly issued, fully
paid and nonassessable. There exist no options, warrants, subscriptions or
other rights to purchase, or securities convertible into or exchangeable for,
the capital stock of the Corporation. Neither Shareholders nor the Corporation
are parties to or bound by, nor do they have any knowledge of, any agreement,
instrument, arrangement, contract, obligation, commitment or understanding of
any character, whether written or oral, express or implied, relating to the
sale, assignment, encumbrance, conveyance, transfer or delivery of any capital
stock of the Corporation. No shares of capital stock of the Corporation have
been issued or disposed of in violation of the preemptive rights of any of the
Corporation's shareholders. All accrued dividends on the capital stock of the
Corporation, whether or not declared, have been paid in full.
SECTION 3.04. CORPORATE RECORDS. The copies of the Articles of
Incorporation and all amendments thereto and the Bylaws of the Corporation that
have been delivered to Purchaser are true, correct and complete copies thereof,
as in effect on the date hereof. The minute books of the Corporation, copies
of which have been delivered to Purchaser, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the shareholders of the
Corporation since the formation of the Corporation.
SECTION 3.05. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Corporation of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Corporation. This
Agreement and each other agreement contemplated hereby to which it is a party
have been or will be as of the Closing Date duly executed and delivered by the
Corporation and constitute or will constitute legal, valid and binding
obligations of the Corporation, enforceable against the Corporation in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies. This Agreement and each other
agreement contemplated hereby to which either Shareholder is a party have been
or will be as of the Closing Date duly executed and delivered by such
Shareholder and constitute and will constitute legal, valid and binding
obligations of such Shareholder, enforceable in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability of
equitable remedies. Except as reflected on Schedule 3.07 hereof, the sale of
the
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Stock by Shareholders to Purchaser will not impair the ability or authority of
the Corporation to carry on its business as now conducted in any respect.
SECTION 3.06. SUBSIDIARIES. The Corporation does not own, directly or
indirectly, any of the capital stock of any other corporation or any equity,
profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
SECTION 3.07. NO VIOLATION. Except as set forth on Schedule 3.07
hereof, neither the execution, delivery or performance of this Agreement or the
other agreements contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby will (a) conflict with, or result in a violation
or breach of the terms, conditions or provisions of, or constitute a default
under, the Articles of Incorporation or Bylaws of the Corporation or any
agreement, indenture or other instrument under which the Corporation is bound
or to which the Stock or any of the assets of the Corporation are subject, or
result in the creation or imposition of any security interest, lien, charge or
encumbrance upon the Stock or any of the assets of the Corporation, or (b)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Corporation, the Stock or the assets of the
Corporation. The Corporation has complied with all laws, regulations and
licensing requirements and has filed with the proper authorities all necessary
statements and reports, except for such noncompliance which will not,
individually or in the aggregate, have a material adverse effect on the
Corporation or Purchaser.
SECTION 3.08. CONSENTS. Except as set forth in Schedule 3.08, no
consent, authorization, approval, permit or license of, or filing with, any
governmental or public body or authority, any lender or lessor or any other
person or entity is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Corporation or Shareholders.
SECTION 3.09. FINANCIAL STATEMENTS. The Corporation has furnished to
Purchaser the audited balance sheet and related audited statements of income,
retained earnings and cash flows for each of the twelve-months ended December
31 for the 1993, 1994 and 1995 calendar years, including the notes thereto, as
well as unaudited balance sheets and related unaudited statements of income,
retained earnings and cash flows for the five-month period ended May 31, 1996,
and will furnish the June Balance Sheet in accordance with Section 5.02
(collectively, the "Financial Statements"). The Financial Statements are in
accordance with the books and records of the Corporation, fairly present the
financial condition and results of operations of the Corporation as of the
dates and for the periods indicated and have been prepared in conformity with
GAAP applied on a consistent basis with prior periods subject, in the case of
the unaudited statements for the five month period ending on May 31, 1996, to
normal year end adjustments of the type described in Schedule 3.09 hereof and
with the exceptions that the reserves and accruals stated therein have been
calculated as set forth on Schedule 3.09 hereof and that the Financial
Statements do not reflect any liability relating to the OSHA Citation or the
lawsuit referenced in Schedule 3.21, Item A. All accounts receivables shown in
the May Balance Sheet have arisen from bona fide transactions in the ordinary
course of business and are valid and enforceable claims subject to no presently
asserted rights of set-off or counterclaim, except for warranty claims for
which reserves have been maintained as herein set forth.
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SECTION 3.10. LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 3.10, the Financial Statements reflect all liabilities of the
Corporation accrued, contingent or otherwise (known or unknown and asserted or
unasserted), arising out of transactions effected or events occurring on or
prior to the respective dates thereof. The reserves shown in the Financial
Statements have been calculated in the manner set forth in Schedule 3.10 hereof
on a basis consistent with past practice. Except as set forth in the Financial
Statements, Schedule 3.10 or liabilities incurred since the June Balance Sheet
through the Closing Date which are of the same type and not materially greater
than the amounts set forth in the May 31, 1996 balance sheet of the
Corporation, the Corporation is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity,
and neither the Corporation nor Shareholders know of any basis for the
assertion of any other claims or liabilities of any nature or in any amount.
SECTION 3.11. EMPLOYEE MATTERS.
(a) CASH COMPENSATION. Schedule 3.11(a) contains a complete and
accurate list of the names, titles and cash compensation, including without
limitation wages, salaries, bonuses (discretionary and formula) and other cash
compensation (the "Cash Compensation") of all executive management of the
Corporation, regardless of compensation levels, and all other salaried
employees of the Corporation. In addition, Schedule 3.11(a) contains a
complete and accurate description of (i) all increases in Cash Compensation of
such employees during the current and the 1995 calendar year of the Corporation
and (ii) any promised increases in Cash Compensation of such employees that
have not yet been effected.
(b) COMPENSATION PLANS. Schedule 3.11(b) contains a complete and
accurate list of all compensation plans, arrangements or practices (the
"Compensation Plans") sponsored by the Corporation or to which the Corporation
contributes on behalf of its employees, other than Employee Benefit Plans
listed in Schedule 3.12(a). The Compensation Plans include without limitation
plans, arrangements or practices that provide for severance pay, deferred
compensation, incentive, bonus or performance awards, and stock ownership or
stock options. The Corporation has provided Purchaser a copy of each written
Compensation Plan and a written description of each unwritten Compensation
Plan. Each of the Compensation Plans can be terminated or amended at will
prospectively by the Corporation.
(c) EMPLOYMENT AGREEMENTS. No employees of the Company have written
employment agreements and all employees are terminable "at will" without any
obligation to the Company, except as provided in Schedule 3.11(d). For
purposes of this Agreement, "Employment Agreements" include without limitation
employee leasing agreements, employee services agreements and noncompetition
agreements.
(d) EMPLOYEE POLICIES AND PROCEDURES. Schedule 3.11(d) contains a
complete and accurate list of all employee manuals, policies, procedures and
work-related rules (the "Employee Policies and Procedures") that apply to
employees of the Corporation. The Corporation has provided Purchaser a copy of
all written Employee Policies and Procedures and a written description of all
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unwritten Employee Policies and Procedures. Each of the Employee Policies and
Procedures can be amended or terminated at will prospectively by the
Corporation except to the extent that such Employee Policies and Procedures are
required by law.
(e) UNWRITTEN AMENDMENTS. Except as set forth in Schedule 3.11(e),
no unwritten amendments have been made, whether by oral communication, pattern
of conduct or otherwise, with respect to any Compensation Plans, Employment
Agreements or Employee Policies and Procedures.
(f) LABOR COMPLIANCE. Except as set forth in Schedule 3.11(f), the
Corporation (i) has been and is in compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices,
terms and conditions of employment and wages and hours, and (ii) is not liable
for any arrears of wages or penalties for failure to comply with any of the
foregoing. The Corporation has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. There are no (i) unfair
labor practice charges or complaints or racial, color, religious, sex, national
origin, age or handicap discrimination charges or complaints pending or
threatened against the Corporation before any federal, state or local court,
board, department, commission or agency nor, to the knowledge of the
Corporation and the Shareholders, does any basis therefor exist or (ii)
existing or threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting the Corporation nor, to the knowledge of the
Corporation and the Shareholders, does any basis therefor exist.
(g) UNIONS. The Corporation has never been a party to any agreement
with any union, labor organization or collective bargaining unit. No employees
of the Corporation are represented by any union, labor organization or
collective bargaining unit. To the best knowledge of the Corporation and the
Shareholders, the employees of the Corporation have no intention to and have
not threatened to organize or join a union, labor organization or collective
bargaining unit.
(h) ALIENS. To the best knowledge of the Shareholders, all employees
of the Corporation are citizens of, or are authorized to be employed in, the
United States.
SECTION 3.12. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. Schedule 3.12(a) contains a complete and
accurate list of all employee benefit plans (the "Employee Benefit Plans")
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) sponsored by the Corporation or to which the
Corporation contributes on behalf of its employees and all Employee Benefit
Plans previously sponsored or contributed to on behalf of its employees within
the three years preceding the date hereof. The Corporation has provided
Purchaser with copies of all plan documents, determination letters, pending
determination letter applications, trust instruments, insurance contracts,
administrative services contracts, annual reports, actuarial valuations,
summary plan descriptions, summaries of material modifications, administrative
forms and other documents that constitute a part of or are incident to the
administration of the Employee Benefit Plans. In addition, the Corporation has
provided Purchaser a written description of all existing practices engaged in
by the Corporation that constitute Employee Benefit Plans. Except as otherwise
set forth or as provided
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by law, each of the Employee Benefit Plans can be terminated or amended at will
by the Corporation. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) ADMINISTRATION. Each Employee Benefit Plan has been administered
and maintained in compliance with all laws, rules and regulations. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency.
No prohibited transactions (within the meaning of Section 4975 of the Code)
have occurred with respect to any Employee Benefit Plan. No threatened or
pending claims, suits or other proceedings exist with respect to any Employee
Benefit Plan other than normal benefit claims filed by participants or
beneficiaries.
(c) QUALIFICATION. The Corporation has received a favorable
determination letter or ruling from the Internal Revenue Service for each
Employee Benefit Plan intended to be qualified within the meaning of Section
401(a) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code. No proceedings exist or have been threatened that could result in
the revocation of any such favorable determination letter or ruling.
(d) FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Corporation is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such
plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits as of the date hereof. Schedule 3.12(d) contains a complete and
accurate statement of all actuarial assumptions applied to determine the
present value of accrued benefits under all Employee Benefit Plans subject to
actuarial assumptions. Neither the Corporation nor any member of a Controlled
Group has any liability to pay excise taxes with respect to any Employee
Benefit Plan under applicable provisions of the Code or ERISA.
(e) MULTIEMPLOYER PLANS. Neither the Corporation nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(f) PBGC; RETIREES. No facts or circumstances exist that would
result in the imposition of liability against Purchaser by the Pension Benefit
Guaranty Corporation as a result of any act or omission by the Corporation or
any member of a Controlled Group. No reportable event (within the meaning of
Section 4043 of ERISA) for which the notice requirement has not been waived has
occurred with respect to any Employee Benefit Plan subject to the requirements
of Title IV of ERISA. Except as required by law, the Corporation has no
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired from employment with the Corporation.
(g) MEDICAL AND DENTAL CARE CLAIMS. Schedule 3.12(g) contains a
complete and accurate list of all claims made (without identifying specific
individuals) under any medical or dental care plan
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or commitment offered by the Corporation to its employees involving
hospitalization, medical or dental care claims that have exceeded $10,000 per
year for an individual during the Corporation's current fiscal year or any of
the three fiscal years preceding the date hereof.
SECTION 3.13. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.13 and/or as reflected in the Financial Statements since December
31, 1995, the Corporation has not
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Corporation or any Shareholder, in its
condition (financial or otherwise), operations, assets, liabilities, business
or prospects;
(b) contracted for the purchase of capital assets having a cost in
excess of $50,000 (individually or in the aggregate) or paid capital
expenditures in excess of $50,000 (individually or in the aggregate);
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business;
(e) paid any material amount on any indebtedness prior to the due
date, forgiven or cancelled any material debts or claims or released or waived
any material rights or claims;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets;
(g) suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has materially and adversely
affected, or could materially and adversely affect, its business;
(h) acquired or disposed of any assets except in the ordinary course
of business;
(i) written up or written down the carrying value of any of its
assets;
(j) changed the costing system or depreciation methods of accounting
for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost or terminated any salaried employee, or any material
customer or supplier;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business;
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(o) made any payments to or loaned any money to any person or entity
referred to in Section 3.30;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights;
(r) entered into any agreement with any person or group, or modified
or amended in any material respect the terms of any such existing agreement
except in the ordinary course of business;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any other commitment or transaction or experienced
any other event that is material to this Agreement or to any of the other
agreements and documents executed or to be executed pursuant to this Agreement
or to the transactions contemplated hereby or thereby, or that has materially
and adversely affected, or could materially and adversely affect, the condition
(financial or otherwise), operations, assets, liabilities, business or
prospects of the Corporation.
