<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 1, 1996
PALM HARBOR HOMES, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 0-26188 59-1036634
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
15303 Dallas Parkway, Suite 800, Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 991-2422
Not applicable
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 1, 1996, Palm Harbor Homes, Inc., a Florida corporation
(the "Company"), merged with Newco Homes, Inc. ("Newco"), a Texas-based
retailer, of which the Company is a co-founder and originally a 41.62%
stockholder. Newco was merged with and into Palm Harbor pursuant to an
Agreement and Plan of Merger dated June 30, 1996 and amended August 1, 1996, by
and among the Company, Newco, and the four stockholders of Newco holding the
remaining 58.38% of Newco's common stock (the "Selling Stockholders"). The
Agreement and Plan of Merger and Amendment No. 1 thereto are attached hereto as
Exhibits 2.1. and 2.2.
In consideration of the merger and cancellation of the outstanding
shares of Newco common stock, the Selling Stockholders received an aggregate of
$52 million, consisting of 1,444,445 shares of the Company's common stock and
$17,333,333 in cash. The cash portion of the merger was financed from
available cash. Newco's assets consist primarily of 21 retail superstores and
related assets used in the sale of manufactured homes, which the Company
expects to continue to operate as they had been under Newco's ownership.
Prior to the execution of the Agreement and Plan of Merger, the
Company owned 41.62% of Newco's Common Stock. Lee Posey, Chairman of the Board
and Chief Executive Officer of the Company, was a director of Newco. Scott
Chaney, the former President of Newco, has been appointed to the Board of
Directors of the Company. Otherwise, there was no material relationship
between the Company and Newco or between any officers or directors of the
Company and the officers, directors or shareholders of Newco.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
Filed with this Report are the following audited financial
statements of Newco:
(1) Consolidated Balance Sheets as of March 31, 1996 and
1995; and
(2) Consolidated Statements of Income, Shareholders'
Equity and Cash Flows for the years ended March 31,
1996, 1995 and 1994.
(b) Pro Forma Financial Information
It is impractical to provide pro forma financial information
at this time. Pro forma financial information will be filed within
sixty (60) days.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of June 30,
1996, by and among Palm Harbor Homes, Inc., Newco
Homes, Inc., Scott W. Chaney, Christopher M. Finke,
Thomas B. Kesterson and Joseph H. Kesterson,
omitting exhibits and schedules.
2.2 Amendment No. 1 to Agreement and Plan of Merger,
dated August 1, 1996.
23.1 Consent of Ernst & Young, LLP
99.1 Press Release issued August 1, 1996.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 1, 1996
PALM HARBOR HOMES, INC.
/s/ Lee Posey
--------------------------------------
Lee Posey, Chairman of the Board
and Chief Executive Officer
<PAGE> 4
Newco Homes, Inc. and Subsidiaries
Financial Statements
March 31, 1996
CONTENTS
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Consolidated Balance Sheets at March 31, 1995 and March 31, 1996. . . . . 2
Consolidated Statements of Income for the years ended
March 31, 1994, 1995, and 1996. . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1994, 1995, and 1996. . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, 1995, and 1996. . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 7
<PAGE> 5
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors and Shareholders
Newco Homes, Inc.
We have audited the accompanying consolidated balance sheets of Newco Homes,
Inc. and Subsidiaries as of March 31, 1995 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Newco
Homes, Inc. and Subsidiaries at March 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
April 30, 1996
1
<PAGE> 6
Newco Homes, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31
1995 1996
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,887,199 $11,974,329
Trade accounts receivable, less allowance of
$343,826 and $375,499 at March 31, 1995
and 1996, respectively 4,677,807 6,665,818
Due from affiliate (Note 5) 1,818,016 2,497,879
Inventories 22,609,703 20,148,239
Prepaid expenses and other assets 322,046 735,747
----------------------------
Total current assets 36,314,771 42,022,012
Other assets 626,726 1,580,470
Property, plant, and equipment, at cost:
Building and equipment 1,339,110 1,762,543
Leasehold improvements 789,423 1,056,647
----------------------------
2,128,533 2,819,190
Accumulated depreciation 758,530 1,176,060
----------------------------
1,370,003 1,643,130
----------------------------
Total assets $38,311,500 $45,245,612
============================
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
MARCH 31
1995 1996
----------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $15,404,835 $13,733,117
Notes payable to officers (Note 5) 1,174,719 1,521,750
Accounts payable 1,877,194 2,440,255
Accrued expenses 2,310,762 3,231,375
Payable to affiliate (Note 5) 1,713,681 722,632
----------------------------
Total current liabilities 22,481,191 21,649,129
Deferred taxes (Note 3) - 114,786
Shareholders' equity (Note 1):
Common stock, $.10 par value in 1995
and $.01 par value in 1996:
Authorized shares - 2,000,000 in 1995 and
190,000 in 1996
Issued shares - 164,822 in 1995 and 1996 16,482 1,648
Additional paid-in capital 223,518 238,352
Retained earnings 15,590,309 23,241,697
----------------------------
Total shareholders' equity 15,830,309 23,481,697
----------------------------
Total liabilities and shareholders' equity $38,311,500 $45,245,612
============================
</TABLE>
See accompanying notes.
3
<PAGE> 8
Newco Homes, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C>
Net sales $103,692,213 $141,852,400 $178,657,215
Other income 1,457,058 2,352,098 2,793,139
----------------------------------------------------
105,149,271 144,204,498 181,450,354
Costs and expenses:
Cost of product sales 84,508,036 115,364,814 144,958,151
Selling, general, and administrative 12,975,288 17,814,488 23,332,675
Interest 632,698 918,791 1,500,675
----------------------------------------------------
98,116,022 134,098,093 169,791,501
----------------------------------------------------
Income before income taxes 7,033,249 10,106,405 11,658,853
Income tax expense (benefit) (Note 3):
Current 2,455,107 3,546,327 3,895,790
Deferred (62,395) (15,811) 111,675
----------------------------------------------------
2,392,712 3,530,516 4,007,465
----------------------------------------------------
Net income $ 4,640,537 $ 6,575,889 $ 7,651,388
====================================================
</TABLE>
See accompanying notes.
4
<PAGE> 9
Newco Homes, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at March 31, 1993 $16,482 $223,518 $ 4,373,883 $ 4,613,883
Net income - - 4,640,537 4,640,537
----------------------------------------------------------
Balance at March 31, 1994 16,482 223,518 9,014,420 9,254,420
Net income - - 6,575,889 6,575,889
----------------------------------------------------------
Balance at March 31, 1995 16,482 223,518 15,590,309 15,830,309
Net income - - 7,651,388 7,651,388
----------------------------------------------------------
Balance at March 31, 1996 $16,482 $223,518 $23,241,697 $23,481,697
==========================================================
</TABLE>
See accompanying notes.
5
<PAGE> 10
Newco Homes, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1995 1996
----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,640,537 $ 6,575,889 $ 7,651,388
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 164,295 287,705 525,882
Deferred tax (benefit) expense (62,395) (15,811) 111,675
(Gain) loss on sale of equipment (7,480) 55,094 37,179
Changes in operating assets and liabilities:
Accounts receivable (843,057) 857,107 (1,213,166)
Due from affiliates (141,422) (1,517,227) (679,863)
Inventories (4,689,632) (10,072,396) 2,461,464
Prepaid expenses and other assets (18,773) (56,815) (2,139,179)
Accounts payable 452,213 332,836 563,061
Accrued expenses 1,079,715 (404,797) 920,613
----------------------------------------------
Net cash (used in) provided by operating
activities 574,001 (3,958,415) 8,239,054
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (466,773) (1,031,952) (865,718)
Proceeds from sale of equipment 9,407 34,354 29,530
Investment in affiliate, net 940 (122,543) -
----------------------------------------------
Net cash used in investing activities (456,426) (1,120,141) (836,188)
FINANCING ACTIVITIES
Net proceeds from (payments on) notes payable and
payable to affiliates 3,318,788 5,010,761 (2,315,736)
----------------------------------------------
Net cash provided by (used in) financing
activities 3,318,788 5,010,761 (2,315,736)
----------------------------------------------
Net increase (decrease) in cash and cash
equivalents 3,436,363 (67,795) 5,087,130
Cash and cash equivalents at beginning
of year 3,518,631 6,954,994 6,887,199
----------------------------------------------
Cash and cash equivalents at end of year $ 6,954,994 $ 6,887,199 $11,974,329
==============================================
</TABLE>
See accompanying notes.
6
<PAGE> 11
Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Newco Homes, Inc. sells manufactured homes to retail customers primarily in
Texas and surrounding states. The manufactured homes sold by Newco Homes, Inc.
are purchased from Palm Harbor Homes, Inc. (PHH), Fleetwood Homes, Inc.,
Patriot Homes, Inc., Liberty Homes, Inc., and Champion Homes, Inc. Further,
Newco provides insurance services for which fees are received.
Effective April 1, 1994, Newco Homes, Inc., a Texas C corporation, effectively
transferred all operations, assets, and liabilities to a Texas limited
partnership, Newco Homes, L.P., in a nontaxable transaction. Newco Homes, Inc.,
subsequent to such transfer, then transferred its ownership in Newco Homes,
L.P. to two other partners: the general partner, Newco Operating Corp., owning
1% of the partnership, and the limited partner, Newco Holdings, Inc., owning
99% of the partnership. These two corporations are wholly owned by Newco Homes,
Inc. (Newco), a newly formed Delaware corporation formed upon the dissolution
of Newco Homes, Inc., the Texas C corporation. Stock ownership in Newco
Delaware is the same as that of the original entity. PHH continues to own
approximately 42% of the Newco common stock. Substantially all operations are
transacted by Newco Homes, L.P., and are not affected by the transition of
ownership.
During fiscal year 1996, the authorized number of shares of common stock was
reduced from 2,000,000 to 190,000 shares of ($0.01 par value) common stock and
10,000 shares of undesignated ($0.01 par value) preferred stock.
The consolidated financial statements include the accounts of Newco Homes,
Inc., and its wholly owned entities. All significant intercompany transactions
and balances have been eliminated in consolidation.
Revenue is recognized when the home is delivered to the customer.
Cash and cash equivalents include cash on hand and highly liquid investments
with original maturities of three months or less. At March 31, 1996, cash
equivalents totaled approximately $9,936,000 and earn interest at rates ranging
from 3.2% to 5.7%.
Buildings and equipment are depreciated using the straight-line method over the
expected useful lives of individual assets. Leasehold improvements are
amortized over the terms of the leases.
7
<PAGE> 12
Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories are valued at the lower of cost or market using the specific
identification method and consist primarily of both new and used manufactured
homes held for sale.
Deferred taxes are calculated in accordance with the liability method.
Certain reclassifications have been made to the prior year amounts to conform
to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. NOTES PAYABLE
Newco has various floor plan lines of credit with financing institutions. These
lines of credit are collateralized by inventories. The lines of credit provide
for total borrowings of $39,000,000 and have interest rates (approximately 10%
at March 31, 1996) ranging from prime (as determined by the financing
institution) plus .25% to prime plus 1%. Interest paid was $629,525, $919,149,
and $1,393,324 in fiscal years 1994, 1995, and 1996, respectively. As of March
31, 1996, Newco Homes, Inc. has paid off approximately $10,000,000 of its
flooring debt applicable to eleven sales centers.
3. INCOME TAXES
Components of deferred tax assets and liabilities at March 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------------------------
<S> <C> <C>
Inventory $149,156 $165,296
Property, plant, and equipment 10,079 -
Bad debt reserves 13,445 10,784
Accrued liabilities 14,632 12,821
Other 3,713 5,235
--------------------------
Total deferred income tax assets $191,025 $194,136
==========================
</TABLE>
8
<PAGE> 13
Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
--------------------------
<S> <C> <C>
Property, plant, and equipment $ - $114,786
--------------------------
Total deferred income tax liabilities $ - $114,786
==========================
Current $180,946 $194,136
Long-term 10,079 -
--------------------------
Total deferred income tax assets $191,025 $194,136
==========================
</TABLE>
A valuation allowance has not been recorded for the deferred income tax assets
as Newco believes it will generate sufficient future taxable income to realize
all of the recorded assets.
Income tax payments in fiscal years 1994, 1995, and 1996 were $2,319,257,
$3,710,000, and $4,370,000, respectively.
