________________________________________
PURCHASE AGREEMENT
________________________________________
FOR THE SALE OF
RAYCO, LTD.,
SATEX PROPERTIES, INC.,
TEXAS HOMESTEAD MORTGAGE COMPANY
AND
SAN ANTONIO TITLE CO.
DATED AS OF JANUARY 22, 1996
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TABLE OF CONTENTS
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ARTICLE 1. Definitions .................................................................... 2
ARTICLE 2. Purchase and Sale ............................................................. 8
2.1. The Sale ....................................................................... 8
2.2. Purchase Price ................................................................. 9
2.3. Certain Closing Deliveries ..................................................... 9
2.4. Employment and Non-Competition Agreements ...................................... 10
2.5. Post-Closing Adjustments to Purchase Price ..................................... 10
2.6. Allocation of Purchase Price ................................................... 11
ARTICLE 3. Closing Date and Effective Time ................................................ 12
ARTICLE 4. Representations and Warranties ................................................. 12
4.1. Representations and Warranties by Industries ................................... 12
4.2. Representations and Warranties by the LLC ...................................... 28
4.3. Representations and Warranties by REGT ......................................... 42
4.4. Representations and Warranties by the Purchaser................................. 45
ARTICLE 5. Additional Agreements and Covenants ............................................ 47
5.1. Covenants of the Sellers ....................................................... 47
5.2. Covenants of the Purchaser ..................................................... 54
5.3. Environmental Assessments ...................................................... 57
5.4. Land Contracts ................................................................. 60
ARTICLE 6. Conditions to Closing .......................................................... 61
6.1. Conditions to the Obligations of the Purchaser ................................. 61
6.2. Conditions to the Obligations of the Sellers ................................... 62
ARTICLE 7. Taxes .......................................................................... 63
7.1. Tax Returns .................................................................... 63
7.2. Liability for Taxes ............................................................ 66
7.3. Section 754 Election ........................................................... 67
7.4. Tax Proceedings ................................................................ 67
7.5. Cooperation and Exchange of Information ........................................ 68
7.6. Threshold Amount; Limit on Liability ........................................... 69
7.7. Conflict........................................................................ 69
7.8. Section 338 Election ........................................................... 69
ARTICLE 8. Employee Benefits .............................................................. 70
8.1. Employees ...................................................................... 70
8.2. Service Credit to Company Employees............................................. 70
8.3. Termination of Company Employee Benefit Plans .................................. 70
8.4. Benefits Plans ................................................................. 71
8.5. Subsequent Dispositions ........................................................ 73
ARTICLE 9. Termination .................................................................... 73
9.1. Grounds for Termination ........................................................ 73
9.2. Effect of Termination .......................................................... 75
ARTICLE 10. Extent and Survival of Representations,
Warranties, Covenants and Agreements; Indemnification ........................... 77
10.1. Scope of Representations ....................................................... 77
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10.2. Indemnification of the Purchaser ............................................... 78
10.3. Indemnification of the Sellers ................................................. 79
10.4. Survival ....................................................................... 80
10.5. Indemnification Procedures ..................................................... 80
10.6. Insurance Proceeds ............................................................. 83
ARTICLE 11. Brokers ........................................................................ 83
ARTICLE 12. Expenses ....................................................................... 84
ARTICLE 13. Notices; Miscellaneous ......................................................... 84
13.1. Notices ........................................................................ 84
13.2. Books and Records .............................................................. 85
13.3. Miscellaneous .................................................................. 86
SCHEDULES
Schedule 4.1.4 - Violations and Consents (Industries)
Schedule 4.1.5 - Defaults (Industries)
Schedule 4.1.7 - Changes (Industries)
Schedule 4.1.8 - Taxes (Industries)
Schedule 4.1.9 - Contracts, Agreements, Plans and Commitments (Industries)
Schedule 4.1.10 - Litigation (Industries)
Schedule 4.1.11 - Insurance (Industries)
Schedule 4.1.12 - Patents, Trademarks, Etc. (Industries)
Schedule 4.1.13 - Plans (Industries)
Schedule 4.1.14 - Encumbrances on Assets (Industries)
Schedule 4.1.16 - Environmental Matters (Industries)
Schedule 4.1.17 - Liabilities (Industries)
Schedule 4.1.19 - Intercompany Balances (Industries)
Schedule 4.1.28 - Employees (the Corporations)
Schedule 4.2.3 - Encumbrances on GP Interest and LP Interest
Schedule 4.2.4 - Violations and Consents (LLC)
Schedule 4.2.5 - Defaults (LLC)
Schedule 4.2.7 - Changes (LLC)
Schedule 4.2.8 - Taxes (Rayco)
Schedule 4.2.9 - Contracts, Agreements, Plans and Commitments (LLC)
Schedule 4.2.19 - Intercompany Balances (Rayco)
Schedule 4.2.25 - Warranty Claims (Rayco)
Schedule 4.2.10 - Litigation (LLC)
Schedule 4.2.11 - Insurance (LLC)
Schedule 4.2.12 - Patents, Trademarks, etc. (LLC)
Schedule 4.2.13 - Rayco Plans
Schedule 4.2.14 - Encumbrances (Rayco)
Schedule 4.2.16 - Environmental Matters (Rayco)
Schedule 4.2.17 - Liabilities (Rayco)
Schedule 4.2.23 - Flood Plains (Rayco)
Schedule 4.2.25 - Warranty Claims
Schedule 4.2.26 - Condemnation Proceedings
Schedule 4.2.28 - Employees (Rayco)
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Schedule 4.3.3 - Encumbrances (REGT)
Schedule 4.3.4 - Violations and Consents (REGT)
Schedule 4.4.3 - Violations and Consents (Purchaser)
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EXHIBITS
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Exhibit A - Form of Conveyance Agreement with respect to the GP Interest
Exhibit B - Form of Conveyance Agreement with respect to the LP Interest
Exhibit C - Form of Opinion of Counsel for the Sellers
Exhibit D-1 - Form of Opinion of Inside Counsel for the Purchaser
Exhibit D-2 - Form of Opinion of Outside Counsel to the Purchaser
Exhibit E-1 - Employment Agreement (Willome)
Exhibit E-2 - Employment Agreement (Biegler
Exhibit E-3 - Employment Agreement (Robinson)
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement"), dated as of
January 22, 1996, among Ray Ellison Industries, Inc., a Delaware corporation
("Industries"), Rayco Management, L.L.C., a Texas limited liability company
(the "LLC"), and the Ray Ellison Grandchildren Trust ("REGT") (Industries, the
LLC and REGT being referred to herein collectively as the "Sellers"); John H.