SECTION 3.14. TITLE; LEASED ASSETS.
(a) REAL PROPERTY. A description of all interests in real property
owned by the Corporation (collectively, the "Real Property") is set forth in
Schedule 3.14(a). Except as set forth in Schedule 3.14(a), the Corporation has
good, valid and marketable title to all the Real Property. The Real Property
and the leased real property referred to in Section 3.14(c) constitute the only
real property used in the conduct of the business of the Corporation. Schedule
3.14(a) contains a description of all indebtedness secured by the Real Property
and all mortgages, deeds of trust and other liens on the Real Property.
(b) PERSONAL PROPERTY. Except as set forth in Schedule 3.14(b), the
Corporation has good, valid and marketable title to all tangible and intangible
personal property owned by it (collectively, the "Personal Property"). The
Personal Property and the leased personal property referred to in Section
3.14(c) constitute the only personal property used in the conduct of the
business of the Corporation.
(c) LEASES. A list and brief description of all leases of real and
personal property to which the Corporation is a party, either as lessor or
lessee, are set forth in Schedule 3.14(c). All such leases are valid and
enforceable in accordance with their respective terms except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies.
(d) RIGHT TO USE ASSETS. Except for those assets acquired since May
31, 1996, which are listed in Schedule 3.14(d), all tangible and intangible
assets used in the conduct of the business of the
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Corporation are reflected in the Financial Statements in a manner that is in
conformity with GAAP applied on a consistent basis with prior periods. The
Corporation owns, leases or otherwise possesses a right to use all assets used
in the conduct of the business of the Corporation which will not be impaired by
the consummation of the transactions contemplated hereby except as set forth in
Schedule 3.14(d) hereof.
SECTION 3.15. COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in Schedule 3.15, the
Corporation has not entered into, nor are the Stock, the assets or the business
of the Corporation bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent
to another;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee;
(x) agreement between the Corporation and any
affiliate of the Corporation;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is
an affiliate of the Corporation;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than
$10,000 in the aggregate;
(xiii) powers of attorney;
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(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves
either an unperformed commitment in excess of $10,000 or that terminates
more than 30 days after the date hereof;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity
referred to in Section 3.30;
(xvii) agreement providing for the purchase from a supplier
of all or substantially all of the requirements of the Corporation of a
particular product or service; or
(xviii) any other agreement or commitment not made in the
ordinary course of business or that is material to the business or
financial condition of the Corporation.
All of the foregoing (whether identified on Schedule 3.15 or not) are
hereinafter collectively referred to as the "Commitments." True, correct and
complete copies of the written Commitments, and true, correct and complete
written descriptions of the oral Commitments, have heretofore been delivered or
made available to Purchaser. To the best of the Corporation's and
Shareholders' knowledge, there are no existing defaults, events of default or
events, occurrences, acts or omissions that, with the giving of notice or lapse
of time or both, would constitute defaults by the Corporation, and no penalties
have been incurred nor are amendments pending, with respect to the Commitments,
except as described in Schedule 3.15. To the best of the Corporation's and
Shareholders' knowledge, the Commitments are in full force and effect and are
valid and enforceable obligations of the parties thereto in accordance with
their respective terms, and no defenses, off-sets or counterclaims have been
asserted or, to the best knowledge of the Corporation and Shareholders, may be
made by any party thereto, nor has the Corporation waived any rights
thereunder, except as described in Schedule 3.15. The Corporation has not
received notice of any default with respect to any Commitment.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as
contemplated hereby, neither the Corporation nor any Shareholder has received
notice of any plan or intention of any other party to any Commitment to
exercise any right to cancel or terminate any Commitment or agreement, and
neither the Corporation nor any Shareholder knows of any fact that would
justify the exercise of such a right. Neither the Corporation nor any
Shareholder currently contemplates, or has reason to believe any other person
or entity currently contemplates, any amendment or change to any Commitment.
Except as listed in Schedule 3.15, none of the customers or suppliers of the
Corporation has refused, or communicated that it will or may refuse, to
purchase or supply goods or services, as the case may be, or has communicated
that it will or may substantially reduce the amounts of goods or services that
it is willing to purchase from, or sell to, the Corporation.
SECTION 3.16. INSURANCE. A list and brief description of all insurance
policies of the Corporation are set forth in Schedule 3.16. All of such
policies are valid and enforceable policies, issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
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the industry of the insured. Such insurance shall be outstanding and duly in
force without interruption up to and including the Closing Date. True,
complete and correct copies of all such policies have been provided to
Purchaser on or prior to the date hereof.
SECTION 3.17. PROPRIETARY RIGHTS.
(a) OWNERSHIP. The Corporation owns all patents, trade-marks,
service marks, copyrights, technology, know-how, trade secrets, DAPIA manuals
and plan approvals, the "Heartland Homes" brand name and all other brand names
used in the Corporation's business, customer lists and other proprietary
information (collectively, the "Proprietary Rights"), if any, necessary to
conduct its business, or possesses adequate licenses or other rights, if any,
therefor, without conflict with the rights of others. Set forth in Schedule
3.17 is a true and correct description of the Proprietary Rights.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. To the best of the
Corporation's and Shareholders' knowledge, the Corporation has the sole and
exclusive right to use the Proprietary Rights without infringing or violating
the rights of any third parties. Use of the Proprietary Rights does not
require the consent of any other person and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity
or effectiveness of any license or agreement constituting a part of any
Proprietary Right, and neither the Corporation nor any Shareholder knows of any
valid basis for any such claim. Each of the Proprietary Rights is valid and
subsisting, has not been cancelled, abandoned or otherwise terminated and, if
applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. The Corporation and Shareholders have
no knowledge of any claim that, or inquiry as to whether, any product, activity
or operation of the Corporation infringes upon or involves, or has resulted in
the infringement of, any proprietary right of any other person, corporation or
other entity; and no proceedings have been instituted, are pending or are
threatened that challenge the rights of the Corporation with respect thereto.
The Corporation has not given and is not bound by any agreement of
indemnification for any Proprietary Right as to any property manufactured, used
or sold by it.
SECTION 3.18. TAXES.
(a) TAXES AND TAX RETURNS. The Corporation has duly and timely filed
with the appropriate governmental agencies all income, excise, corporate,
franchise, property, sales, use, payroll, withholding and other tax returns
(including information returns) and reports required to be filed by the United
States or any state or any political subdivision thereof or any foreign
jurisdiction. All such tax returns or reports are complete and accurate and
properly reflect the taxes of the Corporation for the periods covered thereby.
The Corporation has paid or accrued all taxes, penalties and interest which
have become due with respect to any returns that it has filed and any
assessments of which it is aware. The Corporation is not delinquent in the
payment of any tax, assessment or governmental charge. No tax deficiency or
delinquency has been asserted against the Corporation. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Corporation that could be asserted by any
taxing authority. There is no taxing authority audit of the Corporation
pending, or to the knowledge
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of the Corporation or Shareholders threatened, and the results of any completed
audits are properly reflected in the Financial Statements. The Corporation has
not violated any federal state, local or foreign tax law. The Corporation has
not granted an extension to any taxing authority of the limitation period
during which any tax liability may be assessed or collected. All monies
required to be withheld by the Corporation and paid to governmental agencies
for all income, social security, unemployment insurance, sales excise, use and
other taxes have been (i) collected or withheld and either paid to the
respective governmental agencies or set aside in accounts for such purpose or
(ii) properly reflected in the Financial Statements of the Corporation. The
liabilities (including deferred taxes) shown in the Financial Statements as of
the June Financial Statement and to be accrued on the books and records of the
Corporation through the Closing Date for taxes, interest and penalties are and
will be adequate accruals and have been and will be accrued in a manner
consistent with the practices utilized for accruing tax liabilities in the tax
year ended December 31, 1995 and take into account net operating losses,
investment credits and other carryovers for periods ended prior to the Closing
Date.
(b) TAX RELATED MATTERS. Since its incorporation, the Corporation
has made a valid election to be treated as an S corporation under Subchapter S
of the Code. The Corporation is an S corporation under Subchapter S of the
Code, and neither the Corporation nor either Shareholder has taken or failed to
take any action that would result in the disqualification of the Corporation to
be treated as an S corporation under Subchapter S of the Code. Shareholders
are not foreign persons, as such term is referred to in Section 1445(b)(2) of
the Code. The Corporation is not, and in prior years has not been, a member of
an affiliated group, as such term is defined in Section 1504 of the Code,
filing a consolidated return. None of the assets of the Corporation constitute
property that Purchaser, or any affiliate of Purchaser, will be required to
treat as being owned by another person pursuant to the "Safe Harbor Lease"
provisions of Section 168(f)(8) of the Code prior to repeal by the Tax Equity
and Fiscal Responsibility Act of 1982. None of the assets of the Corporation
are or will be subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code. The Corporation has not at any time
consented, and Shareholders will not permit the Corporation to elect, to have
the provisions of Section 341(f)(2) of the Code apply to it. The Corporation
has not voluntarily or involuntarily changed a method of accounting resulting
in the Corporation's inclusion of amounts in income pursuant to adjustments
under Section 481 of the Code. The Shareholders have paid all income and
capital gains taxes passed through to them under Section 1361 of the Code with
respect to the Corporation.
SECTION 3.19. COMPLIANCE WITH LAWS. Except as set forth in Schedule
3.19, the Corporation has complied with all laws, regulations and licensing
requirements and has filed with the proper authorities all necessary statements
and reports. There are no existing violations by the Corporation or
Shareholders of any federal, state or local law or regulation that could affect
the property or business of the Corporation. The Corporation possesses all
necessary licenses, franchises, permits and governmental authorizations to
conduct its business as now conducted, all of which are listed in Schedule
3.19.
SECTION 3.20. FINDER'S FEE. Neither the Corporation nor any
Shareholder has incurred any obligation for any finder's, broker's or agent's
fee in connection with the transactions contemplated hereby.
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SECTION 3.21. LITIGATION. Except as described in Schedule 3.21, there
are no legal actions or administrative proceedings or investigations
instituted, or to the best knowledge of the Shareholders threatened, against or
affecting, or that could affect, the Corporation, any of the Stock, or the
business of the Corporation. Neither of the Corporation nor Shareholders are
(a) subject to any continuing court or administrative order, writ, injunction
or decree applicable specifically to the Corporation or to its business,
assets, operations or employees or (b) in default with respect to any such
order, writ, injunction or decree. Neither of the Shareholders know of any
basis for any such action, proceeding or investigation. All surety bonds
necessary for the Corporation to do business have been posted, and no claims
against such bonds have been made. Except as set forth in Schedule 3.21, no
collateral is posted on such bonds.
SECTION 3.22. ACCURACY OF INFORMATION FURNISHED. All information
furnished to Purchaser by the Corporation or any Shareholder hereby or in
connection with the transactions contemplated hereby is, in all material
respects, true, correct and complete in all respects. Such information states
all facts required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements are made,
true, correct and complete.
SECTION 3.23. CONDITION OF FIXED ASSETS. All of the plants, structures
and equipment owned by the Corporation are in adequate condition and repair for
their intended use in the ordinary course of business and conform in all
material respects with all applicable ordinances, regulations and other laws
and there are no known latent defects therein.
SECTION 3.24. INVENTORY. All of the inventory of the Corporation
reflected in the Financial Statements or acquired since May 31, 1996, is in
good, current, standard and merchantable condition and is not obsolete or
defective. The Corporation has presently, and at the Closing Date will have,
the types and quantities of inventories appropriate, taken as a whole, to
conduct its business consistently with past practices.
SECTION 3.25. BOOKS OF ACCOUNT. Except as reflected on Schedule 3.25,
the books of account of the Corporation have been kept accurately in the
ordinary course of business, the transactions entered therein represent bona
fide transactions and the revenues, expenses, assets and liabilities of the
Corporation have been properly recorded in such books.