4. ACCRUED EXPENSES
Accrued expenses at March 31, consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------------------
<S> <C> <C>
Sales incentives $1,438,396 $1,961,073
Other accrued expenses 872,366 1,270,302
------------------------
Total $2,310,762 $3,231,375
========================
</TABLE>
5. RELATED PARTY TRANSACTIONS
Payable to and due from affiliate primarily represents amounts due to or from
PHH arising in the normal course of business. Notes payable to officers
represents a payable for homes that were personally floored by officers of
Newco at the greater of the prime rate, as defined, or 7.5%, plus 1.5%. Total
rentals paid to PHH were $129,210, $166,380, and $168,875 in fiscal years 1994,
1995, and 1996, respectively, relating to the leasing of
9
<PAGE> 14
Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
retail model centers. PHH provided certain administrative services (primarily
data processing services) to Newco at a cost of $25,200, $36,000, and $36,000
in fiscal years 1994, 1995, and 1996, respectively.
During fiscal years 1994, 1995, and 1996, Newco paid $158,100, $183,600, and
$327,600, respectively, in rent for retail model centers to joint ventures
composed of four officers of Newco and an officer of PHH.
During 1989, Newco and PHH formed a joint venture to purchase land for a retail
model center. Newco is accounting for its 50% interest in the joint venture
using the equity method of accounting.
6. COMMITMENTS AND CONTINGENCIES
Newco is a defendant in various legal actions which arose in the normal course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial condition,
liquidity, or overall trends in the results of operations of Newco.
Certain retail lots are leased under noncancelable operating leases with terms
in excess of one year. Future minimum lease payments under such leases in
effect at March 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $752,347
1998 539,774
1999 274,900
2000 156,000
2001 3,000
</TABLE>
Rent expense under operating leases for fiscal years 1994, 1995, and 1996 was
$562,773, $777,123, and $949,063, respectively.
10
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 1996, by and among Palm Harbor
Homes, Inc., Newco Homes, Inc., Scott W. Chaney, Christopher M. Finke, Thomas B.
Kesterson and Joseph H. Kesterson, omitting exhibits and schedules.
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated August 1, 1996.
23.1 Consent of Ernst & Young, LLP
99.1 Press Release issued August 1, 1996.
</TABLE>
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of the 30th day of June, 1996, by and among Palm Harbor Homes,
Inc., a Florida corporation ("Purchaser"), Newco Homes, Inc., a Delaware
corporation ("Newco"), Scott W. Chaney ("Chaney"), Christopher M. Finke
("Finke"), Thomas B. Kesterson ("T. Kesterson"), and Joseph H. Kesterson ("J.
Kesterson") (Chaney, Finke, T. Kesterson and J. Kesterson shall be referred to
herein collectively as the "Stockholders" and individually as a "Stockholder").
Unless otherwise provided in this Agreement, all initial capitalized terms
shall have the meanings set forth in Article I of this Agreement.
RECITALS
A. Newco, through the Newco Partnership, is in the business of
retail sales of manufactured homes and, through Western Insurance, is in the
business of selling manufactured housing physical damage and credit life
insurance through a managing general agent (collectively, the "Business").
B. Purchaser is the owner of 41.62% of the Newco Common Stock.
The Stockholders own the remaining 58.38% of the Newco Common Stock.
C. The parties hereto desire to merge Newco with and into
Purchaser, with Purchaser being the surviving corporation.
In consideration of the mutual covenants, agreements, warranties and
representations made herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and accepted, the
parties hereby agree as follows:
ARTICLE I. DEFINITIONS
Unless the context otherwise requires, the terms defined in this
Article I shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
herein defined.
"Affiliate" shall mean as to any party, an individual or entity that
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the specified party.
"Affiliated Group" shall mean any affiliated group within the meaning
of Code Section 1504 or any similar group defined under a similar provision of
state, local or foreign law.
"Agreement" shall mean this Agreement and Plan of Merger, including
the recitals and all schedules and exhibits hereto, as this Agreement may be
from time to time be amended, modified or supplemented.
"Balance Sheet" shall have the meaning assigned to it in Section 7.9.
<PAGE> 2
"Business" shall have the meaning assigned to it in the Recitals to
this Agreement.
"Closing" shall have the meaning assigned to it in Section 2.4.
"Closing Date" shall have the meaning assigned to it in Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Constituent Corporations" shall have the meaning assigned to it in
Section 2.2.
"Damages" shall have the meaning assigned to it in Section 9.1.
"Effective Date" shall have the meaning assigned to it in Section 2.3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Equitable Remedies" shall have the meaning assigned to it in Section
3.19.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Financial Statements" shall have the meaning assigned to it in
Section 3.9.
"Governmental Approvals" shall have the meaning assigned to it in
Section 3.6.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, any court, government authority,
agency, department, board, commission or instrumentality of the United States,
any state of the United States or any political subdivision thereof, and any
tribunal or arbitrator of competent jurisdiction, and any self-regulatory
organization as defined in Section 3(a)(26) of the Exchange Act.
"Indemnified Parties" shall have the meaning assigned to it in Section
9.1.
"Indemnifying Party" shall have the meaning assigned to it in Section
9.1.
"Intellectual Property" shall mean all technology, know-how and trade
secrets relating to or used in the Business or by any of the Newco Entities,
including the computer programs and software relating to or used in the
Business or by any of the Newco Entities, together with the operating codes,
source codes, updates, upgrades, modifications, enhancements and any user and
technical documentation or utilities with respect thereto, and copyrights and
copyright applications and other intellectual property rights relating to the
Business or used by any of the Newco Entities and the trademarks, trade names,
service marks and logos (including any registration and any application for
registration of any of the foregoing), relating to or used in the Business or
by any of the Newco Entities.
"Intellectual Property Licenses" shall have the meaning assigned to it
in Section 3.16.
-2-
<PAGE> 3
"Interim Financial Statements" shall have the meaning assigned to it
in Section 7.9.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Lien" shall mean, other than Permitted Liens, any mortgage, pledge,
security interest, option, right of first refusal, encroachment, right-of-way,
lease, license, security agreement, lien, encumbrance or charge of any kind,
including, without limitation, any Tax liens, any conditional sale or other
title retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by statute or other
law.
"Material Adverse Effect" shall mean any event, occurrence, change in
facts, conditions or other change or effect materially adverse to the business,
operations, results of operations or condition (financial or otherwise) of the
Newco Entities, taken as a whole.
"Merger" shall have the meaning assigned to it in Section 2.1.
"Newco" shall mean Newco Homes, Inc., a Delaware corporation, and its
predecessor.
"Newco Common Stock" shall mean the Common Stock of Newco, $0.01 par
value per share.
"Newco Partnership" shall mean Newco Homes, L.P., a Texas limited
partnership.
"Newco Entities" shall mean collectively, Newco, Newco Partnership,
Newco Operating Corp., a Nevada corporation ("Operating Corp."), Newco
Holdings, Inc., a Delaware corporation ("Holding Corp."), NuHarbor Joint
Venture, a Texas general partnership and Western Insurance.
"Noncompetition Term" shall have the meaning assigned to it in Section
6.3.
"Owned Intellectual Property" shall have the meaning assigned to it
in Section 3.16.
"Permitted Liens" shall have the meaning assigned to it in Section
3.12.
"Person" shall mean all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures and other
entities and governments and agencies and political subdivisions.
"PHH Common Stock" shall mean the Common Stock of Purchaser, par value
$0.01 per share.
"Purchase Price" shall have the meaning assigned to it in Section 2.6.
-3-
<PAGE> 4
"Purchaser" shall mean Palm Harbor Homes, Inc., a Florida corporation.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stockholder" and "Stockholders" shall have the meanings assigned to
them in the introductory paragraph to this Agreement.
"Surviving Corporation" shall mean Purchaser in its capacity as the
corporation surviving in the Merger.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Western Insurance" shall mean Western Insurance Managers, Inc., a
Texas corporation.
ARTICLE II. THE MERGER
2.1 THE MERGER. As of the Effective Date, Newco shall be merged
with and into Purchaser (the "Merger"), the separate existence of Newco shall
cease, and Purchaser (a) shall continue as the Surviving Corporation under the
corporate name it possesses immediately prior to the Effective Date; and (b)
shall continue to be governed by the laws of the State of Florida.
2.2 EFFECT OF THE MERGER. The Surviving Corporation shall possess
all the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each of Purchaser and Newco (collectively, the "Constituent
Corporations"), and all property, real, personal and mixed, and all debts due
on whatever account, including choses in action, and every other interest of or
belonging to or due to each of the Constituent Corporations shall be deemed to
be transferred to and vested in Surviving Corporation without further act or
deed; and the title to any real estate, or any interest therein vested in
either of the Constituent Corporations shall not revert or be in any way
impaired by reason of the Merger; and all debts, liabilities, duties and
obligations of each of the Constituent Corporations shall thenceforth attach to
the Surviving Corporation and may be enforced against it to the same extent as
if such debts, liabilities, duties and obligations had been incurred or
contracted by it, all with the effect set forth in Section 607.1106 of the
Florida 1989 Business Corporation Act.
-4-
<PAGE> 5
2.3 CONSUMMATION OF THE MERGER. On the Closing Date, the parties
hereto shall file (a) with the Secretary of State of the State of Florida,
Articles of Merger, in such form and executed in accordance with the relevant
provisions of Florida law; and (b) with the Secretary of State of the State of
Delaware, a Certificate of Merger, in such form and executed in accordance with
the relevant provisions of Delaware law. The parties agree that for accounting
purposes and all other purposes to the fullest extent permitted by law, the
effective date of the Merger shall be June 30, 1996 and in all other cases, the
effective date shall be the date the Certificate of Merger and Articles of
Merger are accepted for filing in the appropriate states (such date being
referred to herein as the "Effective Date").
2.4 THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place within five business days of
the satisfaction of the conditions precedent set forth in Articles VII and VIII
of this Agreement, unless otherwise waived, at the offices of Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., 2200 Ross Avenue, Suite 900, Dallas, Texas
75201 (or at such other location and on such date and at such time as the
parties may mutually agree) and in any event no later than October 31, 1996.
As used herein, the actual date of Closing is herein sometimes referred to as
the "Closing Date."
2.5 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS.
The Articles of Incorporation and Bylaws of Purchaser, as in effect immediately
prior to the Effective Date, shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation and thereafter shall continue to be its Articles
of Incorporation and Bylaws until amended as provided therein and under Florida
law. The Directors of Purchaser holding office immediately prior to the
Effective Date shall be the directors of the Surviving Corporation immediately
after the Effective Date and shall serve until their successors are duly
elected and shall qualify. Chaney shall be appointed as a director of
Purchaser in accordance with Section 6.23. The officers of Purchaser holding
office immediately prior to the Effective Date shall be the officers (holding
the same offices as they held with Purchaser) of the Surviving Corporation
immediately after the Effective Date and shall serve until their successors are
duly elected and shall qualify.
2.6 CONVERSION OF SECURITIES. Subject to the terms and conditions
of this Agreement, on the Closing Date, by virtue of the Merger and without any
action on the part of Purchaser, Newco or the holders of any of the following
securities:
(a) Each share of PHH Common Stock outstanding on the Closing Date
shall remain outstanding as PHH Common Stock and shall not be converted into
any other security pursuant to the Merger. The certificates for such shares
shall not be surrendered or in any way modified by reason of the effectiveness
of the Merger.
(b) All of the shares of Newco Common Stock collectively held by
the Stockholders shall be automatically converted without any action on the
part of the holders thereof into the right to receive an aggregate of
$52,000,000, which shall be paid $17,333,333 in cash and 1,155,556 shares of
PHH Common Stock (the "Purchase Price").
(c) All of the shares of Newco Common Stock owned and held by
Purchaser shall
-5-
<PAGE> 6
be cancelled.
2.7 DISSENTER'S RIGHTS. The Stockholders hereby waive all
dissenters rights, rights to exercise preemptive rights, rights to purchase
Newco Common Stock under any stockholder or similar agreement, and all such
other rights which the Stockholders may possess under Delaware law in
connection with the Merger.
2.8 OBLIGATIONS AT CLOSING. At the Closing:
(a) Newco and the Stockholders shall deliver to Purchaser:
(i) the stock books, stock ledgers, minute books,
corporate seals and partnership records of the Newco Entities;
(ii) certificates of existence and good standing and tax
clearance certificates with respect to the Newco Entities
certified (as of the latest practicable date prior to the
Closing) by the appropriate state authorities and of the
jurisdictions in which they are qualified to do business as
foreign corporations or limited partnerships;
(iii) original-executed copies of a Certificate of Merger;
(iv) copies of all consents, resolutions or approvals
which were obtained by the Stockholders or the Newco Entities
for the consummation of the transactions contemplated by this
Agreement; including, but not limited to, a copy of the
resolutions of the Stockholders and the Newco Board of
Directors approving the transactions contemplated by this
Agreement;
(v) certificates representing all of the Newco Common
Stock owned by the Stockholders, duly endorsed (or accompanied
by appropriate stock powers duly endorsed) in blank by the
registered holder thereof for transfer, together with such
supporting documents, endorsements, assignments, affidavits
and other necessary instruments of sale and transfer as are
necessary to permit Purchaser to cancel such shares in
connection with the Merger;
(vi) the certificate required to be delivered pursuant to
Section 7.7;
(vii) evidence of the sale of Newco's stadium box at Texas
Stadium for a price not less than the price originally paid by
Newco for the stadium box;
(viii) executed lease extensions which contain fair market
value purchase options relating to the Newco Partnership sales
centers owned by the Stockholders; and
(ix) the Schedules to this Agreement.