Willome, Jack E. Biegler and Jack Robinson (collectively, the "Executive
Officers"); and Kaufman and Broad Home Corporation, a Delaware corporation (the
"Purchaser"),
W I T N E S S E T H:
WHEREAS, the LLC is the owner of a two percent general partner
interest (the "GP Interest") in Rayco, Ltd., a Texas limited partnership
("Rayco"), and is the sole general partner of Rayco; and
WHEREAS, REGT is the owner of a ninety eight percent limited
partner interest (the "LP Interest") in Rayco, and is the sole limited partner
of Rayco; and
WHEREAS, Industries is the owner of 1,000 shares (the "Satex
Shares") of capital stock, par value $1 per share ("Satex Stock"), of Satex
Properties, Inc., d/b/a World Wide Realty Better Homes and Gardens, a Texas
corporation ("Satex"), constituting all the issued and outstanding shares of
capital stock of Satex; and
WHEREAS, Industries is the owner of 100,000 shares (the "THMC
Shares") of capital stock, par value $1 per share ("THMC Stock"), of Texas
Homestead Mortgage Company, a Texas corporation ("THMC"), constituting all the
issued and outstanding shares of capital stock of THMC; and
WHEREAS, Industries is the owner of 3,125 shares (the "SATCO
Shares") of capital stock, par value $1 per share (the "SATCO Stock"), of San
Antonio Title Co., a Texas corporation ("SATCO"), constituting all the issued
and outstanding shares of capital stock of SATCO; and
WHEREAS, (i) the Purchaser desires to acquire the GP Interest
from the LLC, and the LLC desires to sell the GP Interest to the Purchaser,
(ii) the Purchaser desires to acquire the LP Interest from REGT, and REGT
desires to sell the LP Interest to the Purchaser, and (iii) the Purchaser
desires to acquire the Satex Shares, the THMC Shares and the SATCO Shares
(collectively, the "Shares") from Industries,
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and Industries desires to sell the Shares to the Purchaser, upon the terms and
subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the
respective representations, warranties, covenants, agreements and conditions
contained herein, the parties hereto hereby agree as follows:
ARTICLE 1.
Definitions
The terms set forth below in this Article 1 shall have the
meanings ascribed to them below or in the part of this Agreement referred to
below:
1995 Earnings Release: as defined in Section 4.4.7.
Adjusted Purchase Price: as defined in Section 2.5.
Affiliate: with respect to any person, means any person that
directly or indirectly controls, is controlled by or is under common control
with such person.
Agreed Rate: means the rate of interest per annum publicly
announced from time to time by Morgan Guaranty Trust Company of New York as its
prime commercial lending rate.
Agreement: as defined above in the preamble.
Assets: means Corporation Assets and Rayco Assets.
Balance Sheet Date: means (i) at all times prior to the end
of the Due Diligence Period, September 30, 1995, and (ii) at all times after
the end of the Due Diligence Period and the delivery of the Year-End Unaudited
Financial Statements, December 31, 1995.
Best Efforts: means a Person's best efforts in accordance
with reasonable commercial practice and without the incurrence of unreasonable
expense.
Claim Notice: as defined in Section 10.5.1.
Closing: as defined in Article 3.
Closing Date: as defined in Article 3.
Closing Date Balance Sheet: as defined in Section 2.5.
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Code: means the Internal Revenue Code of 1986, as amended, or
any successor law, and any regulations issued by the Internal Revenue Service
pursuant to the Internal Revenue Code or any successor law.
Commission: as defined in Section 4.4.7.
Company: means any of Rayco, Satex, THMC and SATCO
(collectively, the "Companies").
Company Employees: as defined in Section 8.1.
Confidentiality Agreement: as defined in Section 5.2.6.
Conveyance Agreements: means the conveyance agreement
substantially in the form of Exhibit A hereto with respect to the GP Interest
and the conveyance agreement substantially in the form of Exhibit B hereto with
respect to the LP Interest to be entered into between a Seller and a Purchaser
Entity pursuant to Section 2.3 hereof.
Corporations: means Satex, THMC and SATCO.
Corporation Assets: as defined in Section 4.1.14.
Due Diligence Period: means the period of time beginning at
8:00 a.m., C.S.T., on the date of this Agreement, and ending at 11:59 p.m.,
C.S.T., on February 5, 1996.
Election Period: as defined in Section 10.5.1.
Employment and Non-Competition Agreement: means (i) with
respect to John H. Willome an Employment and Non-Competition Agreement in the
form of Exhibit E-1 hereto, (ii) with respect to Jack E. Biegler, an Employment
and Non-Competition Agreement in the form of Exhibit E-2 hereto, and (iii) with
respect to Jack Robinson, an Employment and Non-Competition Agreement in the
form of Exhibit E-3 hereto.
Encumbrance: means any claim, lien, pledge, charge, security
interest, mortgage, easement, servitude, right of way, equitable interest,
option, right of first refusal or other restriction, including, without
limitation, any restriction on use, voting (in the case of any security),
transfer, receipt of income or exercise of any other attribute of ownership.
Environmental Breach: as defined in Section 5.3.3.
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Environmental Consultant: as defined in Section 5.3.6.
Environmental Due Diligence Period: means the period of time
beginning at 8:00 a.m., C.S.T., on the date of this Agreement, and ending at
11:59 p.m., C.S.T., on February 12, 1996.
Environmental Laws: means any and all laws, statutes,
ordinances, rules, regulations, orders, judicial or arbitral decisions or
determinations of any governmental authority or court pertaining to the
environment in effect in any jurisdiction in which any Company is conducting
business or where any of the properties or facilities of any Company is
located, including, without limitation, the Clean Air Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"), the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Texas Solid Waste Disposal Act,
the Texas Water Code and other comparable federal, state and local laws. The
term "hazardous substance" means any "hazardous waste," "hazardous substance,"
"pollutant," "contaminant," or "oil" as such terms are defined in any
Environmental Law, the term "release" has the meaning specified in the
Environmental Laws, and the terms "solid waste" and "disposal" have the
meanings specified in RCRA.
Environmental Statement: as defined in Section 5.3.3.
ERISA: means the Employee Retirement Income Security Act of
1974, as amended.
Excess Non-Remediation Properties: as defined in Section 5.3.5.
Exchange Act: means the Securities Exchange Act of 1934, as
amended.
Executive Officers: as defined above in the preamble.
Financial Statements: means the financial statements described
in Section 4.1.6 and Section 4.2.6.
Government Permits: as defined in Section 4.1.15.
GP Interest: as defined above in the preamble.
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Guaranty Federal: means Guaranty Federal Savings Bank, Dallas,
Texas.
HSR Act: means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
Identified Property: as defined in Section 5.3.6.
Indemnified Party: as defined in Section 10.5.1.
Indemnifying Party: as defined in Section 10.5.1.
Indemnity Notice: as defined in Section 10.5.4.
Industries: as defined above in the preamble.
Knowledge: with respect to an individual, means the personal
knowledge of a particular fact or other matter by such individual having had
actual notice at the time in question of such fact or other matter without any
obligation of inquiry or independent investigation. With respect to a Person
(other than an individual), "Knowledge" means the personal knowledge of a
particular fact or other matter only if (i) an individual who is serving as an
executive officer (or similar capacity) of such Person (which, in the case of
the Companies and the Sellers, are solely the Executive Officers) has Knowledge
of such fact or other matter, without attribution to such executive officer of
facts and matters within the personal Knowledge of any other Person, or (ii) an
individual who is serving as an executive officer (or similar capacity) of such
Person (which, in the case of the Companies and the Sellers, are solely the
Executive Officers) would have Knowledge of such fact or other matter if such
individual had made inquiry of other employees of such Person who would
reasonably be expected by such executive officer to have Knowledge of such fact
or other matter and who is primarily responsible for the operations of such
Person which are related to such fact or matter, without attribution to such
executive officer of facts or matters within the personal Knowledge of any
other Person who would not reasonably be expected by such executive officer to
have Knowledge of such fact or other matter or who is not primarily responsible
for the operations of such Person which are related to such fact or matter. No
executive officer of a Person (including the Executive Officers) shall have any
liability to any Person as a result of any actual or implied Knowledge or the
disclosure of such actual or implied Knowledge herein. Each of the Sellers and
the Purchaser represent to the other that each of them has caused its executive
officers to make inquiry of other employees of such Person who would
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reasonably be expected by such executive officer to have Knowledge of such fact
or matter.
Land Contracts: as defined in Section 5.4.
LLC: as defined above in the preamble.
LP Interest: as defined above in the preamble.