SECTION 3.26. BACKLOG. Schedule 3.26 sets forth the backlog of the
business of the Corporation as of May 31, 1996 and has been accurately derived
from the internal records of backlog of unfilled firm orders for products
manufactured or sold by the Corporation as of the date hereof.
SECTION 3.27. DISTRIBUTIONS AND REPURCHASES. Except as set forth in
Schedule 3.27, since December 31, 1995, no distribution, payment or dividend of
any kind has been declared or paid by the Corporation on any of its capital
stock. Since December 31, 1995, no repurchase of any of the capital stock of
the Corporation has been approved or effected by the Corporation.
SECTION 3.28. CUSTOMERS AND SUPPLIERS. Set forth in Schedule 3.28 is
(a) a complete and accurate list of the fifteen largest customers of the
Corporation in terms of sales for each of the last three fiscal years and the
current fiscal year to date, showing, with respect to each, the name, city,
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state and unit and dollar sales records relating to such customer; (b) a
complete and accurate list of the fifteen largest suppliers of the Corporation
in terms of dollar volume of transactions for each of the last three fiscal
years and the current fiscal year to date, showing, with respect to each, the
name, city, state and aggregate dollar volume of purchases from such supplier;
and (c) a complete and accurate list of the standard prices and any applicable
discounts by customer name for the Corporation.
SECTION 3.29. PRODUCT WARRANTIES. Except as set forth in Schedule
3.29, there is no claim against the Corporation on account of product
warranties or with respect to the manufacture, sale or rental of defective
products. The Shareholders have previously disclosed to Purchaser that the
product warranty and service reserve is an arbitrary number only and that the
actual liability is in excess of the reserves reflected in the Financial
Statements. Schedule 3.29 sets forth a description of (a) all current claims
and claims made within the previous three years on account of product
warranties; (b) the average cost incurred on account of product warranty claims
per product; and (c) the methodology and statistics used to establish the
warranty reserves contained in the Financial Statements.
SECTION 3.30. OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Schedule 3.30, no officer, supervisory employee, director or
shareholder of the Corporation, or their respective spouses or children, owns
directly or indirectly, on an individual or joint basis, any material interest
in, or serves as an officer or director of, any customer or supplier of the
Corporation, or any organization that has a material contract or arrangement
with the Corporation.
SECTION 3.31. INVESTMENTS IN COMPETITORS. Except as set forth in
Schedule 3.31 hereof, no Shareholder owns directly or indirectly any interests
or has any investment in any corporation, business or other person that is a
competitor of the Corporation.
SECTION 3.32. ENVIRONMENTAL MATTERS. Except as set forth in Schedule
3.32, the Corporation is not currently in violation of, or subject to any
existing, pending or threatened investigation or inquiry by any governmental
authority or to any remedial obligations under, any laws or regulations
pertaining to health or the environment (hereinafter sometimes collectively
called "Environmental Laws"), and this representation and warranty would
continue to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and circumstances,
if any, pertaining to the assets and operations of the Corporation.
To the best knowledge of the Shareholders, the assets of the Corporation
have never been used in a manner that would be in violation of any of the
Environmental Laws. Except as set forth in Schedule 3.32, the Corporation has
not obtained and is not required to obtain, and the Corporation has no
knowledge of any reason Purchaser will be required to obtain, any permits,
licenses or similar authorizations to construct, occupy, operate or use any
buildings, improvements, fixtures and equipment owned or leased by the
Corporation by reason of any Environmental Laws. To the best knowledge of the
Shareholders, none of the assets owned or leased by the Corporation are on any
federal or state "Superfund" list or subject to any environmentally related
liens.
SECTION 3.33. CERTAIN PAYMENTS. Neither the Corporation nor
Shareholders nor any director, officer or employee of the Corporation has paid
or caused to be paid, directly or indirectly, in
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connection with the business of the Corporation: (a) to any government or
agency thereof or any agent of any supplier or customer any bribe, kick-back or
other similar payment; or (b) any contribution to any political party or
candidate (other than from personal funds of directors, officers or employees
not reimbursed by their respective employers or as otherwise permitted by
applicable law).
SECTION 3.34. GOVERNMENT INQUIRIES. Except as set forth in Schedule
3.34 hereof, since December 31, 1993, there have been no inspection reports,
questionnaires, inquiries, demands or requests for information received by the
Corporation or Shareholders from, or any material statement, report or other
document filed by the Corporation with, the federal government or any federal
administrative agency (including but not limited to, the Commission, the
Department of Housing and Urban Development, the Justice Department, the
Internal Revenue Service, the Department of Labor, the Occupational Safety and
Health Administration, the Federal Trade Commission, the National Labor
Relations Board and the Interstate Commerce Commission), any state securities
administrator or any local or state taxing authority, with respect to an
alleged violation of, non-compliance with, any law, rule or regulation,
including without limitation, under Subpart I of the National Manufacturing
Housing Code of the Department of Housing and Urban Development.
SECTION 3.35. DEALER INCENTIVES. The June Balance Sheet includes all
accruals which will be paid as dealer incentives based on the projected
annualized volumes of such dealers (i.e., existing volumes have been annualized
in the manner hereafter set forth in order to project what volumes will be
obtained, and the accruals reflect such annualized volumes). Accruals are
calculated by taking each dealer's actual purchases for the six month period
ending June 28, 1996, dividing by six and multiplying by 12 (or such higher
rate or percentage, if applicable, as has been specifically agreed to by the
Corporation and a dealer). Based on such annualized volume, the appropriate
percentage amount is applied.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and
correct as of the date hereof and will be true and correct through the Closing
as if made at such time:
SECTION 4.01. ORGANIZATION AND GOOD STANDING. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
SECTION 4.02. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement, the Notes and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Purchaser. This Agreement and
each other agreement contemplated hereby have been or will be as
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of the Closing Date duly executed and delivered by Purchaser and constitute or
will constitute legal, valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 4.03. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Amended and Restated Articles
of Incorporation or Amended and Restated Bylaws of Purchaser or any agreement,
indenture or other instrument under which Purchaser is bound or (b) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over Purchaser or the properties or assets of Purchaser.
SECTION 4.04. FINDER'S FEE. Except for obligations to Rauscher Pierce
Refsnes, Inc. for which Purchaser shall be fully responsible, Purchaser has not
incurred any obligation for any finder's, broker's or agent's fee in connection
with the transactions contemplated hereby.
SECTION 4.05. COMMISSION REPORTS. Since May 31, 1995, Purchaser has
filed all forms, documents and reports with the Commission required to be filed
by it pursuant to federal securities laws and the Commission rules and
regulations thereunder (the "Commission Reports"), all of which complied in all
material respects with all applicable requirements of the Securities Act and
the Exchange Act. To the knowledge of Purchaser, the Commission Reports do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein to make the statements contained therein not
misleading.
SECTION 4.06. FINANCIAL STATEMENTS. The consolidated balance sheets
and the related statements of income, shareholders' equity and cash flow
(including the related notes thereto) of Purchaser and its consolidated
subsidiaries included in the Commission Reports complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto, have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods (except as otherwise noted therein) and present fairly the consolidated
financial position of Purchaser and its consolidated subsidiaries as of their
respective dates, and the results of their operations and their cash flow for
the periods presented therein.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Commission Reports, since May 30, 1995, the business of Purchaser and its
subsidiaries has been carried on in the ordinary course and there has not been
any adverse change in their business, financial condition, results of
operations, assets or liabilities which could reasonably be expected to have a
material adverse effect on Purchaser and its consolidated subsidiaries, taken
as a whole.
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ARTICLE V.
THE SHAREHOLDERS' COVENANTS
The Shareholders agree that between the date hereof and the Closing:
SECTION 5.01. CONSUMMATION OF AGREEMENT. The Corporation and
Shareholders shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions.
SECTION 5.02. JUNE BALANCE SHEET. As soon as practicable after July
12, 1996, but in no event later than August 15, 1996, the Corporation and
Shareholders shall prepare and deliver to Purchaser the June Balance Sheet,
which balance sheet shall, except as set forth on Schedule 5.02 hereof (a) be
compiled in accordance with GAAP applied on a basis consistent with the
December Balance Sheet and providing detailed backup schedules mutually
agreeable to the parties hereto, (b) be in form and substance reasonably
acceptable to Purchaser (including, without limitation, provisions for reserves
consistent with the Corporation's past practices) and (c) include detailed
schedules of the assets, liabilities and composition of the reserves of the
Corporation and the dollar amount thereof. The June Balance Sheet shall be
delivered at the Closing, subject to Purchaser's review and satisfaction
therewith, as provided in Section 7.07 below.
SECTION 5.03. BUSINESS OPERATIONS. The Corporation shall operate its
business in the ordinary course and will not introduce any new method of
management or operation of a material nature. The Shareholders shall, and
shall cause the Corporation to, use their best efforts to preserve the business
of the Corporation intact, to retain the present customers and suppliers so
that they will be available to Purchaser after the Closing. The Shareholders
shall not take any action that could materially adversely affect the condition
(financial or otherwise), operations, assets, liabilities, business or
prospects of the Corporation without the prior written consent of Purchaser or
take or fail to take any action that would cause or permit the representations
made in Article III to be inaccurate on the Closing Date or preclude the
Shareholders from making such representations and warranties as of the Closing
Date. Except as contemplated herein, the Corporation will not (a) declare, pay
or make any dividends or distributions on its capital stock; (b) enter into any
material agreement (oral or written) with its directors, officers or salaried
employees; (c) increase the compensation of its directors, officers or salaried
employees; (d) make capital expenditures (or enter into commitments to make
capital expenditures) in excess of $50,000 (either individually or in the
aggregate); (e) issue any capital stock or capital stock equivalents (including
options and warrants) to purchase capital stock of the Corporation; (f) incur
indebtedness or other liabilities other than in the ordinary course of business
and consistent with past practice; or (g) redeem any capital stock of the
Corporation.
SECTION 5.04. ACCESS. The Corporation and Shareholders shall permit
Purchaser and its authorized representatives full access to, and make available
for inspection, all of the assets and business of the Corporation, including
its employees, customers and suppliers, and permit Purchaser and its authorized
representatives to inspect and make copies of all documents, records and
information with respect to the affairs of the Corporation as Purchaser and its
representatives may request, all
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for the sole purpose of permitting Purchaser to become familiar with the
business and assets and liabilities of the Corporation.
SECTION 5.05. ENVIRONMENTAL AUDITS. The Corporation and Shareholders
shall cooperate with and provide reasonable assistance to Purchaser in
obtaining any environmental studies or audits with respect to the property
owned and leased by the Corporation as requested by Purchaser. Except for any
Phase I environmental studies, all environmental studies or audits with respect
to the property owned and leased by the Corporation shall be at Purchaser's
expense.
SECTION 5.06. MATERIAL CHANGE. The Shareholders shall promptly inform
Purchaser in writing of any material adverse change in the condition (financial
or otherwise), operations, assets, liabilities, business or prospects of the
Corporation. Notwithstanding the disclosure to Purchaser of any such material
adverse change, the Shareholders shall not be relieved of any liability for,
nor shall the providing of such information by the Corporation to Purchaser be
deemed a waiver by Purchaser of, the breach of any representation or warranty
of the Shareholders contained in this Agreement.
SECTION 5.07. APPROVALS OF THIRD PARTIES. The Corporation and
Shareholders shall use their best efforts to secure, as soon as practicable
after the date hereof, all necessary approvals and consents of third parties to
the consummation of the transactions contemplated hereby.
SECTION 5.08. EMPLOYEE MATTERS. The Corporation shall not, without the
prior written approval of Purchaser, except as required by law: (a) adopt,
amend or terminate any Compensation Plan, Employment Agreement or Employee
Policies and Procedures; (b) institute, settle or dismiss any employment
litigation; (c) enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or (d) take or fail to
take any action with respect to any past or present employee of the Corporation
that could materially adversely affect the business of the Corporation.
SECTION 5.09. EMPLOYEE BENEFIT PLANS. The Corporation shall not,
without the prior written approval of Purchaser, except as required by law: (a)
adopt, amend or terminate any Employee Benefit Plan; (b) take any action that
would deplete the assets of any Employee Benefit Plan, other than payment of
benefits in the ordinary course to participants and beneficiaries; (c) fail to
pay any premium or contribution due or with respect to any Employee Benefit
Plan; (d) fail to file any return or report with respect to any Employee
Benefit Plan; or (e) take or fail to take any action that could adversely
affect any Employee Benefit Plan.