-6-
<PAGE> 7
(b) Purchaser shall deliver to the Stockholders:
(i) original-executed copies of the Articles of Merger;
(ii) a copy of the resolutions of the Purchaser's Board
of Directors approving the transactions contemplated by this
Agreement and appointing Chaney as a director;
(iii) copies of all consents, resolutions or approvals
which were obtained by Purchaser for the consummation of the
transactions contemplated by this Agreement;
(iv) Purchaser shall deliver to the Stockholders the
certificate required to be delivered pursuant to Section 8.5;
and
(v) Purchaser shall deliver the Purchase Price to the
Stockholders by delivering stock certificates representing
shares of PHH Common Stock issued to the individual
Stockholders and payment of the cash portion of the Purchase
Price via wire transfers of funds or cashier's checks.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant to
Purchaser that except as set forth in the Schedules attached hereto:
3.1 ORGANIZATION AND QUALIFICATION. Each of Newco, Operating
Corp. and Holding Corp. is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation. Newco
Partnership is a limited partnership duly formed and validly existing under the
laws of the State of Texas. Each of the Newco Entities has all requisite
authority and power (corporate and other), licenses, registrations,
authorizations, permits, consents, notices of intent and approvals to carry on
its business as presently conducted, to own, hold and operate its properties
and assets. None of the Newco Entities has any subsidiaries, branches or
divisions other than those listed on Schedule 3.1 hereto. None of the Newco
Entities has any interest, direct or indirect, or any commitment to purchase
any interest, direct or indirect, in any other corporation or in any
partnership, joint venture or other business enterprise or entity. Except a
set forth on Schedule 3.1 hereto, the Business carried on by the Newco Entities
has not been conducted through any other direct or indirect subsidiary or
affiliate of the Newco Entities or any Stockholder.
3.2 CAPITAL STOCK. The authorized capital stock or partnership
interests (as applicable) of each of the Newco Entities, their stockholders or
partners (as applicable) and their ownership interest are set forth on Schedule
3.2, and such shares and partnership interests will be issued and outstanding,
fully-paid and nonassessable at and immediately prior to the Closing, and no
shares of preferred stock or any other security will be issued and outstanding
at and
-7-
<PAGE> 8
immediately prior to the Closing. Except as set forth on Schedule 3.2, there
are no outstanding options, warrants or other agreements of any nature
whatsoever relating to the issuance of any shares of capital stock, partnership
interests or any other security of any of the Newco Entities.
3.3 ARTICLES AND BYLAWS. The copies of the organizational and
formation documents, and all amendments thereto, of the Newco Entities, which
have heretofore been delivered to Purchaser, are complete and correct as of the
date hereof.
3.4 FOREIGN QUALIFICATION. Each of the Newco Entities is duly
qualified as a foreign corporation or limited partnership (as applicable) to
transact business and is in good standing in each jurisdiction in which it owns
or leases substantial properties or in which the conduct of its business
requires such qualification, except for such failures to be so qualified or to
be in good standing that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
3.5 AUTHORIZATION; ENFORCEMENT. Newco has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement in accordance with its terms. Newco has taken
all necessary action to duly and validly authorize its execution and delivery
of this Agreement, the other agreements and instruments to be executed by it
pursuant hereto and the consummation of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Newco and the
Stockholders, and this Agreement constitutes and, when executed, each of the
related agreements to which Newco or the Stockholders is a party, the valid and
legally binding obligations of such parties, enforceable against each of them
in accordance with their respective terms, except to the extent that
enforcement may be limited by Equitable Remedies.
3.6 GOVERNMENTAL APPROVALS. Except as set forth in Schedule 3.6,
no material consent, approval, authorization, license or order of, or
registration or filing with, or notice to, any Governmental Authority (such
consents, approvals, authorizations, licenses, orders, registrations, filings
and notices being herein called, collectively, "Governmental Approvals") is
required to be obtained, made or given by or with respect to any of the Newco
Entities or the Stockholders in connection with the execution and delivery of
this Agreement or any other agreement executed in connection with the
transactions contemplated hereby, the performance by any of the Newco Entities
or the Stockholders of their respective obligations under this Agreement or the
consummation of the transactions contemplated hereunder.
3.7 NO CONFLICTS; THIRD PARTY CONSENTS. The execution and
delivery of this Agreement and the consummation of any of the transactions
contemplated hereunder will not (a) conflict with or result in a breach of any
provision of the organizational or formation documents of any of the Newco
Entities; (b) except as set forth in Schedule 3.7, result in any conflict with,
breach of or default (with or without notice or lapse of time or both) under,
or give rise to any right of termination, cancellation or acceleration of any
obligation or loss of any benefit under, or result in the imposition of any
Liens on any of their respective properties or assets under, or require any
consent or approval from any third party with respect to, any material loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement or
instrument or permit,
-8-
<PAGE> 9
concession, franchise or license to which any of the Newco Entities or the
Stockholders is a party or by which any of the Newco Entities or the
Stockholders or any of their respective properties or assets may be bound; (c)
to the Stockholders' knowledge, conflict in any material respect with any law
applicable to any of the Newco Entities or the Stockholders or any of their
respective properties or assets; or (d) individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
3.8 CHANGES IN CIRCUMSTANCES. Except as disclosed in Schedule 3.8
hereto, none of the Newco Entities has since March 31, 1996:
(a) except in the ordinary course of business, purchased or sold
any assets, incurred any indebtedness, made any capital expenditures in an
amount in excess of $1,000, changed any loan or lease arrangements or made
other payments or commitments;
(b) merged or consolidated with another entity, invested in or
otherwise purchased the business or assets of another business or sold
substantially all of its assets or negotiated or entered into any agreement
concerning the foregoing;
(c) made loans to its stockholders, partners, employees or other
persons, or increased the compensation of any officer or director;
(d) made bonus distributions to any officer or director;
(e) paid dividends (whether in cash, stock or property) or other
distributions on its stock or partnership interests, repurchased its stock or
partnership interests, issued additional shares of capital stock or partnership
interests or otherwise changed its capital structure;
(f) experienced any damage, destruction or loss that, to the
extent not covered by insurance, has had or reasonably would be expected to
have a Material Adverse Effect;
(g) granted or committed to grant to any officer, director or
other employee, any increase in or right to severance or termination pay or any
other compensation or benefits payable upon a change in control of any such
entity;
(h) made, or agreed to make, any material change in its financial,
Tax or accounting practices or policies;
(i) experienced any material decrease in the number of
manufactured homes sold;
(j) suffered any Material Adverse Effect;
(k) entered into any material transaction, contract or commitment
involving any director or executive officer or Stockholder (excluding the
transactions contemplated by this Agreement); or
-9-
<PAGE> 10
(l) terminated or been given notice of resignation of any key
sales center employee.
3.9 FINANCIAL STATEMENTS. Newco has delivered to Purchaser
audited financial statements of the Newco Entities on a consolidated basis
(containing balance sheets and related statements of income, stockholders'
equity and cash flows, and accompanying notes) for each of the years in the
three-year period ended March 31, 1996 (the "Financial Statements"). The
Financial Statements present fairly the financial position of the Newco
Entities on a consolidated basis and the results of their operations and cash
flows on a consolidated basis for each of the years contained therein in
accordance with generally accepted accounting principles consistently applied.
3.10 TAX MATTERS. (a) Except as set forth on Schedule 3.10, to
the best of each Stockholder's belief, each of the Newco Entities has filed all
Tax Returns that it was required to file. To the best of each Stockholder's
belief, all such Tax Returns were correct and complete in all material
respects. To the best of each Stockholder's belief, all Taxes owed by any of
the Newco Entities (whether or not shown on any Tax Return) have been paid or
reserved for on the Financial Statements. Except as set forth on Schedule
3.10, none of the Newco Entities is currently the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by a
Governmental Authority in any jurisdiction where the Newco Entities do not file
Tax Returns that any of them are or may be subject to taxation by that
jurisdiction. There are no Liens on any of the assets of any of the Newco
Entities that arose in connection with any failure (or alleged failure) to pay
any Tax.
(b) Each of the Newco Entities has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, partner
or other third party.
(c) No Stockholder, partner, director or officer (or employee
responsible for Tax matters) of any of the Newco Entities has knowledge of any
attempts by any authority to assess any additional Taxes for any period for
which Tax Returns have been filed. Except as set forth on Schedule 3.10, there
is no dispute or claim concerning any Tax liability of any of the Newco
Entities either (i) claimed or raised by any authority in writing or (ii) as to
which any of the Stockholders, partners, directors or officers (or employees
responsible for Tax matters) of any of the Newco Entities has knowledge based
upon personal contact with any agent of such authority. Schedule 3.10 hereto
lists all federal, state, local and foreign income Tax Returns filed with
respect to each of the Newco Entities for taxable periods ended on or after
fiscal 1991 which have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Stockholders have delivered to the
Purchaser correct and complete copies of all federal and state income Tax
Returns, examination reports, and statements of deficiencies assessed against
or agreed to by each of the Newco Entities since the end of fiscal 1991.
(d) None of the Newco Entities has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to any Tax assessment or deficiency.
(e) None of the Newco Entities has filed a consent under Section
341(f) of the Code
-10-
<PAGE> 11
concerning collapsible corporations. None of the Newco Entities has made any
payments, or is obligated to make any payments, or is a party to any agreement
that under any circumstances could obligate it to make any payments, that will
not be deductible under Section 280G of the Code. None of the Newco Entities
has been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. None of the Newco Entities is a party to
any Tax allocation or sharing agreement. Newco (i) has not been, and is not
currently, a member of an Affiliated Group filing a consolidated federal income
Tax Return at any time other than the Affiliated Group consisting of the Newco
Entities. None of the Newco Entities has ever incurred any Liability for the
Taxes of any other Person, as a transferee or successor, by contract, or
otherwise.
3.11 LIABILITIES. Except as set forth on Schedule 3.11, and except
to the extent reflected or reserved against in the Financial Statements or in
any of the Schedules attached hereto, and except for contracts, commitments and
liabilities incurred in the ordinary course of business and not required to be
disclosed in any Schedule hereto, none of the Newco Entities as of the date of
such Financial Statements had any material liabilities or obligations of any
nature, whether absolute, accrued, contingent or otherwise and whether due or
to become due, including, without limitation, liabilities for Taxes in respect
of or measured by the income of any of the Newco Entities through March 31,
1996 and liabilities for Taxes (including sales taxes) arising out of any
transaction of any of the Newco Entities entered into on or before such date or
out of any set of facts existing on or before such date.
3.12 ASSETS OF THE NEWCO ENTITIES; GOOD TITLE. Each of the Newco
Entities has good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, including, without limitation, the
properties and assets reflected in the Balance Sheet. Except as disclosed on
Schedule 3.11 or Schedule 3.12 hereto, such properties and assets (as well as
any other properties and assets used in the Business) are subject to no Lien,
except for Liens for current Taxes not yet due, and minor imperfections of
title and encumbrances, if any, which are not in the aggregate substantial in
amount, do not materially detract from the value of the property subject
thereto or materially impair the operations of any of the Newco Entities, and
have arisen only in the ordinary course of business and are consistent with
past practice ("Permitted Liens"). The assets of the Newco Entities existing
on the Closing Date (a) comprise all assets the use of which is reasonably
necessary or required for the continued conduct of the Business as now being
conducted; and (b) are and have been maintained in workable condition and are
free from defects (reasonable wear and tear accepted) other than such defects
as would not reasonably be expected to have a Material Adverse Effect. Except
as disclosed on Schedule 3.12, there are no assets of the Newco Entities which
are not necessary for the operation of the Business. Schedule 3.12 contains a
true, correct and complete list of all assets with a book value amount in
excess of $1,000 that are owned by the Newco Entities as of the date of the
Balance Sheet. Except as set forth on Schedule 3.12, since the date of the
Balance Sheet, there has been no material change in the list of assets owned or
leased by the Newco Entities.
3.13 LEASES. Schedule 3.13 hereto identifies all leases pursuant
to which each of the Newco Entities leases real or personal property. Except
as set forth on Schedule 3.13, all such
-11-
<PAGE> 12
leases are valid and in full force and effect and do not require any consent to
the transactions contemplated by this Agreement except those which have been
obtained prior to the Closing and provided to Purchaser on or prior to the
Closing.