Material Adverse Effect: means (i) with respect to the
Companies, any material adverse effect on the business, financial condition,
results of operations or prospects of the Companies taken as a whole, (ii) with
respect to the Corporations, any material adverse effect on the business,
financial condition, results of operations or prospects of the Corporations
taken as a whole, (iii) with respect to Rayco, any material adverse effect on
the business, financial condition, results of operation or prospects of Rayco
taken as a whole, and (iv) with respect to the Purchaser or a Purchaser Entity,
any material adverse effect on the business, financial condition, results of
operations or prospects of the Purchaser taken as a whole.
Net Worth of the Companies: at any date, means the sum of the
combined stockholder's and partner's equity of each Company at such date, as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
Non-Remediation Properties: as defined in Section 5.3.4.
Partners: means the LLC and REGT.
Partnership Agreement: means the Amended and Restated
Agreement of Limited Partnership of Rayco dated as of January 1, 1995.
Permitted Encumbrances: means (i) Encumbrances specifically
described in the Financial Statements, (ii) Encumbrances securing taxes,
assessments, governmental charges or levies, all of which are not yet due and
payable, or are being contested in good faith in the ordinary course of
business based upon a dispute as to the appropriate tax appraisal of a
particular property, so long as such contest does not involve any substantial
danger of the sale, forfeiture or loss of any material Assets, (iii)
Encumbrances securing the claims of materialmen, carriers, landlords and like
persons, all of which are not yet due and payable, or (iv) customary
restrictive covenants for subdivisions of the type developed by Rayco,
customary
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zoning restrictions and customary utility easements on or affecting (x) land
acquired for residential development and (y) residential real property.
Person: means any individual, firm, corporation, partnership,
joint venture, association, trust, unincorporated organization, government or
agency or subdivision thereof or any other entity.
Phase I Report or Phase II Report: as defined in Section
5.3.1.
Plan: as defined in Section 4.1.13(i).
Post-Closing Certificate: as defined in Section 2.5.
Pre-Closing Tax Period: as defined in Section 7.2.1.
Purchase Price: as defined in Section 2.2.
Purchaser: as defined above in the preamble.
Purchaser Entity: means any of the Purchaser and any
wholly-owned subsidiary of the Purchaser named in or designated pursuant to
Section 2.1 to purchase any of the Securities (collectively, the "Purchaser
Entities").
Purchaser Indemnified Loss: as defined in Section 10.2.
Purchaser's Due Authorization Notice: as defined in Section
5.2.3.
Purchaser's Notice of Breach: as defined in Section 5.2.3.
Purchaser's SEC Documents: as defined in Section 4.4.7.
Rayco: as defined above in the preamble.
Rayco Assets: as defined in Section 4.2.14.
Rayco Plan: as defined in Section 4.2.13(i).
REGT: as defined above in the preamble.
Remediation Agreement: as defined in Section 5.3.3.
SATCO, SATCO Stock and SATCO Shares: as defined above in the
preamble.
Satex, Satex Stock and Satex Shares: as defined above in the
preamble.
Securities: means the GP Interest, the LP Interest and the
Shares.
Securities Act: as defined in Section 4.4.7.
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Sellers: as defined above in the preamble.
Seller Affiliate: means any Affiliate of the Sellers other
than the Companies.
Seller Indemnified Loss: as defined in Section 10.3.
Shares: as defined above in the preamble.
Subsidiary: with respect to any Person, means any
corporation, partnership, joint venture, association or other business entity
more than 50% of the outstanding voting stock or other ownership interests
having ordinary voting power of which is owned, directly or indirectly, by such
Person, by one or more other Subsidiaries of such Person or by such Person and
one or more other Subsidiaries of such Person.
Taxes: as defined in Section 4.1.8.
Third Party Claim: as defined in Section 10.5.1.
THMC, THMC Stock and THMC Shares: as defined above in the
preamble.
Threshold Amount: as defined in Section 10.2.
Trust Agreement: as defined in Section 4.3.1.
Year-End Audited Financial Statements: as defined in Section
5.1.11.
Year-End Unaudited Financial Statements: as defined in
Section 5.1.11.
ARTICLE 2.
Purchase and Sale
2.1. The Sale. Upon the terms and subject to the conditions
of this Agreement, at the Closing the following transactions shall occur:
2.1.1 Industries shall sell, assign, transfer and deliver
to the Purchaser, or to (in whole or in part) a wholly-owned
subsidiary of the Purchaser designated in writing by the Purchaser,
and the Purchaser shall cause such Purchaser Entity to purchase and
acquire from Industries, the Satex Shares in consideration of $812,570
in cash;
2.1.2 Industries shall sell, assign, transfer and deliver
to the Purchaser, or to (in whole or in part) a wholly-owned
subsidiary of the Purchaser designated in writing by the Purchaser,
and
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the Purchaser shall cause such Purchaser Entity to purchase and
acquire from Industries, the THMC Shares in consideration of
$1,139,676 in cash;
2.1.3 Industries shall sell, assign, transfer and deliver
to the Purchaser, or to (in whole or in part) a wholly-owned
subsidiary of the Purchaser designated in writing by the Purchaser,
and the Purchaser shall cause such Purchaser Entity to purchase and
acquire from Industries, the SATCO Shares in consideration of $346,420
in cash; and
2.1.4 In consideration of $77,701,334 in cash, (i) the LLC
shall sell, assign and transfer to the Purchaser, or to (in whole or
in part) a wholly-owned subsidiary of the Purchaser designated in
writing by the Purchaser, and the Purchaser shall cause such Purchaser
Entity to purchase and acquire from the LLC, the GP Interest, and (ii)
REGT shall sell, assign and transfer to the Purchaser, or to (in whole
or in part) a wholly-owned subsidiary of the Purchaser designated in
writing by the Purchaser, and the Purchaser shall cause such Purchaser
Entity to purchase and acquire from REGT, the LP Interest;
provided, however, that any designation of a wholly-owned subsidiary of the
Purchaser by the Purchaser as a Purchaser Entity as provided above in this
Section 2.1 shall not relieve the Purchaser of any of its liability for the
agreements, representations, warranties and covenants of the Purchaser or any
Purchaser Entity contained or contemplated herein.
2.2 Purchase Price. The aggregate purchase price to be paid
by the Purchaser Entities for the Securities shall be $80 million cash (the
"Purchase Price").
2.3 Certain Closing Deliveries. Upon the terms and subject to
the conditions of this Agreement, at the Closing the following transactions
shall occur:
2.3.1 The LLC shall execute and deliver to the appropriate
Purchaser Entity, and the Purchaser shall cause the appropriate
Purchaser Entity to execute and deliver to the LLC, a Conveyance
Agreement substantially in the form of Exhibit A hereto with respect to
the GP Interest.
2.3.2 REGT shall execute and deliver to the appropriate
Purchaser Entity, and the Purchaser shall cause the appropriate
Purchaser Entity to execute and deliver to REGT, a
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Conveyance Agreement substantially in the form of Exhibit B hereto
with respect to the LP Interest.
2.3.3 Industries shall deliver to the appropriate Purchaser
Entity certificates representing the Shares, together with stock
powers executed in blank.
2.3.4 Each Purchaser Entity shall deliver its respective
portion of the Purchase Price to the appropriate Seller at Closing by
wire transfer in federal or other immediately available funds to an
account or accounts designated at least two business days prior to the
Closing Date by the Sellers.
2.4 Employment and Non-Competition Agreements. At the
Closing, (i) John H. Willome and Rayco shall execute and deliver an Employment
and Non-Competition Agreement in the form of Exhibit E-1, (ii) Jack E. Biegler
and Rayco shall execute and deliver an Employment and Non-Competition Agreement
in the form of Exhibit E-2, and (iii) Jack Robinson and Rayco shall execute and
deliver an Employment and Non-Competition Agreement in the form of Exhibit E-3.