SECTION 5.10. CONTRACTS. Except with Purchaser's prior written
consent, the Corporation shall not waive any right or cancel any contract, debt
or claim or assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale except in the ordinary course of
business.
SECTION 5.11. CHANGES IN INVENTORY. The Corporation shall not alter
the physical contents or character of its raw materials, work-in-process or
finished goods inventory or the mixture of products in its finished goods
inventory so as to affect the nature of its business or result in a material
change in the total dollar valuation thereof.
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SECTION 5.12. CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Corporation
shall not, without the prior written approval of Purchaser (a) acquire or
dispose of any capital asset having an initial cost of $50,000 or more, or (b)
discharge or satisfy any lien or encumbrance or pay or perform any obligation
or liability other than (i) liabilities and obligations reflected in the
Financial Statements or (ii) current liabilities and obligations incurred in
the ordinary course of business since May 31, 1996 and, in either case (i) or
(ii) above, only as required by the express terms of the agreement or other
instrument pursuant to which the liability or obligation was incurred.
SECTION 5.13. MORTGAGES, LIENS AND GUARANTIES. The Corporation shall
not, without the prior written approval of Purchaser, enter into or assume any
mortgage, pledge, conditional sale or other title retention agreement, permit
any security interest, lien, encumbrance or claim of any kind to attach to any
of its assets, whether now owned or hereafter acquired, or guarantee or
otherwise become contingently liable for any obligation of another, except
obligations arising by reason of endorsement for collection and other similar
transactions in the ordinary course of business, or make any capital
contribution or investment in any corporation, business or other person.
SECTION 5.14. NO NEGOTIATION WITH OTHERS. Neither the Corporation nor
any Shareholder shall solicit or participate in negotiations with (and the
Corporation and the Shareholders shall use their best efforts to prevent any
affiliate, shareholder, director, officer, employee or other representative or
agent of the Corporation from negotiating with, soliciting or participating in
negotiations with) any third party with respect to the sale of the business of
the Corporation or any transaction inconsistent with those contemplated hereby.
SECTION 5.15. BACKLOG. The backlog of the Corporation shall only be
increased or decreased in the ordinary course of business.
ARTICLE VI.
PURCHASER'S COVENANTS
Purchaser agrees that between the date hereof and the Closing, Purchaser
shall use its best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions.
ARTICLE VII.
PURCHASER'S CONDITIONS PRECEDENT
Except as may be waived in writing by Purchaser, the obligations of
Purchaser hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Corporation and Shareholders contained herein shall have been
true and correct in all respects when initially made and shall be true and
correct in all respects as of the Closing Date.
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SECTION 7.02. COVENANTS AND CONDITIONS. The Corporation and
Shareholders shall have performed and complied with all covenants and
conditions required by this Agreement to be performed and complied with by the
Corporation and Shareholders prior to the Closing Date.
SECTION 7.03. PROCEEDINGS. No action, proceeding or order by any court
or governmental body or agency shall have been threatened, orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
SECTION 7.04. NO MATERIAL ADVERSE CHANGE. No material adverse change
in the condition (financial or otherwise), operations, assets, liabilities,
business or prospects of the Corporation shall have occurred since May 31,
1996, whether or not such change shall have been caused by the deliberate act
or omission of the Corporation or any Shareholder.
SECTION 7.05. DUE DILIGENCE REVIEW. Purchaser shall have completed a
due diligence review of the business, operations, prospects and financial
statements of the Corporation, the results of which shall be satisfactory to
Purchaser. Purchaser shall have received such environmental studies, audits,
reports or liability assessments of the Corporation and its owned and leased
properties as Purchaser considers necessary or desirable, which shall be
satisfactory to Purchaser.
SECTION 7.06. EMPLOYMENT AGREEMENTS. All Employment Agreements and
consulting, severance and management agreements and other similar compensation
plans or arrangements of the Corporation shall be satisfactory to Purchaser.
SECTION 7.07. JUNE BALANCE SHEET AND CLOSING ASSETS. The June Balance
Sheet shall have been delivered to Purchaser by the Shareholders and shall be
in form and substance satisfactory to Purchaser (including, without limitation,
based on its due diligence review and financial audit). The assets and
liabilities of the Corporation will not be materially different on the Closing
Date from, and shall be substantially equivalent to, the assets and liabilities
of the Corporation as shown on the June Balance Sheet.
SECTION 7.08. APPROVALS. All authorizations, approvals, consents and
waivers of any governmental authority or third party, each as Purchaser deems
necessary or desirable to consummate the transactions contemplated by this
Agreement, shall have been obtained and shall not be terminated, suspended or
withdrawn as of the Closing Date.
SECTION 7.09. SIMULTANEOUS CLOSINGS. The Closing shall occur
simultaneously with the closing of the transactions contemplated by the Asset
Purchase Agreement.
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SECTION 7.10. ELIMINATION OF PLAN. The Incentive Compensation
(Phantom Stock) Plan of the Corporation shall have been terminated in its
entirety, with no cost to the Corporation (unless such cost is reflected as an
expense to the Corporation in the June Balance Sheet).
SECTION 7.11. CLOSING DELIVERIES. Purchaser shall have received all
documents, duly executed in form satisfactory to Purchaser and its counsel,
referred to in Section 9.01.
ARTICLE VIII.
THE CORPORATION'S AND SHAREHOLDERS' CONDITIONS PRECEDENT
Except as may be waived in writing by the Corporation and Shareholders,
the obligations of the Corporation and Shareholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following
conditions:
SECTION 8.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained herein shall be true and correct in all
respects as of the Closing Date.
SECTION 8.02. COVENANTS AND CONDITIONS. Purchaser shall have performed
and complied in all material respects with all covenants and conditions
required by this Agreement to be performed and complied with by it prior to the
Closing Date.
SECTION 8.03. PROCEEDINGS. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 8.04. CLOSING. The Closing shall occur simultaneously with the
closing of the transactions contemplated by the Asset Purchase Agreement.
SECTION 8.05. CLOSING DELIVERIES. The Corporation or Shareholders, as
the case may be, shall have received all documents referred to in Section 9.02.
ARTICLE IX.
CLOSING DELIVERIES
SECTION 9.01. DELIVERIES OF THE CORPORATION AND SHAREHOLDERS. At the
Closing, the Corporation and Shareholders shall deliver to Purchaser the
following, all of which shall be in form and content satisfactory to Purchaser
and its counsel and dated as of the Closing Date unless otherwise specified:
(a) certificates representing all of the Stock, duly endorsed and
in proper form for transfer to Purchaser by delivery under applicable law, or
accompanied by duly executed instruments of transfer in blank;
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(b) a copy of resolutions of the Board of Directors of the
Corporation authorizing the execution, delivery and performance of this
Agreement and all related documents and agreements, certified by the Secretary
of the Corporation as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Corporation and of each of
the Shareholders, each dated as of the Closing Date, as to the truth and
correctness of the representations and warranties of the Corporation and
Shareholders contained herein on and as of the Closing Date;
(d) a certificate of the President of the Corporation and of
Shareholders, each dated as of the Closing Date, (i) as to the performance of
and compliance by the Corporation and Shareholders with all covenants contained
herein on and as of the Closing Date and (ii) certifying that all conditions
precedent of the Corporation and Shareholders to the Closing have been
satisfied;
(e) a certificate of the Secretary of the Corporation, dated as of
the Closing Date, certifying as to the incumbency of the directors and officers
of the Corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of the Corporation;
(f) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of North Carolina establishing that the Corporation is in
existence, has paid all franchise taxes and otherwise is in good standing to
transact business in its state of incorporation;
(g) certificates, dated within ten days of the Closing Date, of the
Secretaries of State of the states in which the Corporation is qualified to do
business, to the effect that the Corporation is qualified to do business and is
in good standing as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Schedule 3.08;
(i) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Shareholder signed under penalty of
perjury, to the effect that such Shareholder is a United States Citizen (and
thus not a foreign person) and providing such Shareholder's United States
taxpayer identification number;
(j) a General Release in the form attached hereto as Exhibit B, duly
executed by each Shareholder;
(k) an Employment Agreement in the form attached hereto as Exhibit C
(the "Johnson Employment Agreement"), duly executed by James H. Johnson, III;
(l) a Manufactured Homes Purchase Agreement in the form attached
hereto as Exhibit D (the "Purchase Agreement"), duly executed by the
Shareholders;
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(m) an opinion of Wishart, Norris, Henninger & Pittman, P.A., counsel
to the Corporation and Shareholders, in form and substance reasonably
acceptable to Purchaser and their counsel; and
(n) such other instrument or instruments of transfer as shall be
necessary or appropriate, as Purchaser or its counsel shall reasonably request,
to vest in Purchaser good and marketable title to the Stock.
SECTION 9.02. DELIVERIES OF PURCHASER. At the Closing, Purchaser shall
deliver the following to the Corporation or the appropriate party, each of
which shall be dated as of the Closing Date unless otherwise specified:
(a) the Cash Consideration in immediately available funds, as reduced
by Section 2.03 if applicable;
(b) the Notes;
(c) a copy of the resolutions of the Board of Directors of Purchaser
authorizing the execution, delivery and performance of this Agreement, the
Notes and all related documents and agreements, each certified by Purchaser's
Secretary as being true and correct copies of the originals thereof subject to
no modifications or amendments;
(d) a certificate of the President of Purchaser, dated as of the
Closing Date, as to the truth and correctness of the representations and
warranties of Purchaser contained herein on and as of the Closing Date;
(e) a certificate of the President of Purchaser, dated as of the
Closing Date, (i) as to the performance of and compliance by Purchaser with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Purchaser to the Closing have been satisfied;
(f) a certificate of the Secretary of Purchaser, dated as of the
Closing Date, certifying as to the incumbency of the directors and officers of
Purchaser and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of Purchaser;
(g) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of Purchaser's state of incorporation, establishing that
Purchaser is in existence, has paid all state taxes and otherwise is in good
standing to transact business in such state;
(h) releases of personal guaranties or liability of Shareholders of
any indebtedness of the Corporation or with respect to any corporate bonds, in
form and substance satisfactory to shareholders;
(i) the Johnson Employment Agreement, duly executed by Purchaser; and
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(j) an opinion of Jackson & Walker, L.L.P., counsel to Purchaser in
form and substance reasonably acceptable to the Shareholders and their counsel.
ARTICLE X.
NONCOMPETITION
SECTION 10.01. PROHIBITED ACTIVITIES. In consideration for Purchaser's
execution and delivery of this Agreement, and other good and valuable
consideration, each Shareholder hereby agrees that, subject to adjustment
pursuant to Section 10.05, for a period of five (5) years following the Closing
Date, neither Shareholder nor any of his affiliates, shall knowingly, directly
or indirectly, for himself or on behalf of any other corporation, person, firm,
partnership, association, or any other entity (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(a) engage or participate in any business which engages in
competition with the business being conducted by Purchaser and its affiliates
(the "Purchaser Group"), except as permitted in (d) below (as used herein, a
business is engaged in competition with the business being conducted by the
Purchaser Group if it is involved in the manufacture, distribution, or sale at
retail of manufactured or modular housing in that territory consisting of the
States of Virginia, West Virginia, Maryland, Delaware, Tennessee, North
Carolina, South Carolina, Georgia, Florida, Arkansas, Louisiana, Alabama,
Texas, Kansas, Kentucky, Oregon, Idaho, Washington, Pennsylvania, Nebraska,
Colorado, Mississippi, Arizona, New Mexico, Nevada, Oklahoma, Missouri, Utah,
Montana and South Dakota, or any other State where the Purchaser Group conducts
business during such five-year period; provided, however, that this provision
shall not prohibit any Shareholder or any of his affiliates from purchasing or
holding an aggregate equity interest of up to 1%, so long as such Shareholder
and his affiliates combined do not purchase or hold an aggregate equity
interest of more than 5%, in any business in competition with the Purchaser
Group; and provided further, however, that Rumbley may retail a park model unit
that is not (i) subject to Housing and Urban Development rules and regulations
and (ii) larger than 385 square feet);
(b) induce or attempt to influence any employee of the Purchaser
Group to terminate his or her employment, or to hire any person who is an
employee of the Purchaser Group, or was an employee of the Purchaser Group
during such five-year period, whether or not so induced or influenced, except
that any such employee may be hired with Purchaser's prior written consent;
(c) assist or finance any person or entity which competes with the
Purchaser Group, except as permitted in (d) below; or
(d) engage or participate in any manufactured housing subdivision
project, except as set forth in Schedule 10.01 hereto, or in that certain
Manufactured Housing Purchase Agreement of even date herewith, by and among
Purchaser, the Shareholders and the Corporation.