3.14 ACCOUNTS RECEIVABLE. Schedule 3.14 hereto contains a true and
correct listing by customer of the accounts receivable as of June 30, 1996, and
any reserve for uncollectible accounts receivable as included on the Interim
Financial Statements has been calculated in accordance with generally accepted
accounting principles, consistently applied. The accounts receivable listed on
Schedule 3.14 hereto are current and collectable, and, except in the ordinary
course of business or as set forth on Schedule 3.14, there are no counterclaims
or set-offs against accounts receivable currently outstanding.
3.15 INVENTORY. Schedule 3.15 hereto contains a complete listing
of the inventory of the Newco Entities as of June 30, 1996.
3.16 INTELLECTUAL PROPERTY. Schedule 3.16 sets forth the complete
and correct list of all Intellectual Property that is owned by the Newco
Entities (the "Owned Intellectual Property"). The Owned Intellectual Property
constitutes all Intellectual Property actually used in or necessary for the
conduct of the Business except as set forth on Schedule 3.16. Immediately
after the Closing, Purchaser will have the right to use all Intellectual
Property described in Schedule 3.16. Schedule 3.16 sets forth a complete and
correct list of all material written or, to the knowledge of the Stockholders,
oral licenses and arrangements, (a) pursuant to which the use by any Person of
Intellectual Property is permitted by the Newco Entities; and (b) pursuant to
which the use by the Newco Entities of Intellectual Property is permitted by
any Person (collectively, the "Intellectual Property Licenses"). All
Intellectual Property Licenses are in full force and effect in accordance with
their terms, except for such failures to be in full force and effect that would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, and are free and clear of all Liens, except Permitted
Liens. None of the Newco Entities is in default under any material
Intellectual Property License and, to the knowledge of the Stockholders, no
such default is currently threatened. To the knowledge of the Stockholders,
the conduct of the Business does not infringe the rights of any third party in
respect of any Intellectual Property, and none of the Intellectual Property is
being infringed in any material respect by third parties. There is no claim or
demand of any Person pertaining to, or any proceeding which is pending or, to
the knowledge of the Stockholders, threatened, that challenges the rights of
any of the Newco Entities in respect of any Intellectual Property or claims
that any default exists under any Intellectual Property License. None of the
Owned Intellectual Property or the Intellectual Property Licenses is subject
to any outstanding order, ruling, decree, judgment or stipulation by or with
any court, tribunal, arbitrator or other Governmental Authority. Schedule 3.16
lists all Owned Intellectual Property which has been duly registered with,
filed, and or issued by, as the case may be, the United States Patent and
Trademark Office, or any patent or trademark office, and identifies the office
with which such filing was made. Each such registration and filing remains in
full force and effect, and a copy of each such registration or filing is
attached to such Schedule 3.16.
-12-
<PAGE> 13
3.17 INSURANCE. The policies of fire, liability and other forms of
insurance described in Schedule 3.17 hereto are in effect with respect to the
Newco Entities and are valid, outstanding and enforceable policies. The amount
of coverage for each policy has been at least equal to the amount required by
contracts entered into by the Newco Entities; and such policies or comparable
policies will by their terms (absent cancellation by Purchaser after the
Closing) remain in full force and effect for at least 30 days after the
Closing. Neither the Stockholders nor the Newco Entities has been notified of
any proposed increase in the premiums relating to such policies nor of any
facts or events which could give rise to an increase, and know of no reason why
the premiums might increase as a result of this transaction.
3.18 ACCOUNTS. Schedule 3.18 hereto sets forth the names and
locations of all banks, brokerage houses or other financial institutions in
which the Newco Entities have accounts (including, but not limited to, any
investment accounts and accounts for the holding of marketable securities), the
applicable account numbers and the names of all persons authorized to draw
thereon.
3.19 CONTRACTS. Except as set forth in Schedule 3.19 hereto or in
this Agreement:
(a) none of the Newco Entities has any contracts or commitments
which are material to the business, operations or financial condition of any of
the Newco Entities;
(b) the Stockholders do not have any information indicating that
any of the Newco Entities has any outstanding contracts, bids or sales or
service proposals quoting prices which in the aggregate will not result in a
reasonable profit to the applicable Newco Entity;
(c) none of the Newco Entities has an outstanding contract with
officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that is not cancelable by it on notice
of not longer than 30 days and without liability, penalty or premium;
(d) except in the ordinary course of business, neither the Newco
Entities nor the Stockholders has knowledge or has received any notice that any
of the Newco Entities is in default under any material contracts made or
obligations owed by it, and neither the Newco Entities nor the Stockholders has
received any information that there is any basis for any valid claim of
default;
(e) there are no contracts that were entered into out of the
ordinary course of business by any of the Newco Entities representing future
liabilities in excess of $100,000 that are not terminable without penalty upon
not more than 30 days' notice;
(f) there are no contracts requiring payments in excess of $25,000
with or relating to any present or former officer, director, employee, partner
or stockholder (or their Affiliates) of any of the Newco Entities;
(g) other than the NuHarbor Joint Venture, there are no material
partnership or joint venture contracts between any Person and any of the Newco
Entities; and
-13-
<PAGE> 14
(h) there are no rental or use contracts with respect to material
personal property used by any of the Newco Entities in the conduct of its
business operations or affairs.
Each of the contracts listed in Schedule 3.19 is legal, valid and
binding and, to the knowledge of the Stockholders, is enforceable in accordance
with its terms against each party thereto (except (i) as such enforcement may
be limited by any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally or (ii) as the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and
to the discretion of the court or other similar Person before which any
proceeding therefor may be brought (collectively, "Equitable Remedies")) and is
in full force and effect.
3.20 INDEBTEDNESS. Except with respect to indebtedness incurred in
the ordinary course of business, Schedule 3.20 hereto describes all
indebtedness of the Newco Entities (including description of the amount, term,
payment obligations, interest rate and payee) and none of the agreements
relating thereto allow modification of such terms as a result of the Closing.
3.21 LITIGATION. Except as listed on Schedule 3.21, there are no
actions, proceedings or investigations pending, or to the best knowledge of the
Stockholders threatened, against or involving any of the Newco Entities, nor to
the best knowledge of the Stockholders is there any basis for any such action,
proceeding or investigation that may have a Material Adverse Effect.
3.22 POWER OF ATTORNEY. None of the Newco Entities has given an
irrevocable power of attorney to any person, firm or corporation for any
purpose whatsoever.
3.23 RESTRICTIONS ON BUSINESS. None of the Newco Entities is
restricted by agreement from carrying on its Business anywhere in the United
States.
3.24 EMPLOYEES AND EMPLOYEE RELATIONS. Schedule 3.24 hereto
contains a complete list of the names and current annual cash compensation and
other material benefits, with respect to salaried employees, of each employee
of the Newco Entities and any employment contracts, confidentiality agreements
or non-compete agreements to which any of the Newco Entities is a party.
Except as disclosed on Schedule 3.24 hereto, no charges with respect to or
relating to any of the Newco Entities are pending or to the knowledge of the
Stockholders, threatened regarding sexual harrassment or pending or to the
knowledge of the Stockholders, threatened before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices and none of the Newco Entities has
received notice of the intent of any federal, state or local agency responsible
for the enforcement of labor or employment laws to conduct an investigation
with respect to or relating to any of the Newco Entities and no such
investigation is in progress. Except as disclosed on Schedule 3.24, none of
the Newco Entities maintains, or have maintained within the last six years, any
employee benefit plans, as such term in defined in Section 3(3) of ERISA or any
other employee benefit plans, programs or arrangements. To the knowledge of
the Stockholders, each of the plans, programs and arrangements listed on
Schedule 3.24 has been administered in compliance
-14-
<PAGE> 15
with all of the requirements of ERISA, the Code and all other applicable laws
and regulations. No plans, programs or arrangements listed Schedule 3.24
provides for continuing benefits or coverage for any participant, beneficiary
or former employee after such participant's or former employee's termination of
employment except as required by Section 4980B of the Code or Sections 601
through 608 of ERISA.
3.25 COMPENSATION. All compensation owed by the Newco Entities to
directors, partners, officers or employees of any of the Newco Entities has
been paid, or will be paid prior to Closing, except for routine payroll for the
pay period which includes the Closing Date, and other accrued employee benefits
such as accrued profit sharing plan payments and other obligations for employee
benefits incurred in the ordinary course of business. Except as set forth on
Schedule 3.25, no bonuses, awards or incentive compensation payments are now
owed to any director or employee by any of the Newco Entities, nor shall any
bonuses, awards or incentive compensation payments be owed by any of the Newco
Entities to any director, partner, officer or employee as of the time of
Closing.
3.26 REGULATORY COMPLIANCE. Neither the execution nor delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will constitute a violation of any rule, regulation, order, judgment or decree
of any court or of any local government. Each of the Newco Entities and its
directors, officers, employees and partners are and have been in material
compliance with all laws, ordinances, regulations, orders, licenses, franchises
and permits applicable to it, its properties and assets, and to the operation
of its business, including, but not limited to, occupational health and safety
laws and regulations. None of the Newco Entities has received notification
that it or the owners of the real estate and buildings where the Newco Entities
occupy space are in violation of any applicable building, zoning or other law,
ordinance or regulation in respect of its plans or structures and the
Stockholders do not believe that any such violation exists.
3.27 NO BROKERS OR FINDERS. No person or entity has or will have,
as a result of the transactions contemplated herein, any right or valid claim
against Purchaser or any of the Newco Entities for any commission, fee or other
compensation as a finder or broker engaged by any of the Newco Entities or the
Stockholders, or in any similar capacity.
3.28 INTERESTED PARTIES. None of the Stockholders has any material
interest in any contract or property (real or personal), tangible or
intangible, used in or pertaining to the Business except as listed on Schedule
3.28.
3.29 TRANSACTIONS WITH MANAGEMENT. Except as set forth on Schedule
3.29 hereto, since March 31, 1995, there have been no transactions and there
are no currently proposed transactions to which any of the Newco Entities was
or is to be a party and in which the Stockholders or any director or officer or
employee of any of the Newco Entities or any of their respective relatives had
or will have, a direct or indirect material interest in any such transactions.
Schedule 3.29 contains a complete description of any such transaction,
including the names of the parties involved and the amount of the transaction.
-15-
<PAGE> 16
3.30 DISCLOSURE. Taken as a whole, neither this Agreement, nor any
Schedule or other document furnished by or on behalf of the Stockholders or any
of the Newco Entities in connection with this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements contained herein or therein in light of the circumstances
in which they are made, not misleading. There is no fact or circumstance known
to the Stockholders which is likely to have a Material Adverse Effect which has
not been set forth in this Agreement or the Schedules hereto.
3.31 BOOKS AND RECORDS. The books and records of the Newco
Entities maintained in connection with the Business (including, without
limitation, (a) books and records relating to the purchase of inventory,
personnel records and Taxes of the Newco Entities; (b) minute books of the
Newco Entities; and (c) computer software and data in computer readable and
human readable form used to maintain such books and records, together with the
media on which such software and data are stored and all documentation relating
thereto) accurately record all material transactions of the Newco Entities in
all material respects, and have in all material respects been maintained
consistent with good business practice.
3.32 AVAILABILITY OF DOCUMENTS. The Stockholders have delivered or
made available to Purchaser true, correct and complete copies of all documents
listed in the Schedules to, or referenced in this Agreement, and all
modifications and amendments thereto.
ARTICLE IV. ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each Stockholder further severally represents and warrants to
Purchaser as follows:
4.1 STOCKHOLDERS; TITLE TO SHARES. The Stockholders, together
with Purchaser, own all the outstanding shares of the Newco Common Stock, and
such Stockholder will at and immediately prior to the Closing own his shares of
Newco Common Stock as set forth in Schedule 3.2, free and clear of all Liens
and options of whatsoever nature, except as otherwise set forth on Schedule
4.1.
4.2 CAPACITY OF STOCKHOLDER; BINDING OBLIGATION. He has the
capacity to enter into and perform this Agreement and all other agreements and
instruments entered into by him in connection herewith, and to perform the
obligations required to be performed by him hereunder. This Agreement and all
other agreements and instruments entered into by him in connection herewith
have been duly executed and delivered by, and constitute the valid and legally
binding obligations of such Stockholder, enforceable against him in accordance
with their respective terms, except as enforceability may be limited by
Equitable Remedies.
4.3 COMPETITIVE INTEREST. He does not have any direct or indirect
interest in any corporation or business which competes with or conducts any
business similar to the Business conducted by the Newco Entities, except for
the possible ownership of not more than five percent (5%) of the outstanding
equity securities of any corporation whose shares are regularly traded on any
stock exchange or in the over-the-counter market.