2.5 Post-Closing Adjustments to Purchase Price. As soon as
practicable after the Closing, and in any event within 45 days following the
Closing Date, the Purchaser, at the Purchaser's cost and expense, shall cause
to be delivered to each of the Sellers a balance sheet of each of the Companies
as of the Closing Date, including the notes relating thereto, prepared in
accordance with generally accepted accounting principles (the "Closing Date
Balance Sheet") applied on a basis consistent with that used in preparation of
the Financial Statements, a statement of the Net Worth of the Companies as of
the Closing Date, and a certificate to the effect that such statement has been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with that used in the preparation of the Financial
Statements and the terms of this Agreement (the "Post-Closing Certificate").
Within 30 days following the delivery of such information, the Sellers shall
notify the Purchaser whether the Sellers agree or disagree with the
determination of the Net Worth of the Companies set forth in the Post-Closing
Certificate. If the Sellers disagree with such determination, the Closing Date
Balance Sheet shall be audited, and the Net Worth of the Companies as of the
Closing Date shall be determined by Ernst & Young or another independent public
accounting firm selected by mutual agreement of the Sellers and the
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Purchaser. The determination of the Net Worth of the Companies made by such
accounting firm shall be final and binding on the Purchaser and the Sellers and
the fees and expenses of such accounting firm shall be borne equally by the
Sellers and the Purchaser. If the Net Worth of the Companies as of the Closing
Date, as finally determined pursuant to this Section 2.5, is greater than $40
million, the Purchaser shall pay to the Sellers the amount of such excess, plus
interest thereon at the Agreed Rate from (and including) the Closing Date to
(but excluding) the date of such payment. If the Net Worth of the Companies as
of the Closing Date, as finally determined pursuant to this Section 2.5, is
less than $40 million, the Sellers shall pay to the Purchaser the amount of
such deficiency, plus interest thereon at the Agreed Rate from (and including)
the Closing Date to (but excluding) the date of such payment. The Purchase
Price plus the amount of such excess or less the amount of such deficiency (but
excluding the interest due on such excess or deficiency) shall be referred to
hereinafter as the "Adjusted Purchase Price." Any payment contemplated by this
Section 2.5 shall be made by wire transfer in federal or other immediately
available funds on or before the fifteenth day following the final
determination thereof.
2.6 Allocation of Purchase Price. The Adjusted Purchase
Price shall be allocated among the Securities as follows:
2.6.1 The consideration for the Satex Shares shall be an
amount of cash equal to the stockholder's equity of Satex as shown on
the Closing Date Balance Sheet.
2.6.2 The consideration for the THMC Shares shall be an
amount of cash equal to the stockholder's equity of THMC as shown on
the Closing Date Balance Sheet.
2.6.3 The consideration for the SATCO Shares shall be an
amount of cash equal to the stockholder's equity of SATCO as shown on
the Closing Date Balance Sheet.
2.6.4 The consideration for the GP Interest and the LP
Interest shall be all of the Adjusted Purchase Price less the
aggregate amount of cash consideration allocated to the Shares in
accordance with Sections 2.6.1, 2.6.2 and 2.6.3 above, and such
consideration shall be allocated among the GP Interest and the LP
Interest in accordance with the Partnership Agreement.
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ARTICLE 3.
Closing Date and Effective Time
The closing of the purchase and sale of the Securities
contemplated hereby (the "Closing") shall be held at the offices of Matthews &
Branscomb, 106 S. St. Mary's, Suite 800, San Antonio, Texas 78205, at 10:00
a.m., San Antonio, Texas time, on the later of (i) February 29, 1996, or (ii)
the date that is three business days after the waiting period (and any
extension thereof) under the HSR Act applicable to the transactions
contemplated herein shall have expired or been terminated, or at such other
place or time as the Purchaser and the Sellers may mutually agree. The date of
the Closing is referred to herein as the "Closing Date"; however, for purposes
of determining the anniversary date of the Closing Date, the Closing Date (if,
and only if, it is February 29, 1996) shall be deemed to be February 28, 1996.
ARTICLE 4.
Representations and Warranties
4.1 Representations and Warranties by Industries. Except as
otherwise disclosed in this Agreement or the Schedules attached hereto,
Industries hereby represents and warrants that:
4.1.1 Organization and Good Standing. Industries and each
of the Corporations is a corporation duly organized, validly existing
and in good standing under the laws of their respective jurisdictions
of incorporation, and each has all requisite corporate power and
authority to own and lease the properties and assets it currently owns
and leases and to carry on its business as such business is currently
conducted. The character of the properties and assets now owned or
leased by each Corporation and the nature of the business now
conducted by any Corporation does not require any Corporation to be
licensed or qualified to do business as a foreign corporation in any
jurisdiction. Industries heretofore has delivered or otherwise made
available to the Purchaser true, correct and complete copies of the
certificate of incorporation and by-laws, each as amended to the date
hereof, of each Corporation.
4.1.2 Corporate Authority; Authorization of Agreement.
Industries has all requisite corporate power and authority to execute
and deliver this Agreement and the various other
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agreements contemplated herein to which Industries is a party, to
consummate the transactions contemplated hereby and thereby and to
perform all the terms and conditions hereof and thereof to be
performed by it. The execution and delivery by Industries of this
Agreement and the various other agreements contemplated herein to
which Industries is a party, the performance by Industries of all the
terms and conditions hereof and thereof to be performed by it and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized and approved by all requisite corporate action on
the part of Industries. This Agreement constitutes, and the various
other agreements contemplated herein to which Industries is a party,
when executed and delivered, will constitute, the valid and binding
obligation of Industries enforceable against it in accordance with its
and their terms, except that the enforceability of this Agreement and
the various other agreements contemplated herein to which Industries
is a party is subject to applicable bankruptcy, insolvency or other
similar laws relating to or affecting the enforcement of creditors'
rights generally and to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at
law).
4.1.3 Capitalization. The authorized capital stock of
Satex consists solely of 100,000 shares of Satex Stock, of which
1,000 shares are issued and outstanding on the date hereof. The
authorized capital stock of THMC consists solely of 1,000,000 shares
of THMC Stock, of which 100,000 shares are issued and outstanding on
the date hereof. The authorized capital stock of SATCO consists
solely of 50,000 shares of SATCO Stock, of which 3,125 shares are
issued and outstanding on the date hereof. All such outstanding
shares of Satex Stock, THMC Stock and SATCO Stock are owned
beneficially and of record by Industries, free and clear of all
Encumbrances. Except as contemplated by this Agreement, there are no
outstanding subscriptions, options, convertible or exchangeable
securities, warrants, calls or other obligations of any kind issued or
granted by, or binding upon, Industries or any Corporation to purchase
or otherwise acquire any security of, equity interest in or other
ownership interest in any Corporation. The Shares have been duly
authorized and validly issued and are fully paid and nonassessable.
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Industries has full legal right to sell, assign and transfer the
Shares to the appropriate Purchaser Entity and will, upon delivery of
certificates representing the Shares to the appropriate Purchaser
Entity pursuant to the terms hereof, transfer to such Purchaser Entity
good and valid title to the Shares free and clear of any Encumbrances
created by or through Industries or any predecessor.