SECTION 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to the Purchaser as a result of the breach of the foregoing
covenant, and because of the immediate and irreparable
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damage that would be caused to Purchaser for which it would have no other
adequate remedy, the Shareholders agree that, in the event of a breach by them
of the foregoing covenant, the covenant may be enforced by Purchaser or the
Corporation by injunctions and restraining orders.
SECTION 10.03. REASONABLE RESTRAINT. It is agreed by the parties that
the foregoing covenants in this Article X impose a reasonable restraint on
Shareholders in light of the activities and business of the Corporation on the
date of the execution of this Agreement and the future plans of the Corporation
and Purchaser. Shareholders hereby agree that this covenant is a material and
substantial part of this transaction.
SECTION 10.04. SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
SECTION 10.05. TERM. It is specifically agreed that the period of five
(5) years stated above, shall be computed by excluding from such computation
any time during which Shareholders are in violation of any provision of this
Article X. The covenants contained in this Article X shall have no effect if
the transactions contemplated by this Agreement are not consummated, but
otherwise shall not be affected by any breach of any other provision hereof by
any party hereto. Notwithstanding anything contained herein to the contrary,
the provisions of Section 10.01 shall terminate and be of no force in effect
with respect to a Shareholder in the event that an Event of Default (as such
term is defined in the Note) exists under the Note payable to such Shareholder
and such Event of Default has not been cured within the applicable cure period.
ARTICLE XI.
REMEDIES
SECTION 11.01. INDEMNIFICATION BY SHAREHOLDERS. Subject to the terms
and conditions of this Article, each of the Shareholders, severally and not
jointly, agrees to indemnify, defend and hold Purchaser and its directors,
officers, agents, attorneys and affiliates harmless from and against all
losses, claims, causes of action, obligations, demands, assessments, penalties,
liabilities, costs, damages, attorneys' fees and expenses (collectively,
"Damages"), asserted against or incurred by such indemnitees by reason of or
resulting from: (a) a breach of any representation, warranty or covenant of
Shareholders contained herein, in any exhibit, schedule, certificate or
financial statement delivered hereunder, or in any agreement executed in
connection with the transactions contemplated hereby; (b) any studies, audits,
investigation, testing, clean-up or remediation work on, or permits required
for, the properties owned or leased by the Corporation which is necessary or
advisable under or pursuant to Environmental Laws (including, without
limitation, any of the foregoing which may arise out of the matters set forth
in the studies, audits or reports provided or obtained pursuant to Section 5.05
("Environmental Matters") but excluding fees and expenses to be borne by
Purchaser for certain Phase I environmental studies as provided in Section
11.09; (c) any liabilities, contingent or otherwise (known or unknown and
asserted or unasserted) arising out of
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the Corporation's conduct of its business prior to Closing and the liabilities
of the Corporation created prior to Closing or arising out of transactions
effected or events occurring on or prior to the Closing Date (including,
without limitation, litigation matters which arose from events or circumstances
occurring on or prior to the Closing Date), except (i) as set forth on the June
Balance Sheet or liabilities incurred since the June Balance Sheet through the
Closing Date of the same type and not materially greater (a liability shall be
deemed "not materially greater" to the extent of a corresponding increase in a
current asset as a result of the incurrence of such liability) than the amount
set forth in the May 31, 1996, balance sheet of the Corporation; (ii) as
disclosed herein (unless such liability is specifically a subject of
indemnification hereunder (including, without limitation (f) below)); and (iii)
if such liability is specifically the subject of a representation or warranty
set forth in Article III for which a "knowledge" or "materiality" qualifier has
been provided for (but, in the case of a "knowledge" qualifier, only to the
extent not known and, in the case of a "materiality" qualifier, only if it is
not material); and (d) the lawsuits and other matters described on Schedule
3.21 (to the extent such Damages are in excess of reserves relating to such
litigation, if any, shown on the June Balance Sheet); (e) all income, excise,
corporate, franchise, property, sales, use, payroll, withholding and other
taxes ("Taxes") of the Corporation related to taxable periods or portions
thereof ending on or before the Closing (except for Taxes which Purchaser has
agreed to be responsible for as provided in Section 2.04 above or any failure
of Purchaser to make the Joint Election to the extent that such failure has a
negative tax impact on the Shareholders); (f) any claims, liabilities, costs,
expenses or losses resulting from and arising out of the matters described in
Schedule 11.01 attached hereto, but only to the extent such claims,
liabilities, costs, expenses or losses exceed, for any item listed in such
Schedule, the dollar amount specified in such Schedule for such item (e.g., in
the the case of Item 3, to the extent they exceed $10,000); it being agreed and
understood that for the three items listed in Schedule 11.01, Purchaser's sole
right to be indemnified for such items under this Section 11.01 shall be
limited to its rights under this subpart (f); and (g) any claims, liabilities,
costs, expenses or losses resulting from the existence of a "substantial class
of homes defect" which requires remediation (including, without limitation,
remediation under Subpart I of The National Manufactured Housing Code of the
Department of Housing and Urban Development).
SECTION 11.02. INDEMNIFICATION BY PURCHASER. Subject to the terms and
conditions of this Article, Purchaser hereby agrees to indemnify, defend and
hold Shareholders harmless from and against all Damages asserted against or
incurred by Shareholders or either of them by reason of or resulting from a
breach of any representation, warranty or covenant of Purchaser contained
herein or in any exhibit, schedule or certificate delivered hereunder, or in
any agreement executed in connection with the transactions contemplated hereby,
as well as from any Damages arising out of or resulting from the operation of
the Corporation's business after the Closing, unless such Damages are
attributable to the pre-Closing period or are the subject of Purchaser's
indemnification under Section 11.01 above.
SECTION 11.03. CONDITIONS OF INDEMNIFICATION. The respective
obligations and liabilities of the Corporation and Shareholders and Purchaser
(the "indemnifying party") to the other (the party to be indemnified") under
Sections 11.01 and 11.02 with respect to laims resulting from the assertion of
liability by third parties shall be ubject to the following terms and
conditions:
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(a) Within 20 days (or such earlier time as might be required to
avoid prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnifying party and the
party to be indemnified and the party to be indemnified has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the indemnifying party (in
which case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of the party to be indemnified, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the party to be indemnified, which
firm shall be designated in writing by the party to be indemnified). Except as
set forth in Section 13.06, the failure to promptly deliver a notice of an
indemnity claim hereunder shall not relieve the indemnifying party of its
obligations to the indemnified party with respect to such claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim.
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not
elect to defend against such claim, the party to be indemnified will (upon
further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party and at the indemnifying party's
expense, subject to the right of the indemnifying party to assume the defense
of such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified. The party to be indemnified and the indemnifying
party will each cooperate with all reasonable requests of the other.
SECTION 11.04. LIMITATIONS OF INDEMNIFICATION. Notwithstanding
anything in this Agreement to the contrary, the Shareholders' liability for
Damages as provided in Section 11.01 hereof shall be limited to the Purchase
Price, as adjusted pursuant to Section 2.03 hereof. On and after the first
anniversary date of the Closing and except with respect to Damages relating to
Environmental Matters, Taxes,
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and the representations and warranties set forth in Sections 3.01, 3.03, 3.05,
3.18 and 3.32 hereof, the Shareholders' liability for Damages as provided in
Section 11.01 hereof shall be limited to an aggregate amount equal to the
principal balance of the Notes outstanding from time to time; provided,
however, that such reduced liability maximum shall not apply if prior to such
date, the Shareholders have been notified of a claim for indemnity hereunder
which potentially exceeds such reduced liability maximum, and such shall not
have been finally resolved or disposed of as of such date. Further, the
Shareholders shall not be liable for any Damages to Purchaser hereunder until
the aggregate amount of all such Damages exceeds Seventy-Five Thousand Dollars
($75,000.00) ($37,500 each), it being understood and agreed by the Shareholders
that when the amount of such damages exceeds $75,000.00 in the aggregate
($37,500) each, indemnification may be sought against the Shareholders in full
for all such damages from the first dollar thereof; provided, however, that
this sentence shall not apply to the items listed in Schedule 11.01.
SECTION 11.05. SEVERAL LIABILITY. Notwithstanding anything to the
contrary contained herein, the indemnification obligation of the Shareholders
under this Article XI shall be several and not joint. No Shareholder shall be
individually obligated to indemnify Purchaser for any Damages incurred or
suffered by Purchaser in excess of one-half of such Damages for which Purchaser
is entitled to indemnification. The Purchaser shall be entitled to bring suit
against the Shareholders jointly for any Damages indemnified hereunder, but
shall be estopped and prohibited from obtaining judgment against or enforcing
judgment against either Shareholder for an amount greater than one-half the
total amount to be indemnified.
SECTION 11.06. WAIVER. No waiver by any party of any default or breach
by another party of any representation, warranty, covenant or condition
contained in this Agreement, any exhibit or any document, instrument or
certificate contemplated hereby shall be deemed to be a waiver of any
subsequent default or breach by such party of the same or any other
representation, warranty, covenant or condition. No act, delay, omission or
course of dealing on the part of any party in exercising any right, power or
remedy under this Agreement or at law or in equity shall operate as a waiver
thereof or otherwise prejudice any of such party's rights, powers and remedies.
All remedies, whether at law or in equity, shall be cumulative and the election
of any one or more shall not constitute a waiver of the right to pursue other
available remedies.
SECTION 11.07. REMEDIES NOT EXCLUSIVE. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity.
SECTION 11.08. OFFSET. Any and all amounts owing or to be paid by any
party hereto to any other party hereto, hereunder or otherwise, shall be
subject to offset and reduction pro tanto by any amounts that may be owing at
any time by such other party to such party in respect of the indemnification
provisions contained herein or any failure or breach of any representation,
warranty or covenant of such other party under or in connection with this
Agreement or any other agreement with such party or any transaction
contemplated hereby or thereby, as reasonably determined by such party. If
such party determines that such offset is appropriate, notice shall be given to
such other party of such determination at least 10 days prior to the due date
of the payment to be reduced. If the conditions upon which the reduction is
based are cured by such other party prior to such due date, as determined by
such party, the amount of such payment shall not be so reduced. With
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respect to any payments which are due and owing to Purchaser pursuant to the
provisions of Section 2.03 or Section 11.01, Purchaser agrees to first offset
such amounts against payments to be made by Purchaser under the Notes to the
extent any such payments remain.
SECTION 11.09. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including accountants' and attorneys' fees and
expenses), except that (a) the costs and expenses for any Phase I environmental
study requested by Purchaser pursuant to Section 5.05 shall be borne one-half
by Purchaser and one-half by Shareholders and (b) each party hereto that is
shown to have breached this Agreement or any other agreement contemplated
hereby agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by any other party in successfully (i) enforcing
any of the terms of this Agreement against such breaching party or (ii) proving
that another party breached any of the terms of this Agreement; provided that,
notwithstanding the foregoing, in the event the transactions contemplated
hereby are consummated, any and all costs and expenses incurred or accrued by
the Corporation in connection with the negotiation and documentation of this
Agreement and the agreements contemplated hereby, the consummation of the
transactions contemplated hereby or otherwise in connection herewith, shall be
paid by, and be the obligations of, the Shareholders.
SECTION 11.10 SPECIFIC PERFORMANCE. Each party hereto acknowledges
that a refusal by such party to consummate the transactions contemplated hereby
will cause irreparable harm to the other parties hereto, for which there may be
no adequate remedy at law and for which the ascertainment of damages would be
difficult. Therefore, the other parties hereto shall be entitled, in addition
to, and without having to prove the inadequacy of, other remedies at law, to
specific performance of this Agreement against the refusing party, as well as
injunctive relief (without being required to post bond or other security).
SECTION 11.11. TAX EFFECT OF INDEMNIFICATION. Notwithstanding any term
or provision of this Agreement to the contrary, any indemnity payments owed by
one party to another party to this Agreement shall be reduced by any tax
benefits to the party claiming indemnity hereunder and increased by any tax
detriments to the party claiming indemnity hereunder.
ARTICLE XII.
TERMINATION
SECTION 12.01. TERMINATION. This Agreement may or shall be terminated:
(a) At any time prior to the Closing Date by mutual agreement of all
parties.