-16-
<PAGE> 17
4.4 REGISTRATION; INVESTMENT INTENT. He acknowledges that the PHH
Common Stock to be delivered to him pursuant to this Agreement has not and will
not be registered under the Securities Act, nor any state securities laws,
except in accordance with Article X, and represents and warrants that the PHH
Common Stock being acquired by him hereunder is being acquired for investment
purposes only and not with a view to the re-offer or redistribution thereof.
He further represents and warrants that he has received and reviewed copies of
Purchaser's audited financial statements for the year ended March 31, 1995,
Purchaser's Prospectus dated October 24, 1995, and Purchaser's annual report to
stockholders and annual report on Form 10-K for the year ended March 29, 1996.
4.5 LEGEND. Each Stockholder acknowledges and agrees that the
certificate representing the PHH Common Stock he will receive in connection
with the Merger will bear a restrictive legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAW AND THEY MAY NOT BE OFFERED FOR SALE OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT THEREUNDER OR AN OPINION OF COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.6 INVESTMENT EXPERIENCE. Each Stockholder represents that he
(a) has such knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the Merger and the PHH Common
Stock to be received in connection therewith; and (b) is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Stockholders as follows:
5.1 ORGANIZATION AND STANDING; CORPORATE POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida, and has all requisite
authority and power (corporate and other), licenses, authorizations, consents
and approvals to carry on its business, to own, hold and operate its properties
and assets, and to enter into this Agreement.
5.2 AUTHORIZATION AND VALIDITY OF THIS AGREEMENT. The execution,
delivery and performance by Purchaser of this Agreement are within Purchaser's
corporate powers, have been duly authorized by all necessary corporate action,
do not require from the Board of Directors or Stockholders of Purchaser any
consent or approval that has not been validly and lawfully obtained, require no
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality of government that will not have been
obtained prior to the Closing, do not and will not violate or contravene (i)
any provision of law; (ii) any rule or regulation of any agency
-17-
<PAGE> 18
or government, domestic or foreign; (iii) any order, writ, judgment,
injunction, decree, determination or award; or (iv) any provision of the
Articles of Incorporation or Bylaws of Purchaser, do not and will not violate
or be in conflict with, result in a breach of or constitute (with or without
notice or lapse of time or both) a default under, or result in the termination
of, or accelerate the performance required by (or give any party any right to
terminate or accelerate upon notice or lapse of time or both), any indenture,
license, franchise, loan or credit agreement, note, deed of trust, mortgage,
security agreement or other agreement, lease or instrument, commitment or
arrangement to which Purchaser is a party or by which Purchaser or any of its
properties, assets or rights is bound or affected and do not and will not
require the consent, approval or authorization of any other party to
agreements, licenses, leases, sales orders, permits, franchises, rights and
other obligations of the Purchaser that will not have been obtained prior to
the Closing.
5.3 BINDING OBLIGATION. This Agreement constitutes the legal,
valid and binding obligation of Purchaser and is enforceable against Purchaser
in accordance with its terms, except as such enforcement is limited by
Equitable Remedies.
5.4 NO BROKERS OR FINDERS. No person or entity has or will have,
as a result of the transactions contemplated herein, any right or valid claim
against the Stockholders for any commission, fee or other compensation as a
finder or broker engaged by Purchaser, or in any similar capacity.
5.5 DISCLOSURE. Neither this Agreement, nor any other document
furnished by or on behalf of Purchaser in connection with this Agreement
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements contained herein or therein not
misleading.
5.6 SEC FILINGS. Since becoming subject to the reporting
requirements of the Exchange Act, the Purchaser has made all filings required
to be made by it under the Exchange Act.
5.7 COMMON STOCK. The authorized capital stock of Purchaser
consists of 20,000,000 shares of PHH Common Stock. As of May 27, 1996, the
number of outstanding shares of PHH Common Stock was 10,920,438. When issued
in accordance with this Agreement, the 1,155,556 shares of PHH Common Stock to
be issued in the aggregate to the Stockholders shall be validly issued, fully
paid and nonassessable, free and clear of all Liens and preemptive rights.
ARTICLE VI. COVENANTS
6.1 NONDISPARAGEMENT. For a period of five years from and after
the Closing Date, none of the parties to this Agreement shall say, publish or
cause to be published or do anything that casts any other party hereto in an
unfavorable light, or disparage or injure any other party's goodwill, business
reputation or relationship with existing or potential suppliers, vendors,
customers, employees, contractors, investors or the financial community in
general, or the good will or business reputation of such party.
-18-
<PAGE> 19
6.2 NONDISCLOSURE. Each Stockholder acknowledges that during the
course of his ownership of Newco Common Stock and his performance of services
for the Newco Entities, he acquired confidential information with respect to
the Newco Entities' business operations, including, by way of illustration,
their existing and contemplated product line, trade secrets, business and
financial methods or practices, plans, pricing, marketing, merchandising and
selling techniques and information and confidential information relating to the
Newco Entities' business strategy (all of such information herein referenced to
as the "Confidential Information"). The protection of the Confidential
Information against unauthorized disclosure or use is of critical importance to
Purchaser and the Newco Entities. Each Stockholder agrees that he will not
divulge to any person, directly or indirectly, any Confidential Information
acquired by him.
6.3 NONCOMPETITION AND NON-INTERFERENCE. (a) Chaney and J.
Kesterson each agree that until three years from the date of termination of
such Stockholder's employment with Purchaser or its Affiliates for any reason
whatsoever, and Finke and T. Kesterson each agree that until five years from
the date of termination of such Stockholder's employment with Purchaser or its
Affiliates for any reason whatsoever (such term for each respective Stockholder
being referred to herein as the "Noncompetition Term"), he and his Affiliates
will not directly or indirectly, either through any form of ownership or as a
director, officer, principal, agent, employee, employer, adviser, consultant,
stockholder, partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of any other person,
firm, corporation, governmental or private entity, or any other entity of
whatever kind, without the prior written consent of Purchaser (with the
approval of its Board of Directors) which consent may be withheld by Purchaser
in its sole discretion, compete with Purchaser or its Affiliates (excluding
Capital Southwest Corporation and its holdings) in the retail sale of new or
used manufactured homes in any state in the United States in which Purchaser or
its Affiliates is engaged in the retail sale of new or used manufactured homes
during the Noncompetition Term. Any such acts during the Noncompetition Term
shall be considered breaches and violations of this Agreement. Additionally,
during the Noncompetition Term, each Stockholder agrees that he shall not
directly or indirectly request or advise any employee, customer or supplier of
Purchaser or its Affiliate to withdraw, curtail or cancel its business
activities with Purchaser or its Affiliates.
(b) Prior to the expiration of the Noncompetition Term, each
Stockholder agrees that he shall not attempt, on his own behalf or on behalf of
any other person or entity, or cause any other person or entity, for any
reason, whether directly or indirectly, to (i) solicit, interview, take away or
hire, any Person working for Purchaser or its Affiliates or who has worked for
Purchaser or its Affiliates at any time within six months prior thereto; or
(ii) make known to any Person the names and addresses of any of the employees
of Purchaser or its Affiliates or any other information pertaining to them.
(c) If, during any period within the Noncompetition Term, any of the
Stockholders is not in compliance with the terms of this Section 6.3, Purchaser
shall be entitled to, among other remedies, compliance by the violating
Stockholder with the terms of Section 6.3(a) or (b), as applicable, for an
additional period equal to the period of such noncompliance. For purposes of
this Agreement, the term "Noncompetition Term" shall also include this
additional period.
-19-
<PAGE> 20
Each Stockholder hereby acknowledges that the geographic boundaries, scope of
prohibited activities and the time duration of the provisions of this Section
6.3 are reasonable and are no broader than are necessary to protect the
legitimate business interests of Purchaser and its Affiliates.
6.4 REFORMATION OF SECTION 6.3. The parties hereto agree and
stipulate that the agreements and covenants not to compete and not to solicit
employees contained in Section 6.3 are fair and reasonable in light of all of
the facts and circumstances of the relationship between Purchaser, Newco and
the Stockholders and that without such agreements and covenants, Purchaser
would not have entered into this Agreement and agreed to pay the Purchase Price
to the Stockholders; however, Purchaser and the Stockholders are aware that in
certain circumstances courts have refused to enforce certain agreements not to
compete. Therefore, in furtherance of, and not in derogation of the provisions
of Section 6.3, Purchaser and the Stockholders agree that in the event a court
should decline to enforce the provisions of Section 6.3, that Section 6.3 shall
be deemed to be modified or reformed to restrict each Stockholder's competition
with Purchaser and its Affiliates to the maximum extent, as to time, geography
and business scope, which the court shall find enforceable; provided, however,
in no event shall the provisions of Section 6.3 be deemed to be more
restrictive to the Stockholders than those contained herein.
6.5 INJUNCTIVE RELIEF. The parties hereto acknowledge that the
breach of agreements contained herein, including, without limitation, the
nondisclosure covenants specified in Section 6.2 and the noncompetition and
nonsolicitation covenants specified in Section 6.3, will give rise to
irreparable injury to the other parties hereto, inadequately compensable in
damages. Accordingly, notwithstanding Section 11.10, the other parties hereto
shall be entitled to injunctive relief to prevent or cure breaches or
threatened breaches of the provisions of this Agreement and to enforce specific
performance of the terms and provisions hereof in any court of competent
jurisdiction, in addition to any other legal or equitable remedies which may be
available. Each of the parties hereto agrees that the enforcement of a remedy
hereunder by way of injunction shall not prevent it or him from earning a
reasonable livelihood or otherwise remaining in business. Each of the parties
hereto further acknowledges and agrees that the covenants contained herein are
necessary for the protection of the other parties' legitimate business
interests and are reasonable in scope and content.
6.6 FURTHER ASSURANCES. Each of the Stockholders, shall, at any
time and from time to time after the Closing, upon request of Purchaser and
without further cost or expense to Purchaser, execute and deliver such
instruments of conveyance and assignment and shall take such action as
Purchaser may reasonably request to carry out the transactions contemplated by
this Agreement, including, without limitation, such actions as shall be
necessary to cause Purchaser to gain sole ownership of the Newco Entities and
their assets.
6.7 CORPORATE ACTION AND CONSENTS OF PURCHASER. Purchaser will
take all necessary corporate and other action and will use its commercially
reasonable efforts to obtain the consents and applicable approvals, including
approvals of any regulatory authority, required to be obtained by the Purchaser
to enable it to carry out the transactions contemplated by this
-20-
<PAGE> 21
Agreement.
6.8 EFFORTS TO FULFILL CONDITIONS OF PURCHASER. Purchaser agrees
at all times to use commercially reasonable efforts to insure that all
conditions precedent to the obligations of the Purchaser hereunder are
fulfilled at or prior to the Closing.
6.9 REPRESENTATIONS, WARRANTIES AND CONDITIONS OF PURCHASER PRIOR
TO CLOSING. Purchaser shall use its best efforts to cause its representations
and warranties contained in this Agreement or in any Schedule attached hereto
to be true and correct on and as of the Closing Date in all material respects.
Prior to the Closing, Purchaser shall promptly notify Newco and the
Stockholders in writing (a) if any representation or warranty contained in this
Agreement is discovered to be or becomes untrue or (b) if Purchaser fails to
perform or comply with any of its covenants or agreements contained in this
Agreement or it is reasonably expected that the Purchaser will be unable to
perform or comply with any of its covenants or agreements contained in this
Agreement.
6.10 COOPERATION OF PURCHASER. Purchaser will cooperate with Newco
and the Stockholders in supplying such information as may be reasonably
requested by Newco or the Stockholders in connection with obtaining consents
and approvals to the transactions contemplated by this Agreement.
6.11 CORPORATE ACTION AND CONSENTS OF NEWCO. The Stockholders
shall cause Newco to take all necessary corporate and other action and will use
its commercially reasonable efforts to obtain the consents and applicable
approvals, including approvals of any regulatory authority, required to be
obtained by Newco to enable it to carry out the transactions contemplated by
this Agreement.
6.12 EFFORTS TO FULFILL CONDITIONS OF NEWCO. Newco and the
Stockholders agree at all times to use commercially reasonable efforts to
ensure that all conditions precedent to the obligations of Newco and the
Stockholders hereunder are fulfilled at or prior to the Closing.