4.1.4 No Violation. Except as set forth in Schedule 4.1.4,
this Agreement and the execution and delivery hereof by Industries do
not, and the fulfillment and compliance with the terms and conditions
hereof and the consummation of the transactions contemplated hereby
will not:
(i) violate or conflict with any provision of the
certificate of incorporation or bylaws of Industries or any
Corporation;
(ii) violate or conflict with any provision of,
or, except with respect to the HSR Act, require any filing,
consent, authorization or approval under, any law or
administrative regulation (including, without limitation, any
Environmental Law) or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree
applicable to or binding upon Industries or any Corporation;
(iii) conflict with, result in a breach of,
constitute a default under (whether with notice or the lapse
of time or both), or accelerate or permit the acceleration of
the performance required by, or require any consent,
authorization or approval under (a) any mortgage, indenture,
loan or credit agreement or any other material agreement or
instrument to which Industries or any Corporation is a party
or by which Industries or any Corporation is bound or to which
any of their respective properties is subject or (b) any
material lease, license, contract or other agreement or
instrument to which Industries or any Corporation is a party
or by which any of them is bound or to which any of their
respective properties is subject; or
(iv) result in the creation or imposition of any
Encumbrance (other than a Permitted Encumbrance) upon any
material assets of any Corporation.
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4.1.5 No Default: Compliance with Laws and Regulations.
Except as set forth on Schedule 4.1.5 or as disclosed in the Financial
Statements:
(i) No Corporation is in default under, and no
condition exists that with notice or lapse of time or both
would constitute a default under, (a) any mortgage, loan
agreement, indenture, evidence of indebtedness or other
instrument evidencing borrowed money to which any Corporation
is a party or by which any Corporation or any of its
properties is bound, (b) any judgment, order or injunction of
any court, arbitrator or governmental agency or (c) any other
material agreement, contract, lease, license or other
instrument; and
(ii) No Corporation is in violation in any
material respect of any law, regulation, order, judgment or
decree of any federal or state court or governmental authority
(including, without limitation, any law, regulation, order,
judgment or decree relating to immigration, labor or
employment matters) or any Government Permit applicable to its
respective businesses and operations.
4.1.6 Financial Statements of the Corporations. Industries
(a) heretofore has delivered to the Purchaser copies of (i) the
audited balance sheets of THMC and SATCO as of December 31, 1994, and
the related audited statements of income and cash flows for the year
ended December 31, 1994, including the notes relating thereto,
certified by Ernst & Young, independent public accountants, (ii) the
unaudited balance sheet of SATEX as of December 31, 1994, and the
related unaudited statement of income and cash flows for the year
ended December 31, 1994, and (iii) the unaudited balance sheet of each
Corporation as of September 30, 1995, and the related unaudited
statements of income and cash flows for the 9-month period then ended
and (b) will deliver to the Purchaser copies of the Year-End Unaudited
Financial Statements of the Corporations and the Year-End Audited
Financial Statements of the Corporations. Such financial statements
fairly present or, with respect to those financial statements to be
delivered hereunder, will fairly present, in accordance with the basis
of accounting described in the notes to such
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financial statements, the financial position of each of the
Corporations, as the case may be, as of the date indicated and the
results of operations and changes in the financial position of each of
the Corporations, as the case may be, for the period then ended. All
such financial statements have been or, with respect to those
financial statements to be delivered hereunder, will be prepared in
accordance with generally accepted accounting principles consistently
applied.
4.1.7 Absence of Certain Changes. Except as disclosed to
the Purchaser in this Agreement, the Financial Statements, Schedule
4.1.7 or in any other schedule to this Agreement, since the Balance
Sheet Date there has not been:
(i) any material adverse change in the business,
financial condition, results of operations or prospects of the
Corporations taken as a whole;
(ii) any damage, destruction or loss incurred or
suffered by the Corporations, whether covered by insurance or
not, which has had, or would reasonably be expected to have, a
Material Adverse Effect on the Corporations;
(iii) any change by any Corporation in accounting
methods or principles, except for changes required as a result
of changes in generally accepted accounting principles;
(iv) any issuance by any Corporation of any shares
of capital stock, or any repurchase or redemption by any
Corporation of any shares of its capital stock;
(v) any sale, lease or other disposition or
relinquishment of, or execution and delivery by any
Corporation of any agreement or commitment contemplating the
sale, lease or other disposition or relinquishment of,
properties and assets of such Corporation other than (a) the
sale or other disposition or relinquishment by any Corporation
of mortgages, mortgage-backed securities and related
documents in the ordinary course of business and (b) the sale,
lease or other disposition or relinquishment of properties or
assets by any Corporation in the ordinary course of business
in an amount, individually or in the aggregate, not in excess
of $20,000;
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(vi) any merger or consolidation of any
Corporation with any other corporation, person or entity or
any acquisition by any Corporation of the stock or business of
another corporation, partnership or other entity, or any
action taken or any commitment entered into with respect to or
in contemplation of any liquidation, dissolution,
recapitalization, reorganization or other winding up of the
business or operation of any Corporation;
(vii) any borrowing, agreement to borrow funds or
assumption, endorsement or guarantee of indebtedness by any
Corporation or any termination or material amendment of any
evidence of indebtedness, contract, agreement, deed, mortgage,
lease, license or other instrument, commitment or agreement to
which any Corporation is bound or by which any of them or
their respective properties is bound other than such
borrowing, agreement to borrow, termination or amendment that
is in the ordinary course of business and is, individually or
in the aggregate, not in excess of $20,000;
(viii) any declaration or payment of any dividend
on, or any other distribution with respect to, the equity
securities of any Corporation (except for dividends or
distributions as provided for in Section 5.1.8 of this
Agreement);
(ix) any increase in the compensation payable or
to become payable by any Corporation to the directors,
officers or employees of any Corporation (other than (a) as
the Corporations may be contractually obligated or (b) as
may be made in the ordinary course of business and consistent
with past practices as a result of normal annual employee
performance reviews; provided, however, that any increase
for any employee as a result of normal annual employee
performance reviews shall not exceed 5% of the compensation
paid by the relevant Corporation to such employee in the
year immediately preceding such increase), or any increase
in benefits or benefit plan costs (other than costs outside
of the control of the applicable Corporation), or any increase
in any bonus, insurance, pension, compensation or other
benefit plan made for or with or covering any directors,
officers or employees of any Corporation;
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(x) except as agreed to in writing by the
Purchaser, any employment, deferred compensation, consulting,
severance, indemnification or similar agreement entered into
or made by any Corporation with any of its directors, officers
or employees, or grant of any severance or termination pay to
any director, officer or employee of any Corporation, or any
collective bargaining agreement or other obligation to any
labor organization or employee incurred or entered into by any
Corporation;
(xi) any distribution of Plan assets, other than
distributions relating to the payment of benefits pursuant to
any Plan, made for the purpose of reducing the amount by which
the value of the assets of any such Plan at the time of
distribution exceeds the present value of all accrued benefits
(whether or not forfeitable) under such Plan at the time of
distribution;
(xii) any mortgage, pledge or Encumbrance (other
than Permitted Encumbrances) on any of the assets, tangible or
intangible, of any Corporation;
(xiii) any making of any loan, advance or capital
contribution to or investment in any Person (other than a loan
or advance in an amount not in excess of $10,000);
(xiv) any labor dispute, other than routine
individual grievances, or any activity or proceeding by a
labor union or representative thereof to organize any
employees of any Corporation or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with
respect to any employees of any Corporation; or
(xv) any contract or commitment to do any of the
foregoing or to take any action that, if taken prior to the
date hereof, would have made any representation or warranty in
this Section 4.1 incorrect in any material respect.