(b) At any time after August 30, 1996 (or such later date if extended
pursuant to Section 1.01(e) above), by any party if the Closing has not
occurred.
(c) At any time prior to the Closing Date by Purchaser if any
representation or warranty of the Shareholders contained in this Agreement or
in any certificate or other document executed
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and delivered by the Corporation pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Corporation or
Shareholders fail to comply in any material respect with any covenant contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within five days.
(d) At any time prior to the Closing Date by the Shareholders if any
representation or warranty of Purchaser contained in this Agreement or in any
certificate or other document executed and delivered by Purchaser pursuant to
this Agreement is or becomes untrue or breached in any material respect or if
Purchaser fails to comply in any material respect with any covenant contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within five days.
(e) On or after the Closing Date by Purchaser if the conditions
stated in Article VII have not been satisfied or waived by Purchaser by the
Closing Date.
(f) On or after the Closing Date by the Shareholders if the
conditions stated in Article VIII have not been satisfied or waived by the
Shareholders by the Closing Date.
In the event this Agreement is terminated pursuant to subparagraph (b), (c),
(d), (e) or (f) above, Purchaser, the Corporation and Shareholders shall each
be entitled to pursue, exercise and enforce any and all remedies, rights,
powers and privileges available at law or in equity. In the event of a
termination of this Agreement under the provisions of this Article, a party not
then in material breach of this Agreement shall stand fully released and
discharged of any and all obligations under this Agreement.
ARTICLE XIII.
MISCELLANEOUS
SECTION 13.01. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 13.02. ASSIGNMENT. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by Purchaser to an affiliate of Purchaser. In the event of an
assignment of this Agreement by Purchaser to one of its affiliates, Purchaser
agrees that it shall guarantee the obligations of such assignee to the
Shareholders hereunder including but not limited to all obligations pursuant to
the Notes and the obligations set forth in Section 2.03(b) above.
SECTION 13.03. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
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SECTION 13.04. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
SECTION 13.05. SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 13.06. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants contained herein shall survive
the Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Corporation, Shareholders or
Purchaser pursuant to this Agreement shall be deemed to have been
representations and warranties by the Corporation and Shareholders or
Purchaser, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing for a period of two years,
except for (a) representations and warranties with respect to any tax or
tax-related matters or any ERISA matters, which shall survive the Closing until
the running of any applicable statutes of limitation, (b) indemnification
provisions for the violation of any Environmental Law, which shall survive the
Closing and shall continue indefinitely and (c) the non-competition provisions
contained in Article X, which shall survive the Closing for a period of five
years. Notwithstanding the above, if prior to any expiration date the
indemnifying party shall have been notified of a claim for indemnity hereunder
and such claim shall not have been finally resolved or disposed of at such
date, any representation or warranty that is the basis for such claim shall
continue to survive as to such claim and shall remain a basis for indemnity, to
the extent of such claim only, until such claim is finally resolved or disposed
of.
SECTION 13.07. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
SECTION 13.08. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
SECTION 13.09. GENDER AND NUMBER. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
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SECTION 13.10. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 13.11. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES.
(a) All copies of any information delivered to Purchaser pursuant to
this Agreement shall, upon the written request of the Corporation, be promptly
returned to the Corporation in the event this Agreement is terminated, and
Purchaser agrees that it will use any information obtained from such review
which is "Confidential Information" only for purposes of making its decision as
to whether to consummate the transactions contemplated herein and not for any
other purposes. For purposes of this Section 13.11(a), "Confidential
Information" does not include information which: (i) is or becomes generally
available to the public other than as a result of disclosure which is in
violation of this Section; (ii) was known by Purchaser on a nonconfidential
basis prior to the disclosure thereof; or (iii) is acquired by Purchaser from a
third party who has no confidential commitment to the Corporation with respect
to the same.
(b) Each party shall keep this Agreement and its terms confidential,
and shall make no press release or public disclosure, either written or oral,
regarding the transactions contemplated by this Agreement without the prior
knowledge and consent of the other parties hereto; provided that the foregoing
shall not prohibit any disclosure (i) by press release, filing or otherwise
that is required by law (including, without limitation, federal securities
laws), regulation or court or administrative order, (ii) to advisors,
financiers or lenders of any party or to any party's directors, officers,
employees and representatives involved in the transactions contemplated herein
or (iii) by Purchaser in connection with obtaining financing for the
transactions contemplated by this Agreement and conducting an examination of
the operations and assets of the Corporation.
SECTION 13.12. NOTICE. Any notice or demand which is permitted or
required hereunder will be deemed to have been received (except as otherwise
provided herein) (a) upon receipt when personally delivered, (b) or one day
after sent by overnight delivery by a nationally recognized courier or telecopy
providing confirmation or receipt of delivery, or (c) three days after being
sent by certified or registered mail, postage and charges prepaid, return
receipt requested to the addresses listed on Schedule 13.12 attached hereto, or
at any other address designated by any party hereto to all other parties hereto
in writing.
SECTION 13.13. FURTHER INSTRUMENTS OF TRANSFER. Following the Closing,
at the request of Purchaser, Shareholders shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate
to (a) vest in Purchaser good and valid title to the Stock, free and clear of
any adverse claims, security interests, liens, claims and encumbrances and (b)
carry out more effectively the provisions of this Agreement and to establish
and protect the rights created in favor of the parties hereunder or thereunder.
SECTION 13.14. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
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<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
HEARTLAND HOMES, INC.
By:
-----------------------------
Its:
----------------------------
AMERICAN HOMESTAR CORPORATION
By:
-----------------------------
Its:
----------------------------
--------------------------------
JAMES H. JOHNSON, III
--------------------------------
CHARLES E. RUMBLEY
-38-
<PAGE> 44
INDEX OF SCHEDULES
Schedule 3.02 Foreign Jurisdictions
Schedule 3.03 Capitalization and Shareholders
Schedule 3.08 Consents
Schedule 3.07 Violations
Schedule 3.10 Liabilities and Obligations
Schedule 3.11(a) Cash Compensation
Schedule 3.11(b) Compensation Plans
Schedule 3.11(c) Employment Agreements
Schedule 3.11(d) Employee Policies and Procedures
Schedule 3.11(e) Unwritten Amendments
Schedule 3.11(f) Labor Compliance
Schedule 3.12(a) Employee Benefit Plans
Schedule 3.12(d) Actuarial Assumptions
Schedule 3.12(g) Medical and Dental Care Claims
Schedule 3.13 Absence of Certain Changes
Schedule 3.14(a) Real Property
Schedule 3.14(b) Personal Property
Schedule 3.14(c) Leases
Schedule 3.14(d) Assets Acquired
Schedule 3.15 Commitments
Schedule 3.16 Insurance Policies
Schedule 3.17 Proprietary Rights
<PAGE> 45
INDEX OF SCHEDULES
Schedule 3.19 Permits and Licenses
Schedule 3.21 Litigation
Schedule 3.24 Inventory
Schedule 3.25 Books of Accounts
Schedule 3.26 Backlog
Schedule 3.27 Distributions
Schedule 3.28 Customers and Suppliers
Schedule 3.29 Product Warranties
Schedule 3.30 Ownership Interests of Interested Persons
Schedule 3.31 Investments in Competition
Schedule 3.32 Environmental Matters
Schedule 3.34 Government Inquiries
Schedule 5.02 June Balance Sheet
Schedule 11.01 Indemnified Claims
Schedule 13.12 Addresses
<PAGE> 46
INDEX OF EXHIBITS
Exhibit A Promissory Note
Exhibit B General Release
Exhibit C Johnson Employment Agreement
Exhibit D Manufactured Homes Purchase Agreement
<PAGE> 47
SCHEDULE 11.01
1. Product warranty and service claims relating to homes sold by the
Corporation on or prior to the Closing Date, to the extent that such
claims exceed $1,074,524.74 (excluding any liability under subpart (g)
of Section 11.01).
2. Any fines or penalities relating or pertaining to the OSHA Citation, to
the extent that such fines or penalties exceed $35,000 in the aggregate.
3. Any costs, expenses or liabilities relating or pertaining to the lawsuit
described in Schedule 3.21, to the extent that such costs, expenses or
liabilities exceed $10,000 in the aggregate.
<PAGE> 1
EXHIBIT 2.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of the 3rd_day of September, 1996, by and between American Homestar
Corporation, a Texas corporation ("Employer"), and James H. Johnson, III
("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee shall, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
2. Duties. Subject to the power of the Board of Directors of
Employer to elect and remove officers, Employee shall serve Employer as Chief
Operating Officer of Heartland Homes, Inc., a subsidiary of Employer ("HHI")
(or in such other office as Employer may determine) and shall perform,
faithfully and diligently, the services and functions relating to such office
or otherwise reasonably incident to such office as may be designated from time
to time by the Board of Directors of Employer; provided, however, that all such
services and functions shall be reasonable and within the Employee's area of
expertise. Employee shall perform his duties principally at the offices of HHI
located in Henderson, North Carolina, with such limited travel to such other
locations from time to time as the Board of Directors of Employer may
reasonably prescribe. Employee shall devote his full time, attention, energies
and business efforts to his duties hereunder and to the promotion of the
business and interests of Employer and its affiliates. The foregoing provision
shall not be construed to prohibit Employee's passive investments; provided
that such activities do not detract in any material respect from the
performance of Employee's duties hereunder.
<PAGE> 2
3. Term. The term of this Agreement shall commence as of the date
hereof and shall end on September 2, 2001, unless earlier terminated pursuant
to the terms hereof (the "Term").
4. Compensation. As compensation for his services rendered under
this Agreement, during the Term, Employee shall be entitled to receive the
following:
(a) Salary. Employee shall be paid an initial annual salary
as provided in Exhibit A attached hereto, such annual salary to be
reviewed for increases from time to time by the Board of Directors of
Employer.
(b) Vacation and Benefits. Employee shall be entitled to and
shall receive such group benefits as Employer may provide to its other
employees at comparable salaries and responsibilities of Employee, with
Employee being treated as having completed five or more years of
employment with Employer.
(c) Bonus. Employee shall also be entitled to receive bonuses
as provided in Exhibit A attached hereto.
(d) Expenses. Employer shall reimburse Employee for all
reasonable and necessary out-of-pocket travel and other expenses
incurred by Employee in rendering services required under this
Agreement, on a monthly basis upon submission of a detailed monthly
statement and reasonable documentation.
(e) Stock Options. Employer shall execute and deliver to
Employee a Stock Option Agreement, in substantially the forms of Exhibit
B attached hereto.
5. Confidentiality.
(a) Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer and its affiliates in
any Trade Secrets (as hereinafter defined) of Employer and its
affiliates. Employee acknowledges and agrees that any and all Trade
Secrets currently known by Employee or learned by Employee during the
course of his engagement by Employer or otherwise, whether developed by
Employee alone or in conjunction with others or otherwise, shall be and
is the property of Employer and its affiliates. Employee further
acknowledges and understands that his disclosure of any Trade Secrets
will result in irreparable injury and damage to Employer and its
affiliates. As used herein, "Trade Secrets" means all confidential and
proprietary information of Employer and its affiliates, now owned or
hereafter acquired, including, without limitation, information derived
from reports, investigations, experiments, research, work in progress,
drawing, designs, plans, proposals, codes, marketing and sales programs,
client lists, client mailing lists, financial projections, cost
summaries,
- 2 -
<PAGE> 3
pricing formula, and all other concepts, ideas, materials, or
information prepared or performed for or by Employer or its affiliates
and information related to the business, products or sales of Employer
or its affiliates, or any of their respective customers, other than
information which is otherwise publicly available; provided, however,
"Trade Secrets" does not include any information that is known or
readily obtainable by companies within the manufactured housing
industry.
(b) Covenant Not-to-Divulge Trade Secrets. Employee
acknowledges and agrees that Employer and its affiliates are entitled to
prevent the disclosure of TradeSecrets. As a portion of the
consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during
the Term and thereafter to hold in strict confidence and not to disclose
or allow to be disclosed to any person, firm or corporation, other than
to persons engaged by Employer and its affiliates to further the
business of Employer and its affiliates, and not to use except in the
pursuit of the business of Employer and its affiliates, the Trade
Secrets, without the prior written consent of Employer, including Trade
Secrets developed by Employee.
(c) Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents,
data and other information pertaining to Trade Secrets. Employee shall
not take any documents or other information, or any reproduction or
excerpt thereof, containing or pertaining to any Trade Secrets.