6.13 REPRESENTATIONS, WARRANTIES AND CONDITIONS OF THE STOCKHOLDERS
PRIOR TO CLOSING. The Stockholders shall use their best efforts to cause the
representations and warranties of the Stockholders contained in this Agreement
or in any Schedule attached hereto to be true and correct on and as of the
Closing Date in all material respects. Prior to the Closing, the Stockholders
shall promptly notify Purchaser (a) if any representation or warranty contained
in this Agreement is discovered to be or becomes untrue or (b) if the
Stockholders or Newco fails to perform or comply with any of their respective
covenants or agreements contained in this Agreement or it is reasonably
expected that the Stockholders or Newco will be unable to perform or comply
with any of their respective covenants or agreements contained in this
Agreement.
6.14 COOPERATION OF NEWCO AND THE STOCKHOLDERS. Newco and the
Stockholders will cooperate with Purchaser in supplying such information as may
be reasonably requested by the Purchaser in connection with obtaining consents
and approvals to the transactions contemplated by this Agreement.
-21-
<PAGE> 22
6.15 ACCESS TO INFORMATION. From and after the execution and
delivery of this Agreement and until the Closing Date, the Stockholders and
Newco will give representatives of the Purchaser full access, during normal
business hours and upon reasonable notice, to the (i) facilities where the
Newco Entities conduct their Business, which shall include, without limitation,
the right to conduct at Purchaser's expense such environmental sampling or
testing as Purchaser or its representatives deem to be reasonably necessary;
and (ii) books, records, agreements and other documents of the Newco Entities
relating directly to the Business, and furnish such representatives with such
other information relating directly to the Newco Entities as the Purchaser may
reasonably request.
6.16 BUSINESS. Until the Closing, the Stockholders shall operate
the Newco Entities only in the ordinary course and not introduce any materially
new method of management or operation to the Newco Entities. Without limiting
the foregoing, the Stockholders shall not, unless contemplated by this
Agreement, including the Schedules, or approved by Purchaser, take any action
to and shall prevent the Newco Entities from taking any action, other than in
the ordinary course of business, to:
(a) change in any material respect the manner, scope or operation
of the Newco Entities as they have historically been conducted;
(b) except for sales of inventory in the ordinary course of
business, sell or commit to sell any properties or assets of the Newco Entities
having a net book value (as reflected in the financial statements) or a fair
market value of more than $25,000 in a single transaction or series of related
transactions;
(c) sell, assign, license or dispose of any Intellectual Property
rights;
(d) enter into any material contract, agreement, commitment or
transaction;
(e) default in the performance of any term or condition of any
material contract, agreement, certificate, license or permit of any of the
Newco Entities;
(f) incur any material indebtedness with respect to any of the
Newco Entities or incur or pay indebtedness secured by mortgages or other Liens
upon any of the assets or properties of any of the Newco Entities;
(g) declare or pay any dividend or distribution on the outstanding
securities of any of the Newco Entities;
(h) enter into any agreements, take any action or engage in any
activity outside of the ordinary course of business or inconsistent with the
transactions contemplated by this Agreement;
(i) amend the Certification of Incorporation or Bylaws or the
limited partnership agreement of any of the Newco Entities;
-22-
<PAGE> 23
(j) enter into any complete or partial voluntary liquidation,
dissolution or winding up of the affairs of any of the Newco Entities;
(k) redeem, purchase, retire or otherwise acquire for value,
directly or indirectly, any capital stock or other securities of any of the
Newco Entities;
(l) enter into any transactions with any officers, directors or
stockholders of any of the Newco Entities; or
(m) hire any relative of any officer, director or stockholder of
any of the Newco Entities.
6.17 AFFIRMATIVE ACTIONS. Prior to the Closing, the Stockholders
shall and shall cause the Newco Entities to:
(a) use commercially reasonable efforts to maintain in full force
and effect, in accordance with past custom and practice, the existence and
effectiveness of all insurance policies relating to the Newco Entities;
(b) use commercially reasonable efforts to maintain good relations
with the suppliers, customers, landlords and employees of the Newco Entities;
(c) promptly pay, prior to delinquency, any and all Taxes and
other obligations which become due and payable with respect to the ownership of
the Newco Entities' properties or the operation of the Business on or prior to
the Closing in accordance with past custom and practice; and
(d) do all things reasonably necessary to keep in full force and
effect the legal existence of the Newco Entities and keep in full force and
effect all material rights, licenses and franchises relating to the Business.
6.18 MATERIAL CHANGE. Prior to the Closing, the Stockholders shall
promptly inform Purchaser in writing of any change, condition or event that has
or could have a Material Adverse Effect. Notwithstanding the disclosure to
Purchaser of any such Material Adverse Effect, the Stockholders shall not be
relieved of any liability for, nor shall the providing of such information by
the Stockholders to Purchaser be deemed a waiver by Purchaser of the breach of
any representation or warranty of the Stockholders contained in this Agreement.
6.19 EMPLOYEE COMPENSATION. Except as otherwise set forth in this
Agreement (including the Schedules), prior to the Closing, except with
Purchaser's prior written consent, none of the Newco Entities shall make or
agree to make any increase in the compensation or rate of compensation payable
or to become payable to the directors, officers or employees of any of the
Newco Entities, and will not pay, agree to pay or set aside any bonus, profit
sharing, retirement, insurance, death, severance, fringe benefit or other
extraordinary or indirect compensation to, for or on behalf of any of such
directors, officers or employees other than as
-23-
<PAGE> 24
required by presently existing pension, profit sharing, bonus and similar
benefit plans or policies as presently constituted, and no agreement, policy or
plan other than those now in effect shall be adopted or committed for by any of
the Newco Entities.
6.20 COMPLIANCE WITH LAWS. The Stockholders shall, and shall cause
the Newco Entities to, prior to the Closing, comply with all applicable laws,
rules and regulations of all Governmental Authorities applicable to them.
6.21 INTERFERENCE WITH RELATIONSHIPS. From the date hereof, the
Stockholders will not take any action or engage in any practice calculated or
designed to impair the relationships of the Newco Entities with their
customers, suppliers or others having business dealings with the Newco
Entities.
6.22 RESALE OF PHH COMMON STOCK. Each Stockholder covenants that
for a period of three years from and after the Closing Date, he shall not
transfer, sell, pledge, encumber or otherwise dispose of in any manner, the PHH
Common Stock he receives in connection with the Merger; provided, however, each
Stockholder shall have the right to transfer shares (to the extent permitted by
the Securities Act) for estate planning purposes to immediate family members so
long as such persons agree to be bound by the restrictions set forth in this
Agreement.
6.23 APPOINTMENT OF DIRECTOR. Purchaser shall use its best efforts
to cause Chaney to be appointed as a director of Purchaser, such appointment to
be effective upon the Closing Date or such other date as may be agreed upon by
Chaney and Purchaser.
6.24 EFFECTIVE DATE OF REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS. The parties hereto acknowledge and understand that the Schedules
to this Agreement will not be available as of the date this Agreement is
executed. Accordingly, the representations and warranties of the Stockholders
set forth in Articles III and IV will only be effective as of the Closing Date,
and not as of the date of this Agreement is executed.
ARTICLE VII. CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject to the
fulfillment, at or prior to the Closing Date, of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Stockholders set forth in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though all such representations and warranties had been
made on and as of the Closing Date.
7.2 THIRD PARTY APPROVALS. All third party consents, permits and
other approvals, including approvals of any Governmental Authority which are
necessary to consummate the transaction contemplated hereby and to enable
Purchaser to operate the Business as such
-24-
<PAGE> 25
Business was operated as of the date hereof, shall have been received.
7.3 CORPORATE AUTHORIZATION. All corporate, Stockholder and other
actions necessary to authorize and effectuate the consummation of the
transactions contemplated hereby by Newco shall have been duly taken prior to
the Closing Date.
7.4 PERFORMANCE OF COVENANTS. Each of the Newco Entities and the
Stockholders shall have performed in all material respects all of the covenants
and agreements required to be performed by them under this Agreement prior to
the Closing Date.
7.5 ABSENCE OF MATERIAL ADVERSE CHANGE. Since March 31, 1996,
there shall have been no material adverse change in the business, assets,
condition (financial or otherwise), operating results, employee relations,
customer or supplier relations or business prospects of the Newco Entities or
the Business, and there shall have been no material casualty loss or damage to
the assets of the Business whether or not covered by insurance.
7.6 ABSENCE OF LITIGATION. As of the Closing Date, there shall
not be (a) any injunction, writ or temporary restraining order or any other
order of any nature issued by a court or Governmental Authority of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided; or (b) any action, suit or proceeding
pending or threatened before any Governmental Authority with respect to the
transactions contemplated by this Agreement.
7.7 CERTIFICATE. Each of the Stockholders shall have delivered to
Purchaser a certificate to the effect that each of the conditions precedent in
this Article VII shall have been satisfied.
7.8 DUE DILIGENCE. Prior to the Closing Date, the final form of
the Schedules to this Agreement shall have been delivered to Purchaser and such
Schedules shall be in form and substance acceptable to the Purchaser.
7.9 FINANCIAL STATEMENTS. Newco shall have delivered to Purchaser
unaudited financial statements of the Newco Entities on a consolidated basis
containing a balance sheet as of June 30, 1996 (the "Balance Sheet"), and
related statements of income, and accompanying notes for the three-month period
then ended (together with the Balance Sheet, the "Interim Financial
Statements"), accompanied by a written representation by the Stockholders that
the Interim Financial Statements present fairly the financial position of the
Newco Entities on a consolidated basis as of June 30, 1996, and the results of
their operations and cash flows for the three-month period then ended, in
accordance with generally accepted accounting principles applied on a basis
consistent with the Financial Statements (subject to normal year-end
adjustments and any other adjustments described therein).
-25-
<PAGE> 26
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF NEWCO AND THE STOCKHOLDERS
The obligations of Newco and the Stockholders under this Agreement are
subject to the fulfillment, on or before the Closing Date, of the following
conditions:
8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Purchaser contained herein shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of the
Closing Date.
8.2 CORPORATE AUTHORIZATION. All corporate and other actions
necessary to authorize and effectuate the consummation of the transactions
contemplated hereby by Purchaser shall have been duly taken prior to the
Closing Date.
8.3 THIRD PARTY APPROVALS. All third party consents, permits and
other approvals, including approvals of any Governmental Authority which are
necessary to consummate the transaction contemplated hereby shall have been
received.
8.4 ABSENCE OF LITIGATION. As of the Closing Date, there shall
not be (a) any injunction, writ or temporary restraining order or any other
order of any nature issued by a court or Governmental Authority of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided; or (b) any action, suit or proceeding
pending or threatened before any Governmental Authority with respect to the
transactions contemplated by this Agreement.
8.5 CERTIFICATE. Purchaser shall have delivered to the
Stockholders a certificate to the effect that each of the conditions precedent
in this Article VIII shall have been satisfied.
8.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Since March 29, 1996,
there shall have been no material adverse change in the business, assets,
condition (financial or otherwise), operating results, employee relations,
customer or supplier relations or business prospects of Purchaser, and there
shall have been no material casualty loss or damage to the assets of Purchaser
whether or not covered by insurance. Notwithstanding the foregoing, a material
adverse change in the Purchaser shall not be deemed to have occurred solely
based upon any decrease in the trading price of the PHH Common Stock.
ARTICLE IX. INDEMNIFICATION AND RELEASE
9.1 INDEMNIFICATION FOR BREACHES. Each of the parties hereto
(hereafter, the "Indemnifying Party") will severally (37.1% for each of Chaney
and Finke, 19.9% for T. Kesterson and 5.9% for J. Kesterson) indemnify and hold
harmless the other party and its respective representatives, successors and
assigns, and any officer, director, agent or employee of any such person or
entity (hereafter, collectively the "Indemnified Parties"), from and against
any damages, loss, cost, expense, obligation, claim or liability, including
reasonable attorney's
-26-
<PAGE> 27
fees and reasonable third party expense of investigating, defending or
prosecuting litigation (collectively, the "Damages") suffered by the
Indemnified Parties, arising from or by reason of the breach by or any
inaccuracy of any warranty, representation or covenant made by the Indemnifying
Party. Further, the Stockholders agree to indemnify Purchaser, its Affiliates,
the Newco Entities and their respective Indemnified Parties from and against
any Damages arising out of, based upon or resulting from any tax liability
(including penalties and interest) of the Newco Entities relating to any period
prior to the Closing, other than those set forth on Schedule 3.10.
9.2 NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
INDEMNITIES. Unless otherwise provided in this Agreement, all representations,
warranties, covenants and agreements made by the parties hereto in this
Agreement or in the documents and instruments delivered pursuant hereto or in
connection herewith shall survive the Closing, the delivery of any instrument
of conveyance, and the Merger of Newco or merger and dissolution of any of the
other Newco Entities and shall remain effective and enforceable for a period of
two years from the Closing Date. Any claim for indemnification asserted in
writing before the expiration of the survival period shall survive until
resolved or determined by arbitration or barred by the applicable statute of
limitations.