4.1.8 Taxes. For purposes of this Agreement, "Taxes" means
(a) all federal, foreign, state or local net or gross income (whether
measured by or based on income), gross receipts, sales, use, ad
valorem, valued-added, franchise, asset, withholding, payroll,
employment, registration, conveyancing, excise, property (real or
personal) or similar taxes, assessments, duties,
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fees, levies or other governmental charges, together with any interest
thereon, any penalties, additions to tax or additional amounts with
respect thereto and any interest in respect of such penalties,
additions or additional amounts and/or (b) liability for the payment
of any consolidated or combined tax or any obligation to indemnify
another Person on account of Taxes, including any interest thereon,
any penalties, additions to tax or additional amounts with respect
thereto and any interest in respect of such penalties, additions or
additional amounts, of the type described in clause (a) of this
sentence. The income, assets and operations of the Corporations have
been correctly reflected in all material Tax returns for all required
Pre-Closing Tax Periods. The Corporations and Industries have (or
will have by the due date for such return) caused timely to be filed
with the appropriate federal, state, local and other governmental
authorities all material returns, information returns or statements,
and reports with respect to Taxes required to be filed on or before
the Closing by, or with respect to, the Corporations for any
Pre-Closing Tax Period and have (or will have by the Closing) caused
to be paid or deposited or made adequate provision (in accordance with
generally accepted accounting principles) for the payment of all Taxes
due. Except as provided on Schedule 4.1.8, (i) there is no material
Tax related claim, audit, action, suit, proceeding or investigation
now pending or threatened against, with respect to or that could
directly impact any of the Corporations, (ii) neither Industries nor
any of the Corporations is subject to any agreement or consent
pursuant to Section 341(f) of the Code, (iii) there are no material
liens for Taxes upon the assets of any Corporation except liens for
current Taxes not yet due, (iv) Industries is not subject to
withholding under Section 1445 of the Code with respect to the
transactions contemplated hereunder, (v) none of the Corporations has
been a member of a consolidated or combined group other than one in
which Industries or Ellison, Inc. was the common parent and (vi) none
of the Corporations is under any contractual obligation to pay the
Taxes of another Person.
4.1.9 Contracts, Agreements, Plans and Commitments.
Schedule 4.1.9 sets forth a complete list of the following contracts,
agreements, plans and commitments to which any Corporation is a party
or by which any of them or any of their material properties are bound
as of
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the date hereof:
(i) any contract, commitment or agreement which
involves aggregate expenditures by any Corporation of more
than $100,000 per year (other than contracts, commitments or
agreements listed pursuant to any other provisions of this
Section 4.1.9);
(ii) any indenture, trust, loan agreement, note or
other agreement under which any Corporation has outstanding
indebtedness, obligations or liabilities (in each case,
contingent or otherwise) for borrowed money;
(iii) any lease or sublease for the use or
occupancy of real property which involves aggregate
expenditures by any Corporation of more than $50,000 per year,
together with a list of the location of such leased property,
the date of termination of such arrangements, the name of the
other party and the annual rental payments required to be made
for such arrangements;
(iv) any contract or agreement with Industries or
any Affiliate of Industries or any director or officer of
Industries or any of its Affiliates or any "associates" or
members of the "immediate family" (as such terms are
respectively defined in Rule 12b-2 and Rule 16a-1 of the
Exchange Act) of any such director or officer;
(v) any agreement that restricts the right of any
Corporation to engage in any type of business;
(vi) any guaranty, direct or indirect, by
Industries or any Affiliate of Industries, of any contract,
lease or agreement entered into by any Corporation;
(vii) any partnership, joint venture or other
similar agreement or arrangement;
(viii) any license, franchise or similar agreement;
(ix) any agreement relating to the acquisition or
disposition of any business or assets of a business in excess
of $10,000 (whether by merger, sale of stock, sale of assets or
otherwise);
(x) any agreement of surety, guarantee or
indemnification; and
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(xi) any other agreement, commitment, arrangement
or plan not made in the ordinary course of business that is
material to the Corporations taken as a whole.
To the Knowledge of Industries, each of such
contracts and agreements is in full force and effect and, except as
set forth on Schedule 4.1.9 or in the Financial Statements, no party is
in default under or in breach of, and no event has occurred that with
notice or lapse of time or both would constitute a default or breach
of, the terms, conditions or provisions of such contracts and
agreements.
4.1.10 Litigation. Except as set forth in Schedule 4.1.10:
(i) To the Knowledge of Industries, there are no
actions, suits, investigations or proceedings pending or
threatened against or affecting any Corporation or any of
their respective properties seeking (a) damages or (b) any
other relief that would delay, prevent or hinder the
consummation of the transactions contemplated by this
Agreement;
(ii) To the Knowledge of Industries, there is not
any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality
or arbitrator outstanding or pending relating specifically to
any Corporation which is not generally applicable to other
companies in the mortgage loan origination, title insurance
agency or residential real estate brokerage industries; and
(iii) To the Knowledge of Industries, no Corporation
is charged with a violation of, or threatened with a charge of
a violation of, any provision of any material law or
regulation relating to any aspect of its business.
4.1.11 Insurance. Schedule 4.1.11 sets forth a list of all
material insurance policies (other than title insurance policies) of
each Corporation, by which each Corporation or any of their respective
properties or assets are covered against losses, all of which are now
in full force and effect. There is no claim by any Corporation
pending under any such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
in respect of which such underwriters have reserved their rights. All
premiums payable under all such
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policies and bonds have been paid timely and the Corporations have
otherwise complied fully with the terms and conditions of such
policies. Such policies are of the type and in amounts customarily
carried by Persons conducting businesses similar to those of the
Corporations. Industries does not have Knowledge of any threatened
termination of, premium increase with respect to, or material
alteration of coverage under, any of such policies. To the extent
that any such policy is owned or held by Industries or any Industries
Affiliate, it may be terminated after the Closing Date; provided,
however, that Industries agrees to (i) maintain such policies (or
policies of substantially the same nature) in full force and effect at
all times until the close of business on the Closing Date and (ii)
cooperate with the Purchaser in obtaining replacement insurance
policies at all times until the close of business on the Closing Date.
Neither SATCO nor any other Corporation is an insurer under any title
insurance policy.
4.1.12 Patents, Trademarks and Copyrights. Each Corporation
has the rights to use all material patents, trademarks, trade names,
service marks, trade secrets, copyrights and other proprietary
intellectual property rights necessary for the conduct of its
business. Except as set forth in Schedule 4.1.12, there is no
existing or, to the Knowledge of Industries, threatened infringement,
misuse or misappropriation by others of any such trademarks, trade
names, service marks, trade secrets, copyrights and other proprietary
intellectual property rights that is material to the Corporations
taken as a whole, there is no pending or threatened claim by any
Corporation against others for any such infringement, misuse or
misappropriation, and there is no pending proceeding involving any
claim, and no Corporation has Knowledge or has received any written
notice or claim, of any infringement, misuse or misappropriation by
any Corporation of any patent, trademark, trade name, service mark,
trade secret, copyright or other proprietary intellectual property
right owned by any third party.
4.1.13 Employee Benefit Matters. Schedule 4.1.13 sets forth
a list of all of the following (true and complete copies of which,
together with such other related documents as the Purchaser may
reasonably request, have been made available to the Purchaser):
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(i) (a) each "employee benefit plan", as such
term is defined in Section 3(3) of ERISA, which is covered by
Title I of ERISA, which is maintained, or otherwise
contributed to, by any Corporation or any Affiliate of any
Corporation for the benefit of the employees of any
Corporation (a "Plan"), and (b) if the Plan is funded through
a trust or any third party funding vehicle, a copy of the
trust or other funding agreement (including all amendments
thereto) and the latest financial statements thereof;
(ii) each management or employment contract or
contract for personal services between any Corporation or any
Affiliate of any Corporation and any officer, consultant,
director or employee of any Corporation that is not by its
terms terminable at will or on not more than 60 days' notice
without payment or penalty by any Corporation;
(iii) each other plan, contract or arrangement
providing for bonuses, pensions, deferred compensation,
retirement plan payments, profit sharing, incentive pay,
hospitalization or medical expense, insurance for any officer,
consultant, director, annuitant or employee of any Corporation
or members of their respective families (other than directors'
and officers' liability policies), whether or not insured;
(iv) each policy regarding severance, vacations
and sick time and each personnel manual; and
(v) each collective bargaining agreement or labor
contract or any other agreement to which any Corporation is a
party or which covers any employee of any Corporation.