(d) Competition During Employment. Employee agrees that
during the Term, neither he, nor any of his affiliates, will directly or
indirectly compete with Employer or its affiliates in any way, and that
he will not act as an officer, director, employee, consultant,
shareholder, lender, or agent of any entity which is engaged in any
business of the same nature as, or in competition with, the businesses
being conducted by Employer and its affiliates (as used herein, a
business is engaged in competition with the business being conducted by
Employer and its affiliates if it is involved in the manufacture,
distribution or sale at retail of manufactured or modular housing in the
territory consisting of the States of Virginia, West Virginia, Maryland,
Delaware, Tennessee, North Carolina, South Carolina, Georgia, Florida,
Arkansas, Louisiana, Alabama, Texas, Kansas, Kentucky, Oregon, Idaho,
Washington, Pennsylvania, Nebraska, Colorado, Mississippi, Arizona, New
Mexico, Nevada, Oklahoma, Missouri, Utah, Montana and South Dakota, or
any other State where the Employer or its affiliates conduct business
during the Term); provided, however, that this Section 5(d) shall not
prohibit Employee or any of his affiliates from purchasing or holding an
aggregate equity interest of up to 1%, so long as Employee and his
affiliates combined do not purchase or hold an aggregate
- 3 -
<PAGE> 4
equity interest of more than 5%, in any business in competition with
Employer and its affiliates. Furthermore, Employee agrees that during
the Term, he will undertake no planning for the organization of any
business activity competitive with the work he performs as an employee
of Employer and Employee will not combine or conspire with any other
employees of Employer and its affiliates for the purpose of the
organization of any such competitive business activity. Notwithstanding
the above, Employee may engage or participate in a manufactured housing
subdivision project to the extent provided in that certain Manufactured
Housing Purchase Agreement, of even date herewith, by and among
Employer, Employee, HHI and Charles E. Rumbley.
6. Prohibition on Disparaging Remarks. Employee shall, from the
date of this Agreement on, refrain from making disparaging, negative or other
similar remarks concerning Employer or any of its affiliates to any third
party. Similarly, Employer and its affiliates shall from the date of this
Agreement on, refrain from making disparaging, negative or other similar
remarks concerning Employee to any third party.
7. Termination. This Agreement and the employment relationship
created hereby shall terminate upon the occurrence of any of the following
events:
(a) On September 2, 2001;
(b) The death of Employee;
(c) The "disability" (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination
for "just cause" (as hereinafter defined);
(e) Written notice to Employee from Employer of termination
for any reason other than "just cause;" or
(f) 60 days prior written notice to Employer from Employee of
termination.
For purposes of Section 7(c) above, the "disability" of Employee shall
mean his inability, because of mental or physical illness or incapacity, to
perform his duties under this Agreement for a continuous period of 120 days or
for 120 days out of a 150-day period.
For purposes of Section 7(d) above, "just cause" shall mean (a) the
failure or inability for any reason (other than disability) of Employee to
devote his full business time
- 4 -
<PAGE> 5
to the businesses of Employer and its affiliates, except as permitted hereby,
(b) the commission by Employee of any act involving moral turpitude or the
commission by Employee of any act or the suffering by Employee of any
occurrence or state of facts, which renders Employee incapable of performing
his duties under this Agreement (other than disability), or adversely affects
or could be expected to adversely affect Employer's business reputation, (c)
Employee's being convicted of a felony, (d) any breach by Employee of any of
the terms of, or the failure to perform any material covenant contained in,
this Agreement and following notice thereof from Employer to Employee, Employee
does not cure such breach or failure within fifteen (15) days thereafter;
provided, however, that Employee will not be entitled to cure any breach or
failure under this subclause (d) more than one time in any consecutive three
month period, or (e) the violation by Employee of reasonable instructions or
policies established by Employer or its affiliates which have been communicated
to Employee with respect to the operation of their businesses and affairs or
Employee's failure to carry out the reasonable instructions of the Chief
Executive Officer, President or Board of Directors of Employer or HHI and
following notice thereof from Employer to Employee, Employee does not cure any
such violation or failure within fifteen (15) days thereafter; provided,
however, that Employee will not be entitled to cure any violation or failure
under this subclause (e) more than one time in any consecutive three month
period.
Notwithstanding anything to the contrary in this Agreement, the
provisions of Sections 5 and 6 above shall survive any termination, for
whatever reason, of Employee's employment under this Agreement. In the event
of the termination of Employee's employment prior to September 2, 2001,
Employee shall be entitled only to the compensation earned by him as of the
date of termination, except that if Employee's employment is terminated
pursuant to Section 7(e) above, Employee shall be entitled to receive the
salary then payable pursuant to Section 4(a) until September 2, 2001.
8. Liquidated Damages. This Agreement is executed in connection
with the acquisition by Employer of all of the issued and outstanding capital
stock of HHI, 50% of which stock was acquired from Employee (the "Stock
Purchase"). Employee acknowledges that Employee's continued employment with
Employer through at least October 2, 1998 is an integral part of the Stock
Purchase. Accordingly, Employee hereby agrees that in the event this Agreement
is terminated prior to October 2, 1998 for any reason other than as provided in
Section 7(b), (c) or (e) above, Employee shall pay to Employer $25,000 on the
first day of each month following the date of such termination through and
including October 2, 1998, and a pro rata portion of $25,000 for the month in
which such termination occurred. Employer will first offset payments to be
made by Employee under this Section 8 against the outstanding principal balance
(if any) owing by Employer under that certain Promissory Note, of even date
herewith, issued by Employer to Employee in the original principal amount of
$750,000 in connection with the Stock Purchase.
- 5 -
<PAGE> 6
9. Remedies. Employee recognizes and acknowledges that in the event
of any default in, or breach of any of, the terms, conditions or provisions of
this Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law shall be inadequate. Accordingly, Employee agrees
that in such event, Employer and its affiliates shall have the right of
specific performance and/or injunctive relief in addition to any and all other
remedies and rights at law, in equity or provided herein, and such rights and
remedies shall be cumulative.
10. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 and 6 above by
Employer and its affiliates will not interfere with Employee's ability to
pursue a proper livelihood. Employee recognizes and agrees that the
enforcement of this Agreement is necessary to ensure the preservation and
continuity of the business and good will of Employer and its affiliates.
11. Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given if given in writing and
personally delivered or sent by facsimile transmission, courier service,
overnight delivery service or by mail, registered or certified, postage prepaid
with return receipt requested, as follows:
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<PAGE> 7
If to Employer: American Homestar Corporation
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attention: President
Fax No.: (713) 334-9737
If to Employee: James H. Johnson, III
235 Warehouse Road
Henderson, North Carolina 27536
Fax No.: (919) 438-7458
Notices delivered personally or by facsimile transmission, courier service or
overnight delivery shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of three days after the date of
mailing.
12. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto and supersedes all prior agreements and understandings,
oral or written between the parties hereto. No modification or amendment of
any of the terms, conditions or provisions herein may be made otherwise than by
written agreement signed by the parties hereto.
13. Governing Law and Venue. THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CHOICE OF LAW
PRINCIPLES.
14. Parties Bound. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of Employer and
Employee, and their respective heirs, personal representatives, successors and
assigns. Employer shall have the right to assign this Agreement to any
affiliate or to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of Employer's assets or all of its stock, or
with which Employer merges or consolidates. The rights, duties or benefits to
Employee hereunder are personal to him, and no such right or benefit may be
assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Sections 5 and 6 above.
15. Estate. If Employee dies prior to the payment of all sums owed,
or to be owed, to Employee pursuant to Section 4 above, then such sums, as they
become due, shall be paid to Employee's estate.
- 7 -
<PAGE> 8
16. Enforceability. If, for any reason, any provision contained in
this Agreement should be held invalid in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. Accordingly, should a court of competent jurisdiction
determine that the scope of any covenant is too broad to be enforced as
written, it is the intent of each of the parties that the court should reform
such covenant to such narrower scope as it determines enforceable.
17. Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.
18. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
19. Costs. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.
20. Other Obligations. Employee represents and warrants that he is
not subject to any agreement which would be violated or breached as a direct or
indirect result of Employee executing this Agreement or Employee becoming an
employee of Employer.
21. Affiliate. An "affiliate" of any party hereto shall mean any
person controlling, controlled by or under common control with such party.
22. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
AMERICAN HOMESTAR CORPORATION
By:
--------------------------------
Its:
------------------------------
------------------------------------
James H. Johnson, III
EXHIBIT A
<TABLE>
<S> <C>
1. POSITION: General Manager & Chief Operating Officer of Heartland Homes, Inc.
2. BASE SALARY: $100,000 Annually, payable bi-monthly in arrears on the 15th & 30th.
3. BONUS COMPENSATION: 5% of the Bonus Base Profits (BBP) of the Heartland plant operations
measured as pretax profit before profit bonus, but after the $25,000
per month corporate expense allocation. Paid quarterly with no
holdback, after quarterly results have been announced.
4. CAR ALLOWANCE: Employee may continue to use the 1993 Ford F-250, or a comparable
vehicle, owned by Employer for Employee's business and personal use,
and Employer shall be responsible for the insurance, fuel, repair,
maintenance, tires, etc. related thereto.
</TABLE>
- 9 -
<PAGE> 10
EXHIBIT B
AMERICAN HOMESTAR CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
ATTACHED HERETO
- 10 -
<PAGE> 1
EXHIBIT 2.4
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of the 3rd day of September, 1996 by and between American Homestar Corporation,
a Texas corporation ("Employer"), and Charles E. Rumbley ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee shall, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
2. Duties. Subject to the power of the Board of Directors of
Employer to elect and remove officers, Employee shall serve Employer as
Regional Vice President (Carolina Region) of Associated Retailers Group, Inc.
(or in such other office as Employer may determine) and shall perform,
faithfully and diligently, the services and functions relating to such office
or otherwise reasonably incident to such office as may be designated from time
to time by the Board of Directors of Employer; provided, however, that all such
services and functions shall be reasonable and within the Employee's area of
expertise. Employee shall perform his duties principally from his office
located in North Carolina, with such limited travel to such other locations
from time to time as the Board of Directors of Employer may reasonably
prescribe. Subject to Section 4(a) below, Employee shall devote his full time,
attention, energies and business efforts to his duties hereunder and to the
promotion of the business and interests of Employer and its affiliates. The
foregoing provision shall not be construed to prohibit Employee's possible
investments; provided that such activities do not detract in any material
respect from the performance of Employee's duties hereunder.
<PAGE> 2
3. Term. The term of this Agreement shall commence as of the date
hereof and shall end on September 2, 1997, unless earlier terminated pursuant
to the terms hereof (the "Term").
4. Compensation. As compensation for his services rendered under
this Agreement, during the Term, Employee shall be entitled to receive the
following:
(a) Salary. Employee shall be paid an annual salary of
$100,000, payable in equal bi-monthly installments in arrears; provided,
however, if Employer and Employee agree that Employee may devote less
than his full time, attention, energies and business efforts to his
duties hereunder, then this Agreement shall be amended in writing to
reflect such status and Employee's compensation hereunder shall be
adjusted as agreed to by Employer and Employee.
(b) Benefits. Employee shall be entitled to and shall receive
such group benefits as Employer may provide to its employees at
comparable salaries and responsibilities of Employer.
(c) Expenses. Employer shall reimburse Employee for all
reasonable and necessary out-of-pocket travel and other expenses
incurred by Employee in rendering services required under this
Agreement, on a monthly basis upon submission of a detailed monthly
statement and reasonable documentation.
- 2 -
<PAGE> 3
5. Confidentiality.
(a) Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer and its affiliates in
any Trade Secrets (as hereinafter defined) of Employer and its
affiliates. Employee acknowledges and agrees that any and all Trade
Secrets currently known by Employee or learned by Employee during the
course of his engagement by Employer or otherwise, whether developed by
Employee alone or in conjunction with others or otherwise, shall be and
is the property of Employer and its affiliates. Employee further
acknowledges and understands that his disclosure of any Trade Secrets
will result in irreparable injury and damage to Employer and its
affiliates. As used herein, "Trade Secrets" means all confidential and
proprietary information of Employer and its affiliates, now owned or
hereafter acquired, including, without limitation, information derived
from reports, investigations, experiments, research, work in progress,
drawing, designs, plans, proposals, codes, marketing and sales programs,
client lists, client mailing lists, financial projections, cost
summaries, pricing formula, and all other concepts, ideas, materials, or
information prepared or performed for or by Employer or its affiliates
and information related to the business, products or sales of Employer
or its affiliates, or any of their respective customers, other than
information which is otherwise publicly available; provided, however,
"Trade Secrets" does not include any information that is known or
readily obtainable by companies within the manufactured housing
industry.