9.3 ASSUMPTION OF DEFENSE. If any action or claim shall be
brought or asserted against an Indemnified Party in respect of which indemnity
may be sought from an Indemnifying Party, the Indemnified Party shall promptly
notify the Indemnifying Party in writing (but the omission to notify the
Indemnifying Party shall not release such person from any liability which it
may have to the Indemnified Party, except to the extent that such failure
materially prejudices the rights of the Indemnifying Party) and the
Indemnifying Party shall assume the defense thereof and the payment of all
reasonable third party expenses arising therefrom. The legal counsel selected
by the Indemnifying Party shall be subject to the consent of the Indemnified
Party, which consent shall not be unreasonably withheld or delayed. The
Indemnified Party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Indemnified Party, unless (a) the
employment thereof has been specifically authorized in writing by the
Indemnifying Party; (b) the Indemnifying Party has failed to assume the defense
and employ counsel; or (c) the named parties to such action include both the
Indemnifying Party and the Indemnified Party, and the Indemnified Party shall
have been advised in good faith by its counsel that the representation of the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to actual or potential differing interests between them, in
which case the fees of counsel for the Indemnified Party shall be paid by the
Indemnifying Party. In such events, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party.
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 expense of more than one separate firm of attorneys at any
time for the Indemnified Party, which firm shall be designated by the
Indemnified Party in writing. The Indemnifying Party shall not be liable for
any settlement of any such action effected without its written consent, but if
any such action is settled with the Indemnifying Party's written consent,
-27-
<PAGE> 28
or if there shall be a final judgment for the plaintiff in any such action, the
Indemnifying Party shall indemnify and hold harmless the Indemnified Party from
and against any loss or liability by reason of such settlement or judgment.
9.4 PAYMENT OF DAMAGES. Any Damages for which an Indemnified
Party is entitled to indemnification under this Article IX shall be paid by the
Indemnifying Party to the Indemnified Party as such Damages are incurred and
within 14 days of receipt of written demand for indemnification accompanied by
proper documentation evidencing the Damages for which indemnification is being
sought. It shall not be necessary for any party to bring any claim under this
Article IX to judgment or to be served with any notice of violation or similar
notice prior to enforcing the indemnification provisions of this Article IX.
All Damages payable under this Agreement shall be payable in cash.
9.5 COOPERATION. In any event involving a claim of any third
party, the Indemnified Party and the Indemnifying Party shall cooperate fully
with each other in the defense of any such claim under this Article IX.
Without limiting the generality of the foregoing, the Indemnified Party shall
furnish the Indemnifying Party with such documentation or other evidence as is
then in its possession as may reasonably be requested by the Indemnifying Party
for the purpose of defending against any such claim.
9.6 DE MINIMIS AMOUNT. Notwithstanding anything in Section 9.1 to
the contrary, the Stockholders shall not be required to indemnify Purchaser
pursuant to Section 9.1 unless and until the aggregate net amount of all
Damages equal or exceed $250,000, at which time the Stockholders shall be
obligated to indemnify Purchaser with respect to the aggregate net amount of
all such Damages which exceed $250,000.
ARTICLE X. REGISTRATION RIGHTS
10.1 DEFINITIONS. As used in this Article X:
(a) The terms "register," "registered" and "registration" refer to
a registration of securities effected by preparing and filing a registration
statement in compliance with the Securities Act (and all related registrations
or qualifications required under state securities laws) and the declaration or
ordering of the effectiveness thereof.
(b) The term "Registerable Securities" means (i) the PHH Common
Stock owned by each of the Stockholders and received by such Stockholder in
connection with the Merger, provided, that, "Registerable Securities" shall not
include any PHH Common Stock which has previously been offered and sold
pursuant to an effective registration statement.
10.2 DEMAND REGISTRATION.
(a) If at any time three years from and after the Closing Date, if
an exemption from registration is not available to a Stockholder, such
Stockholder shall have the right to demand in writing that Purchaser register
his Registerable Securities for resale under the Securities Act.
-28-
<PAGE> 29
If Purchaser receives a written request for a registration by it of
Registerable Securities from any Stockholder, Purchaser shall:
(i) within 10 days of receiving such notice, give
written notice of the proposed registration to the other Stockholders
(and such Stockholders shall have five business days to notify
Purchaser as to whether they also want their Registerable Securities
registered); and
(ii) use its best efforts to effect (including execution
of an undertaking to file post-effective amendments), as soon as
practicable and in any event within 30 days after the expiration of
the notice period provided in (i) above, the registration of the
Registerable Securities specified in the request received from the
Stockholders. Purchaser shall be obligated to take action to effect
any registration pursuant to this Section 10.2 only once as to each
Stockholder.
10.3 PIGGYBACK REGISTRATION.
(a) From and after three years from the Closing Date, provided if
an exemption from registration is not then available to such Stockholder for
the sale of his Registerable Securities, each time Purchaser determines to
register any of its equity securities, either for its own account or the
account of any security holder, including any other Stockholder (other than a
registration solely to implement an employee benefit plan or a transaction to
which Rule 145 under the Securities Act is applicable), Purchaser shall (i)
promptly give to each Stockholder written notice of such intention; and (ii)
include in the registration and in any underwritten offering made in connection
therewith all Registerable Securities specified in any written requests given
to Purchaser by any Stockholder desiring to participate in the registration
and offering to participate within 30 days after the date of Purchaser's notice
to the Stockholders.
(b) If the registration is in connection with an underwritten
offering, the right of any Stockholder to registration pursuant to this Section
10.3 shall be conditioned upon the Stockholder's participation in the
underwriting and the inclusion of the Stockholder's Registerable Securities in
the underwriting. All Stockholders proposing to distribute Registerable
Securities through the underwriting (together with Purchaser and any other
members distributing their securities through the underwriting) shall enter
into an underwriting agreement in customary form with the underwriter selected
by Purchaser. Notwithstanding any other provision of this Section 10.3, if the
underwriter advises Purchaser that a limitation of the number of shares to be
underwritten is advisable, Purchaser may reduce (to zero if necessary) the
number of Registerable Securities to be included in the registration and
underwriting. If necessary, the Registerable Securities to be included in the
registration and underwriting will be allocated among all Stockholders who have
elected to participate therein, proportionately, based upon the number of
shares of Registerable Securities held by each participating Stockholder.
Subject to the terms and conditions of the underwriting agreement, any
participating Stockholder may elect at any time to withdraw from the
registration and underwriting by written notice to Purchaser, the underwriter
and the other participating Stockholders.
-29-
<PAGE> 30
10.4 EXPENSES OF REGISTRATION. With the exception of underwriting
discounts payable by the participating Stockholders, all expenses incurred in
connection with any registration pursuant to this Article X, including, without
limitation, all related registration or filing fees, printing expenses, escrow
fees, fees of counsel for Purchaser, and fees of Purchaser's accountants and
other experts, shall be borne by Purchaser; provided, however, that Purchaser
will not be required to pay stock transfer taxes, legal fees of counsel to the
Stockholders and the underwriting discount on the shares being sold by the
Stockholders.
10.5 REGISTRATION PROCEDURES. Purchaser shall keep each
Stockholder participating in a registration pursuant to this Article X fully
informed of the progress thereof. At its expense, Purchaser will (a) keep the
registration effective for so long as is reasonably necessary, but in no event
for longer than twelve months; and (b) furnish a number of prospectuses
(preliminary, final and supplemental) and other documents incident thereto as a
Stockholder from time to time reasonably may request.
10.6 INDEMNIFICATION.
(a) With respect to any registration pursuant to this Article X,
Purchaser shall, to the fullest extent permitted by applicable law, indemnify
and hold harmless each participating Stockholder, each participating
underwriter and each person, if any, who controls, is controlled by or is under
common control with any such Stockholder or underwriter within the meaning of
the Securities Act (hereinafter collectively referred to as the
"Holder-Underwriters"), as follows:
(i) against any and all Damages arising out of any
alleged untrue statement of a material fact contained in the
registration statement (or any amendment thereto) or in any
preliminary prospectus or prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any violation or alleged
violation by Purchaser of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law
(collectively, such untrue statements, omissions or violations being
referred to herein as a "Violation"), unless the Violation or alleged
Violation was made in reliance upon and in conformity with written
information furnished to Purchaser by the Holder-Underwriters
expressly for use in the registration statement (or any amendment
thereto) or preliminary prospectus or prospectus (or any amendment or
supplement thereto);
(ii) against any and all Damages whatsoever to the extent
of the aggregate amount paid in settlement of any litigation,
commenced or threatened, or of any claim whatsoever based upon any
alleged Violation, if the settlement is effected with the written
consent of Purchaser which consent shall not be unreasonably withheld;
and
(iii) against any and all Damages whatsoever reasonably
incurred in investigating, preparing or defending against or settling
any litigation, commenced or
-30-
<PAGE> 31
threatened, or any claim whatsoever based upon any alleged Violation.
If any action or claim shall be brought or asserted against the
Holder-Underwriters in respect of which indemnity may be sought from Purchaser,
the Holders-Underwriters shall promptly notify Purchaser in writing (but the
omission to notify Purchaser shall not release it from any liability which it
may have to the Holder-Underwriters, except to the extent such failure
materially prejudices the rights of Purchaser) and Purchaser shall assume the
defense thereof, and the payment by Purchaser of all reasonable expenses. The
Holder-Underwriters shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Holder-Underwriters unless (i) the
employment thereof has been specifically authorized in writing by Purchaser;
(ii) Purchaser has failed to assume the defense and employ counsel; or (iii)
the named parties to such action include both Purchaser and the
Holder-Underwriters, and the Holder-Underwriters shall have been advised in
writing by their counsel that the representation of Purchaser and the
Holder-Underwriters by the same counsel would be inappropriate due to actual or
potential differing interests between them, in which case the fees of counsel
for the Holder-Underwriters shall be paid by Purchaser. In such events,
Purchaser shall not have the right to assume the defense of such action on
behalf of the Holder-Underwriters. Purchaser shall not, in connection with any
one such actions 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 Holder-Underwriters, which firm
shall be designated by the Holder-Underwriters in writing. Purchaser shall not
be liable for any settlement of any such action effected without its written
consent, but if any such action is settled with Purchaser's written consent, or
if there shall be a final judgment for the plaintiff in any such action,
Purchaser shall indemnify and hold harmless the Holder-Underwriters from and
against any loss or liability by reason of such settlement or judgment. Any
Damages for which the Holder-Underwriters are entitled to indemnification under
this Article X shall be paid by Purchaser through the Holder-Underwriters as
such Damages are incurred.
(b) Each participating Stockholder shall, upon the written request
of Purchaser, severally agree to indemnify and hold harmless Purchaser to the
same extent and subject to the same terms and conditions as are set forth above
for Purchaser, but only with respect to written information expressly provided
by the Stockholder for use in a registration statement or prospectus.
10.7 REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the Stockholders the benefits of any rule or regulation under the
Securities Act which may permit the sale of the Registerable Securities to the
public without registration, Purchaser will:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times as
required pursuant to the Exchange Act following the effective date of the first
registration statement filed by Purchaser for an offering of its securities to
the general public;
-31-
<PAGE> 32
(b) file with the Securities and Exchange Commission in a timely
manner all reports and other documents required of Purchaser under the
Securities Act and the Exchange Act; and
(c) furnish to each Stockholder forthwith upon its request (i) a
written statement as to its compliance with the public information requirements
of Rule 144; (ii) a copy of the most recent annual or quarterly report of
Purchaser; and (iii) any other reports, documents and information as reasonably
may be requested in availing any Stockholder of any rule or regulation of the
Securities and Exchange Commission permitting the sale of securities without
registration.
ARTICLE XI. MISCELLANEOUS
11.1 EXPENSES. Each of the parties hereto shall pay the fees and
expenses of its own counsel, accountants or other experts, and all expenses
incurred by such party incident to the negotiation, preparation, execution,
consummation and performance of this Agreement and the transactions
contemplated hereby.
11.2 NOTICES. Any notice necessary under this Agreement shall be
in writing and shall be considered delivered three (3) days after the mailing
is sent certified mail, return receipt requested, or when received, if sent by
telecopy, prepaid courier, express mail or personal delivery to the following
addresses:
(a) If to Newco:
Newco Homes, Inc.
14901 Quorum Drive, Suite 565
Dallas, Texas 75240
Attn: President
(b) If to Purchaser:
Palm Harbor Homes, Inc.
15303 Dallas Parkway, Suite 800
Dallas, Texas 75248
Attn: President
Fax: (214) 991-5949
(c) If to the Stockholders: At the addresses set forth
below their signature on the signature pages hereto.