Neither Industries, any Corporation, nor any
entity that, with any Corporation, would be treated as a single
employer under Section 414 of the Code maintains or contributes to, or
has within the past six years maintained or contributed to, any
employee benefit plan subject to Title IV of ERISA or Section 412 of
the Code, or any "multiemployer plan" as described in Section 3(37) of
ERISA. Each Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date. To the Knowledge
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of Industries, with respect to each Plan, such Plan and each Company
(i) is not in material violation of the requirements of the terms of
the Plan, ERISA, the Code or the Age Discrimination in Employment Act,
regulations issued thereunder, or other applicable law, and (ii) is
not in material violation of the reporting and disclosure requirements
of Title I of ERISA. To the Knowledge of Industries, there is no
circumstance that (i) has resulted in a material liability (whether or
not asserted as of the date hereof) of any Corporation arising under
or related to any other employee benefit plan (as defined in section
3(3) of ERISA), whether or not terminated prior to the date hereof,
which is not a Plan, or (ii) has resulted in a material adverse change
in the assets of any Plan (other than in connection with any
transaction contemplated by this Agreement) from those reflected on
the most recent annual report, actuarial valuation or financial
statements for such Plan furnished, or otherwise made available, to
the Purchaser, other than any such change that is necessary to comply
with applicable law. Except as agreed to in writing by the Purchaser,
there are no post-retirement medical or health plans in effect with
respect to employees of any Corporation, except as required by Section
4980B of the Code. Except as agreed to in writing by the Purchaser,
no employee of any Corporation will become entitled to any retirement,
severance or similar benefit or enhanced benefit solely as a result of
the transactions contemplated hereby.
4.1.14 Title to Assets. Except as set forth in Schedule
4.1.14, each Corporation has good and indefeasible title to all of its
real properties purported to be owned in fee, and good and
merchantable title to all of its other material properties and assets,
real and personal, reflected on the Financial Statements or purported
to have been acquired by it after the date thereof (except for assets
held under capitalized leases and properties and assets sold since the
date of the Financial Statements) (collectively, the "Corporation
Assets"), in each case free and clear of any Encumbrances other than
Permitted Encumbrances. To the Knowledge of Industries, there are no
events or developments affecting any such property or assets (whether
real or personal) pending or threatened, which might materially
detract from the value of such property or assets or materially
interfere with any present or intended use of any such property or
assets.
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4.1.15 Government Permits. Each Corporation has all
permits, licenses, consents and approvals ("Government Permits")
necessary under federal, state or local law to own, operate, use and
maintain its business in the manner in which it is now being
conducted, except for Government Permits the failure of which to be
obtained or given, individually and in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on
the Corporations. There are no proceedings pending, or to the
Knowledge of Industries threatened, that seek the revocation,
cancellation, suspension or modification of any material
Government Permit.
4.1.16 Environmental Compliance. Except as set forth in
Schedule 4.1.16, to the Knowledge of Industries, (a) neither any
Corporation nor any property owned or controlled by any Corporation is
subject to any existing, pending or threatened action, suit,
investigation, inquiry or proceeding by any governmental authority or
other third party under, or in violation of, or subject to any
remedial or other obligations under, any Environmental Law, (b) all
material notices, Government Permits, licenses or similar
authorizations, if any, required to be obtained or filed under any
Environmental Law in connection with the operations of the business of
each Corporation, including, without limitation, past or present
treatment, storage, disposal or release of a hazardous substance into
the environment, have been duly obtained or filed, (c) there has been
no release or disposal of any hazardous substances on the properties,
now or previously owned, leased or operated by any Corporation, or in
connection with the operation of the business of any Corporation
except in compliance with applicable Environmental Laws and in a
manner that would reasonably be expected not to result in any material
liability to any Corporation under any Environmental Law, (d) there
are not and have never been any underground storage tanks, radioactive
materials, or radon at any property now or previously owned or
operated by any Corporation, (e) all environmental assessments,
investigations, audits and similar documents relating to any property
now or previously owned or operated by any Corporation of which
Industries has Knowledge have been delivered to Purchaser prior to
Closing, (f) no property now or previously owned, leased or operated
by any Corporation is listed or proposed for listing, on the
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National Priorities List promulgated pursuant to CERCLA, on CERCLIS
(as defined in CERCLA) or on any similar federal, state or foreign
list of sites requiring investigation or clean-up.
4.1.17 Absence of Undisclosed Liabilities. Except as set
forth in Schedule 4.1.17 or in any other Schedule to this Agreement,
no Corporation has any outstanding liabilities (whether contingent or
otherwise) or indebtedness, current or long-term, other than
liabilities or indebtedness (i) reflected in the Financial Statements,
(ii) incurred since the date of such Financial Statements in the
ordinary course of business or (iii) that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect on the Corporations.
4.1.18 Books and Records. The books of account, minute
books, stock record books and other records of Industries and each
Corporation, all of which have been made available to the Purchaser,
are complete and correct in all material respects and have been
maintained in accordance with sound business practices.
4.1.19 Intercompany Accounts. Schedule 4.1.19 contains a
complete list of all intercompany balances as of the Balance Sheet
Date between Industries and its Affiliates, on the one hand, and any
Corporation on the other hand.
4.1.20 No Misstatements. None of the information set forth
in this Agreement (or in the Schedules attached hereto) with respect
to Industries or any of the Corporations contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
4.1.21 Subsidiaries. None of the Corporations have any
equity interest in any other Person.
4.1.22 Endangered Species. To the Knowledge of Industries,
there are no endangered species or protected natural habitat, flora or
fauna located on any of the Corporations' real property. To the
Knowledge of Industries, no portions of such real estate are
designated as wetlands. To the Knowledge of Industries, none of the
Corporations have received any notice
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(formal or informal) regarding any of the matters described in the two
preceding sentences.
4.1.23 Flood Plains. To the Knowledge of Industries, none
of the Corporations' real property is located within a 100-year flood
plain as designated by any United States Governmental Entity.
4.1.24 Seismic Safety Problems. To the Knowledge of
Industries, no seismic safety problems relating to any of the
Corporations' real property would prevent or impair residential
development thereon.
4.1.25 No Latent Defects; Product Warranties; Product
Liability. To the Knowledge of Industries, there are no warranty
claims exceeding $5,000 per individual house pending or settled in or
which resulted in home repurchases during the period from January 1,
1995 to the date of this Agreement against any of the Corporations,
nor is there any basis for any such claims. None of the products sold
by any of the Corporations is covered by any guaranty, warranty or
other indemnity.
4.1.26 Condemnation Proceedings. To the Knowledge of
Industries, none of the Corporations nor Sellers has received any
notice of any condemnation or eminent domain proceedings, or
negotiations for the purchase of any real property in lieu of
condemnation, and no condemnation or eminent domain proceedings or
negotiations have been commended or threatened in connection with any
of the foregoing.