(b) Covenant Not-to-Divulge Trade Secrets. Employee
acknowledges and agrees that Employer and its affiliates are entitled to
prevent the disclosure of Trade Secrets. As a portion of the
consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during
the Term and thereafter to hold in strict confidence and not to disclose
or allow to be disclosed to any person, firm or corporation, other than
to persons engaged by Employer and its affiliates to further the
business of Employer and its affiliates, and not to use except in the
pursuit of the business of Employer and its affiliates, the Trade
Secrets, without the prior written consent of Employer, including Trade
Secrets developed by Employee.
(c) Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents,
data and other information pertaining to Trade Secrets. Employee shall
not take any documents or other information, or any reproduction or
excerpt thereof, containing or pertaining to any Trade Secrets.
- 3 -
<PAGE> 4
(d) Competition During Employment. Employee agrees that
during the Term, neither he, nor any of his affiliates, will directly or
indirectly compete with Employer or its affiliates in any way, and that
he will not act as an officer, director, employee, consultant,
shareholder, lender, or agent of any entity which is engaged in any
business of the same nature as, or in competition with, the businesses
being conducted by Employer and its affiliates (as used herein, a
business is engaged in competition with the business being conducted by
Employer and its affiliates if it is involved in the manufacture,
distribution or sale at retail of manufactured or modular housing in the
territory consisting of the States of Virginia, West Virginia, Maryland,
Delaware, Tennessee, North Carolina, South Carolina, Georgia, Florida,
Arkansas, Louisiana, Alabama, Texas, Kansas, Kentucky, Oregon, Idaho,
Washington, Pennsylvania, Nebraska, Colorado, Mississippi, Arizona, New
Mexico, Nevada, Oklahoma, Missouri, Utah, Montana and South Dakota, or
any other State where Employer or its affiliates conduct business during
the Term); provided, however, that this Section 5(d) shall not prohibit
Employee or any of his affiliates from purchasing or holding an
aggregate equity interest of up to 1%, so long as Employee and his
affiliates combined do not purchase or hold an aggregate equity interest
of more than 5%, in any business in competition with Employer and its
affiliates; and provided further, however, that Employee may retail a
park model unit that is not (i) subject to Housing and Urban Development
rules and regulations and (ii) larger than 385 square feet.
Furthermore, Employee agrees that during the Term, he will undertake no
planning for the organization of any business activity competitive with
the work he performs as an employee of Employer and Employee will not
combine or conspire with any other employees of Employer and its
affiliates for the purpose of the organization of any such competitive
business activity. Notwithstanding the above, Employee may engage or
participate in a manufactured housing subdivision project to the extent
provided in that certain Manufactured Housing Purchase Agreement, of
even date herewith, by and among Employer, Employee, HHI and James H.
Johnson, III.
6. Prohibition on Disparaging Remarks. Employee shall, from the
date of this Agreement on, refrain from making disparaging, negative or other
similar remarks concerning Employer or any of its affiliates to any third
party. Similarly, Employer and its affiliates shall from the date of this
Agreement on, refrain from making disparaging, negative or other similar
remarks concerning Employee to any third party.
7. Termination. This Agreement and the employment relationship
created hereby shall terminate upon the occurrence of any of the following
events:
(a) On September 2, 1997;
(b) The death of Employee;
- 4 -
<PAGE> 5
(c) The "disability" (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination
for "just cause" (as hereinafter defined);
(e) Written notice to Employee from Employer of termination
for any reason other "just cause;" or
(f) 60 days prior written notice to Employer from Employee of
termination.
For purposes of Section 7(c) above, the "disability" of Employee shall
mean his inability, because of mental or physical illness or incapacity, to
perform his duties under this Agreement for a continuous period of 120 days or
for 120 days out of a 150-day period.
For purposes of Section 7(d) above, "just cause" shall mean (a) the
failure or inability for any reason (other than disability) of Employee to
devote his full business time to the businesses of Employer and its affiliates
except as permitted hereby, (b) the commission by Employee of any act involving
moral turpitude or the commission by Employee of any act or the suffering by
Employee of any occurrence or state of facts, which renders Employee incapable
of performing his duties under this Agreement (other than disability), or
adversely affects or could be expected to adversely affect Employer's business
reputation, (c) Employee's being convicted of a felony, (d) any breach by
Employee of any of the material terms of, or the failure to perform any
material covenant contained in, this Agreement and following notice thereof
from Employer to Employee, Employee does not cure such breach or failure within
fifteen (15) days thereafter; provided, however, that Employee will not be
entitled to cure any breach or failure under this subclause (d) more than one
time in any consecutive three month period or (e) the violation by Employee of
reasonable instructions or policies established by Employer or its affiliates
with respect to the operation of their businesses and affairs or Employee's
failure to carry out the reasonable instructions of the Chief Executive
Officer, President or Board of Directors of Employer and following notice
thereof from Employer to Employee, Employee does not cure any such violation or
failure within fifteen (15) days thereafter; provided, however, that Employee
will not be entitled to cure any violation or failure under this subclause (e)
more than one time in any consecutive three month period.
Notwithstanding anything to the contrary in this Agreement, the
provisions of Sections 5 and 6 above shall survive any termination, for
whatever reason, of Employee's employment under this Agreement. In the event
of the termination of Employee's employment prior to September 2, 1997,
Employee shall be entitled only to the
- 5 -
<PAGE> 6
compensation earned by him as of the date of termination, except that if
Employee's employment is terminated pursuant to Section 7(e) above, Employee
shall be entitled to receive the salary then payable pursuant to Section 4(a)
until September 2, 1997.
8. Remedies. Employee recognizes and acknowledges that in the event
of any default in, or breach of any of, the terms, conditions or provisions of
this Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law shall be inadequate. Accordingly, Employee agrees
that in such event, Employer and its affiliates shall have the right of
specific performance and/or injunctive relief in addition to any and all other
remedies and rights at law or in equity, and such rights and remedies shall be
cumulative.
9. Acknowledgments. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 and 6 above by
Employer and its affiliates will not interfere with Employee's ability to
pursue a proper livelihood. Employee recognizes and agrees that the
enforcement of this Agreement is necessary to ensure the preservation and
continuity of the business and good will of Employer and its affiliates.
10. Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given if given in writing and
personally delivered or sent by facsimile transmission, courier service,
overnight delivery service or by mail, registered or certified, postage prepaid
with return receipt requested, as follows:
If to Employer: American Homestar Corporation
2450 South Shore Boulevard, Suite 300
League City, Texas 77573
Attention: President
Fax No.: (713) 334-9737
If to Employee: Charles E. Rumbley
116 Bogue Court
Emerald Isle, North Carolina 28594
Notices delivered personally or by facsimile transmission, courier service or
overnight delivery shall be deemed communicated as of actual receipt; mailed
notices shall be deemed communicated as of three days after the date of
mailing.
- 6 -
<PAGE> 7
11. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto and supersedes all prior agreements and understandings,
oral or written between the parties hereto. No modification or amendment of
any of the terms, conditions or provisions herein may be made otherwise than by
written agreement signed by the parties hereto.
12. Governing Law and Venue. THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CHOICE OF LAW
PRINCIPLES.
13. Parties Bound. This Agreement and the rights and obligations
hereunder shall be binding upon and inure to the benefit of Employer and
Employee, and their respective heirs, personal representatives, successors and
assigns. Employer shall have the right to assign this Agreement to any
affiliate or to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of Employer's assets or all of its stock, or
with which Employer merges or consolidates. The rights, duties or benefits to
Employee hereunder are personal to him, and no such right or benefit may be
assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Sections 5 and 6 above.
14. Estate. If Employee dies prior to the payment of all sums owed,
or to be owed, to Employee pursuant to Section 4 above, then such sums, as they
become due, shall be paid to Employee's estate.
15. Enforceability. If, for any reason, any provision contained in
this Agreement should be held invalid in part by a court of competent
jurisdiction, then it is the intent of each of the parties hereto that the
balance of this Agreement be enforced to the fullest extent permitted by
applicable law. Accordingly, should a court of competent jurisdiction
determine that the scope of any covenant is too broad to be enforced as
written, it is the intent of each of the parties that the court should reform
such covenant to such narrower scope as it determines enforceable.
16. Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.
17. Captions. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
- 7 -
<PAGE> 8
18. Costs. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which he or it may be entitled.
19. Other Obligations. Employee represents and warrants that he is
not subject to any agreement which would be violated or breached as a direct or
indirect result of Employee executing this Agreement or Employee becoming an
employee of Employer.
20. Affiliate. An "affiliate" of any party hereto shall mean any
person controlling, controlled by or under common control with such party.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
AMERICAN HOMESTAR CORPORATION
By:
-------------------------------
Its:
-------------------------------
-----------------------------------
Charles E. Rumbley
- 8 -
<PAGE> 1
EXHIBIT 2.5
AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
This Amendment No. 1 to Stock Purchase Agreement (the "Amendment"),
dated as of September 3, 1996, is by and among the parties to the Agreement (as
defined below). Terms used herein but not otherwise defined shall have the
meanings ascribed thereto in the Agreement.
WHEREAS, the parties hereto have entered into that certain Stock
Purchase Agreement, dated as of July 25, 1996 (the "Agreement"), by and among
American Homestar Corporation, a Texas corporation ("Purchaser"), Heartland
Homes, Inc., a North Carolina corporation (the "Corporation"), James H.
Johnson, III and Charles E. Rumbley; and
WHEREAS, the parties hereto desire to amend the Agreement as provided
herein;
NOW, THEREFORE, in consideration of the payment of $10.00 paid in hand
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Purchaser consents to the payment by the Corporation prior to the
Closing of a $260,000.00 bonus (the "Bonus") to Danny Wright.
2. The parties hereto agree that the Cash Consideration and the
Purchase Price are hereby reduce by the amount of the Bonus plus $4,000.00
(approximate FICA). The parties hereto further agree that neither the
calculation of the June Net Worth nor EBIT shall be affected by the payment of
the Bonus and FICA thereon.
3. This Amendment shall only affect the terms of the Agreement to
the extent provided above, with all such other terms of the Agreement remaining
in full force and effect.
4. The parties hereto have executed this Amendment as of the date
first set forth above.
AMERICAN HOMESTAR CORPORATION
By:
-----------------------------------
HEARTLAND HOMES, INC.
By:
-----------------------------------
--------------------------------------
--------------------------------------
<PAGE> 1
EXHIBIT 11
AMERICAN HOMESTAR CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding . . . . . . . 7,542,300 8,618,723
Dilutive effect of stock options . . . . . . . . . . . . . . . . . 121,015 360,224
---------- ----------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . 7,663,315 8,978,947
========== ==========
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,182,000 $3,018,000
========== ==========
Earnings per common share-primary . . . . . . . . . . . . . . . . . $ 0.28 $ 0.34
========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1995 1996
---------- ----------
<S> <C> <C>
Weighted average number of common shares outstanding . . . . . . . 7,542,300 8,618,723
Dilutive effect of stock options . . . . . . . . . . . . . . . . . 138,838 374,886
---------- ----------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . 7,681,138 8,993,609
========== ==========
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,182,000 $3,018,000
========== ==========
Earnings per common share-fully diluted . . . . . . . . . . . . . . $ 0.28 $ 0.34
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1996
<PERIOD-END> AUG-31-1996
<CASH> 39,105,000
<SECURITIES> 0
<RECEIVABLES> 5,779,000
<ALLOWANCES> 0
<INVENTORY> 41,247,000
<CURRENT-ASSETS> 90,257,000
<PP&E> 25,852,000
<DEPRECIATION> 5,114,000
<TOTAL-ASSETS> 120,015,000
<CURRENT-LIABILITIES> 50,666,000
<BONDS> 0
0
0
<COMMON> 431,000
<OTHER-SE> 60,516,000
<TOTAL-LIABILITY-AND-EQUITY> 120,015,000
<SALES> 59,993,000
<TOTAL-REVENUES> 66,706,000
<CGS> 44,200,000
<TOTAL-COSTS> 61,062,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 578,000
<INCOME-PRETAX> 5,106,000
<INCOME-TAX> 2,010,000
<INCOME-CONTINUING> 3,096,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,018,000
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