11.3 WAIVER. No amendment or waiver of any provision of this
Agreement, nor consent to any departure therefrom, shall be effective unless
the same shall be in writing and signed by an officer of each party hereto, and
then such waiver or consent shall be effective only in a specific instance and
for the specific purpose for which given. No failure on the part of a party
hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other
-32-
<PAGE> 33
or further exercise thereof or the exercise of any other right. The remedies
provided in this Agreement are cumulative and not exclusive of any remedies
provided by law.
11.4 PRIOR AGREEMENTS SUPERSEDED. This Agreement and the documents
executed in connection herewith at the Closing constitute the entire agreement
between the parties with respect to the subject matter hereof and supersedes
any and all prior written or oral agreements and understandings with respect to
the matters covered hereby.
11.5 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
11.6 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 INTERNAL SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS.
11.7 HEADINGS, GENDER, ETC.. The headings used in this Agreement
have been inserted for convenience only and do not constitute matters to be
construed or interpreted in connection with this Agreement. Unless the context
of this Agreement otherwise requires, (a) words of any gender shall be deemed
to include each other gender; (b) words using the singular or plural number
shall also include the plural or singular number, respectively; and (c) the
terms "hereof," "herein," "hereby," "hereto" and derivative or similar words
shall refer to this entire Agreement.
11.8 ATTORNEY'S FEES. The prevailing party in any legal or
arbitration proceedings brought by or against the other party to enforce any
provision of this Agreement shall be entitled to recover against the
non-prevailing party the reasonable attorney's fees, court or arbitration costs
and other expenses incurred by the prevailing party.
11.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 ARBITRATION. In the event of a dispute hereunder (including,
without limitation, under Article IX of this Agreement) which cannot be
resolved by the parties, such dispute shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment on the award rendered by the arbitration panel may be
entered in any court or tribunal of competent jurisdiction. The parties agree
that no member of the arbitration panel shall be a competitor of Purchaser and
that all arbitration proceedings occurring under this Section 11.10 shall be
held in Dallas, Texas.
11.11 SEVERABILITY AND REFORMATION. Subject to the reformation
provision in Section 6.4, if any provision of this Agreement is held to be
illegal, invalid or unenforceable under any current or future law, and if the
rights or obligations of the parties under this Agreement would
-33-
<PAGE> 34
not be materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance therefrom. In lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement, a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible, and the parties
hereto request the court or any arbitrator to whom disputes relating to this
Agreement are submitted to reform the otherwise illegal, invalid or
unenforceable provision in accordance with this Section 11.11.
11.12 THIRD PARTIES. Nothing expressed or implied in this Agreement
is intended, or shall be construed, to confer upon or give any person or entity
other than Newco, Purchaser and the Stockholders (or their successors, heirs,
representatives and permitted assigns) any rights or remedies under or by
reason of this Agreement.
11.13 ANNOUNCEMENTS. The parties hereto agree that all public
announcements relating to the Merger will be made only as mutually agreed upon;
provided, however, that either party may make any public announcements as may
be required by law without the approval of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
NEWCO HOMES, INC.
/s/ Scott W. Chaney
--------------------------------------------
Scott W. Chaney, President
PALM HARBOR HOMES, INC.
/s/ Lee Posey
--------------------------------------------
Lee Posey, Chairman of the Board and
Chief Executive Officer
-34-
<PAGE> 35
STOCKHOLDERS:
/s/ Scott W. Chaney
--------------------------------------------
Scott W. Chaney
Address:
------------------------------------
--------------------------------------------
/s/ Christopher M. Finke
--------------------------------------------
Christopher M. Finke
Address:
------------------------------------
--------------------------------------------
/s/ Thomas B. Kesterson
--------------------------------------------
Thomas B. Kesterson
Address:
------------------------------------
--------------------------------------------
/s/ Joseph H. Kesterson
--------------------------------------------
Joseph H. Kesterson
Address:
------------------------------------
--------------------------------------------
-35-
<PAGE> 36
The undersigned spouses have joined in this Agreement for the sole
purpose of subjecting to the provisions of this Agreement any community
property interest in the Newco Common Stock that such spouse may own.
/s/ Kathleen Marie Chaney
--------------------------------------------
Kathleen Marie Chaney
/s/ Melanie Finke
--------------------------------------------
Melanie Finke
/s/ Darci Kesterson
--------------------------------------------
Darci Kesterson
/s/ Kimberly Kesterson
--------------------------------------------
Kimberly Kesterson
<PAGE> 1
Exhibit 2.2
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 (this "Agreement") dated as of August 1, 1996,
shall amend that certain Agreement and Plan of Merger (the "Merger Agreement")
dated as of June 30, 1996, by and between Purchaser, Newco, Chaney, Finke, T.
Kesterson and J. Kesterson. All initial capitalized terms not otherwise
defined in this Agreement shall have the meanings set forth in the Merger
Agreement.
The parties to this Agreement hereby agree as follows:
1. The following shall be added as the second sentence of Recital
C of the Merger Agreement:
"The parties intend for the Merger to be treated as a tax free
exchange and agree to treat the Merger as a tax free exchange
for all purposes."
2. The parties agree that the 1,155,556 shares of PHH Common
Stock constituting the non-cash portion of the Purchase Price shall be
adjusted to reflect Purchaser's five-for-four stock split effected in
the form of a dividend to shareholders of record as of July 26, 1996.
Accordingly, the parties agree that the non-cash portion of the
Purchase Price shall consist of 1,444,445 shares of PHH Common Stock.
3. Section 2.8(a)(viii) shall be amended in its entirety to read
as follows:
"(viii) executed Special Warranty Deeds conveying the property
owned by certain of the Stockholders and leased to the Newco
Partnership for retail sales centers in Cleveland, Texas and
Tyler, Texas, together with executed Assignments and
Assumption of Leases relating thereto;"
4. Section 2.8(a)(ix) shall be amended to read as follows:
"(ix) the Schedules to this Agreement; and"
5. Section 2.8(a) shall be amended to add the following:
"(x) executed Purchase Options relating to the four properties
owned by certain of the Stockholders and leased to the Newco
Partnership for retail sales centers in San Antonio, Texas
(2), Mesquite, Texas and Albuquerque, New Mexico."
6. Section 3.10(e) shall be amended to revise the fourth sentence
to insert the following at the beginning of such sentence: "Except as
set forth on Schedule 3.10,"
<PAGE> 2
7. Section 3.12 shall be amended to: (a) insert the following at
the beginning of the first sentence "Except as disclosed on Schedule
3.11 or Schedule 3.12 hereto, (b) revise the second sentence to delete
the parenthetical; and (c) revise the last sentence in its entirety to
read as follows: "Except as set forth on Schedule 3.12 and except in
the ordinary course of business since the date of the Balance Sheet,
there has been no material change in the list of assets owned or
leased by the Newco Entities."
8. Section 3.14 shall be amended to revise the second sentence in
its entirety to read as follows:
"Except as disclosed on Schedule 3.12, the accounts receivable
listed on Schedule 3.14 hereto are current and collectable,
and, except in the ordinary course of business or as set forth
on Schedule 3.14 or Schedule 3.12, there are no counterclaims
or set-offs against accounts receivable currently
outstanding."
9. Section 9.1 shall be amended to revise the first sentence in
its entirety to read as follows:
"9.1 INDEMNIFICATION FOR BREACHES. Each of the parties
hereto (hereafter, the "Indemnifying Party") will severally
(37.1% for each of Chaney and Finke, 19.9% for T. Kesterson
and 5.9% for J. Kesterson) indemnify and hold harmless the
other party and its respective representatives, successors and
assigns, and any officer, director, agent or employee of any
such person or entity (hereafter, collectively the
"Indemnified Parties"), from and against any damages, loss,
cost, expense, obligation, claim or liability, including
reasonable attorney's fees and reasonable third party expense
of investigating, defending or prosecuting litigation
(collectively, the "Damages") suffered by the Indemnified
Parties, arising from or by reason of (i) the breach by or any
inaccuracy of any warranty, representation or covenant made by
the Indemnifying Party, or (ii) the failure of any
Indemnifying Party to perform any of its obligations under the
terms of the agreements establishing the stock appreciation
right awards granted to certain employees of Newco Homes, L.P.
selected by the Stockholders."
10. Section 9.2 shall be amended to revise the first sentence in
its entirety to read as follows:
"9.2 NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
INDEMNITIES. Unless otherwise provided in this Agreement, all
representations, warranties, covenants and agreements made by
the parties hereto in this Agreement or in the documents and
instruments delivered pursuant hereto or in connection
herewith shall survive the Closing, the delivery of any
instrument of conveyance, and the Merger of Newco or merger
and dissolution of any of the other Newco Entities and shall
remain effective and enforceable for a period of two years
from the Closing Date; provided, however, that the
indemnification relating to the stock
2
<PAGE> 3
appreciation rights described above shall survive for the term
of the respective stock appreciation rights."
10. Purchaser represents and warrants to the Stockholders that
when issued in accordance with the Merger Agreement and this Agreement, the
1,444,445 shares of PHH Common Stock to be issued in the aggregate to the
Stockholders shall be validly issued, fully paid and nonassessable, free and
clear of all Liens and preemptive rights.
11. All other provisions of the Merger Agreement shall remain in
full force and effect in accordance with the terms of the Merger Agreement.
12. The parties hereto agree that the Purchase Price shall be
allocated among the Shareholders as follows:
Chaney 535,914 shares of PHH Common Stock
$6,430,962
Finke 551,397 shares of PHH Common Stock
$6,059,375
T. Kesterson 286,916 shares of PHH Common Stock
$3,442,996
J. Kesterson 70,218 shares of PHH Common Stock
$1,400,000
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
NEWCO HOMES, INC.
/s/ Scott W. Chaney
----------------------------------------
Scott W. Chaney, President
PALM HARBOR HOMES, INC.
/s/ Lee Posey
----------------------------------------
Lee Posey, Chairman of the Board
and Chief Executive Officer
3
<PAGE> 4
STOCKHOLDERS:
/s/ Scott W. Chaney
----------------------------------------
Scott W. Chaney
/s/ Christopher M. Finke
----------------------------------------
Christopher M. Finke
/s/ Thomas B.Kesterson
----------------------------------------
Thomas B. Kesterson
/s/ Joseph H. Kesterson
----------------------------------------
Joseph H. Kesterson
4
<PAGE> 5
The undersigned spouses have joined in this Agreement for the sole
purpose of subjecting to the provisions of this Agreement any community
property interest in the Newco Common Stock that such spouse may own.
/s/ Kathleen Marie Chaney
----------------------------------------
Kathleen Marie Chaney
/s/ Melanie Finke
----------------------------------------
Melanie Finke
/s/ Darci Kesterson
----------------------------------------
Darci Kesterson
/s/ Kim Kesterson
----------------------------------------
Kim Kesterson
5
<PAGE> 1
Exhibit 23.1
We consent to the use of our report dated April 30, 1996 on Newco Homes, Inc.,
included in the Current Report on Form 8-K dated August 1, 1996 of Palm Harbor
Homes, Inc. filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
August 1, 1996
<PAGE> 1
Exhibit 99.1
PALM HARBOR COMPLETES MERGER WITH NEWCO AFFILIATE
_______________
SCOTT CHANEY ELECTED DIRECTOR
DALLAS, Texas (August 1, 1996) - Palm Harbor Homes, Inc.
(Nasdaq/NM:PHHM) today announced that it has completed the merger of Newco
Homes, Inc., a Texas-based retailer of manufactured homes, with and into Palm
Harbor Homes. The transaction was valued at approximately $52 million,
consisting of 1,444,445 shares of Palm Harbor's common stock and $17.3 million
in cash. The number of shares involved in the transaction reflects the 5-for-4
stock split which is being distributed to shareholders on August 2, 1996. Palm
Harbor co-founded Newco in 1986 and owned 41.6% of that company's outstanding
shares prior to the completion of this transaction.
Lee Posey, chief executive officer of Palm Harbor, said that Scott
Chaney, former president of Newco, has been elected as a director of Palm
Harbor. Chaney's election increases the number of directors to eight.
Posey remarked, "Acquiring full ownership of Newco matches our
objective of controlling more of the retail distribution of our homes.
Retaining the current management of Newco was an important component of this
transaction, and we look forward to Scott Chaney's expanded involvement with
Palm Harbor as a director. We continue to expect that the addition of these
superstores should translate into incremental annual sales of approximately
$100 million."
Palm Harbor reported net sales of $417.2 million for the fiscal year
ended March 29, 1996.
Palm Harbor Homes is one of the nation's leading manufacturers and
marketers of multi-section manufactured homes. The Company markets nationwide
through vertically integrated operations, encompassing manufacturing,
marketing, financing and insurance.
-END-