4.1.27 Moratorium. To the Knowledge of Industries, there
are no moratoriums (including, but not limited to, utility
moratoriums) or other restrictions by governmental entities
responsible for issuing approvals or according other entitlements with
respect to any real property owned or controlled by the Corporations.
4.1.28 Employees. Except as set forth on Schedule 4.1.28,
to the Knowledge of Industries, none of the employees of any
Corporation has indicated to Industries or any Corporation that he or
she intends to resign or retire as a result of the transactions
contemplated by this Agreement or otherwise within thirty (30) days
after the Closing Date.
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4.2. Representations and Warranties by the LLC. Except as
otherwise disclosed in this Agreement or the Schedules attached hereto, the LLC
hereby represents and warrants that:
4.2.1 Organization and Good Standing. The LLC is a limited
liability company duly organized, validly existing and in good
standing under the laws of the State of Texas, and has all requisite
power and authority to own and lease the properties and assets it
currently owns and leases and to carry on its business as such
business is currently conducted. Rayco is a limited partnership duly
organized, validly existing and in good standing under the laws of the
State of Texas, and has all requisite partnership power and authority
to own and lease the properties and assets it currently owns and
leases and to carry on its business as such business is currently
conducted. The character of the properties and assets now owned or
leased by the LLC or Rayco and the nature of the business now
conducted by them do not require either of them to be licensed or
qualified to do business as a foreign corporation or limited
partnership in any jurisdiction. The LLC heretofore has delivered or
otherwise made available to the Purchaser true, correct and complete
copies of the certificate of organization and regulations or
equivalent governing instruments (including, without limitation, the
Partnership Agreement), each as amended to the date hereof, of the LLC
and Rayco.
4.2.2 Authority; Authorization of Agreement. The LLC has
all requisite power and authority to execute and deliver this
Agreement and the various other agreement contemplated herein to which
the LLC is a party, to consummate the transactions contemplated hereby
and thereby and to perform all the terms and conditions hereof and
thereof to be performed by it. The execution and delivery by the LLC
of this Agreement and the various other agreements contemplated herein
to which the LLC is a party by the LLC, the performance by the LLC of
all the terms and conditions hereof and thereof to be performed by it
and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by all requisite action
on the part of the LLC. This Agreement constitutes, and the various
other agreements contemplated herein to which the LLC is a party, when
executed and delivered, will
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constitute, the valid and binding obligation of the LLC enforceable
against it in accordance with its and their terms, except that the
enforceability of this Agreement and the various other agreements
contemplated herein to which the LLC is a party is subject to
applicable bankruptcy, insolvency or other similar laws relating to or
affecting the enforcement of creditors' rights generally and to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
4.2.3 Partnership Interests. The LLC is the sole general
partner of Rayco and REGT is the sole limited partner of Rayco. The
GP Interest and the LP Interest constitute all of the outstanding
ownership interests in Rayco. Except as set forth in Schedule 4.2.3,
and subject to the applicable terms of the Partnership Agreement, the
LLC owns the GP Interest and REGT owns the LP Interest free and clear
of all Encumbrances. Except as contemplated by this Agreement, there
are no outstanding subscriptions, options, convertible or exchangeable
securities, warrants, calls or other obligations of any kind issued or
granted by, or binding upon, the LLC or Rayco to purchase or otherwise
acquire any security of, equity interest in or other ownership
interest in Rayco. Subject to the applicable terms of the Partnership
Agreement, the LLC has full legal right to sell, assign and transfer
the GP Interest to the appropriate Purchaser Entity and will, upon
delivery of the Conveyance Agreement with respect to the GP Interest
to such Purchaser Entity pursuant to the terms hereof (assuming
satisfaction of the conditions set forth in Section 6.2.7 hereof),
transfer to the appropriate Purchaser Entity good and valid title to
the GP Interest free and clear of any Encumbrances created by or
through the LLC or any predecessor.
4.2.4 No Violation. Except as set forth in Schedule 4.2.4,
this Agreement and the execution and delivery hereof by the LLC do
not, and the fulfillment and compliance with the terms and conditions
hereof and the consummation of the transactions contemplated hereby
will not:
(i) violate or conflict with any provision of the
certificate of organization, regulations or equivalent
governing instruments (including, without limitation, the
Partnership Agreement) of the LLC or Rayco;
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(ii) violate or conflict with any provision of, or,
except with respect to the HSR Act, require any filing,
consent, authorization or approval under, any law or
administrative regulation (including, without limitation, any
Environmental Law) or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree
applicable to or binding upon the LLC or Rayco;
(iii) conflict with, result in a breach of,
constitute a default under (whether with notice or the lapse
of time or both), or accelerate or permit the acceleration of
the performance required by, or require any consent,
authorization or approval under (a) any mortgage, indenture,
loan or credit agreement or any other material agreement or
instrument to which the LLC or Rayco is a party or by which
the LLC or Rayco is bound or to which any of their respective
properties is subject or (b) any lease, license, contract or
other agreement or instrument to which the LLC or Rayco is a
party or by which any of them is bound or to which any of
their respective properties is subject; or
(iv) result in the creation or imposition of any
Encumbrance (other than a Permitted Encumbrance) upon any
material assets of the LLC or Rayco.
4.2.5 No Default; Compliance with Laws and Regulations.
Except as set forth on Schedule 4.2.5 or as disclosed in the Financial
Statements:
(i) Rayco is not in default under, and no condition
exists that with notice or lapse of time or both would
constitute a default under, (a) any mortgage, loan agreement,
indenture, evidence of indebtedness or other instrument
evidencing borrowed money to which Rayco is a party or by
which Rayco or any of its properties is bound, (b) any
judgment, order or injunction of any court, arbitrator or
governmental agency or (c) any other material agreement,
contract, lease, license or other instrument; and
(ii) Rayco is not in violation in any material
respect of any law, regulation, order, judgment or decree of
any federal or state court or governmental authority
(including, without limitation, any law, regulation, order,
judgment or decree relating to immigration,
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labor or employment matters) or any Government Permit
applicable to its businesses and operations, and in
particular, without limitation, Rayco is in compliance in all
material respects with all applicable building codes and
zoning requirements, any requirements to obtain a certificate
of occupancy and any other laws or regulations applicable
to the construction, sale and delivery of homes.
4.2.6 Rayco Financial Statements. The LLC (a) heretofore
has delivered to the Purchaser copies of (i) the audited balance sheet
of Rayco as of December 31, 1994, and the related audited statements
of operations, partners' equity and cash flows for the year ended
December 31, 1994, including the notes relating thereto, certified by
Ernst & Young, independent public accountants, and (ii) the unaudited
balance sheet of Rayco as of the Balance Sheet Date, and the related
unaudited statements of operations, partners' equity and cash flows
for the nine-month period then ended, and (b) will deliver to the
Purchaser copies of the Year-End Unaudited Financial Statements of
Rayco and copies of the Year-End Audited Financial Statements of
Rayco. Such financial statements fairly present or, with respect to
those financial statements to be delivered hereunder, will fairly
present, in accordance with the basis of accounting described in the
notes to such financial statements, the financial position of Rayco as
of the date indicated and the results of operations and changes in the
financial position of Rayco for the period then ended. All such
financial statements have been or, with respect to those financial
statements to be delivered hereunder, will be prepared in accordance
with generally accepted accounting principles consistently applied
(except to the extent set forth in the notes to such financial
statements).
4.2.7 Absence of Certain Changes. Except as disclosed to
the Purchaser in this Agreement, the Financial Statements, Schedule
4.2.7 or in any other schedule to this Agreement, since the Balance
Sheet Date there has not been:
(i) any material adverse change in the business,
financial condition, results of operations or prospects of
Rayco taken as a whole;
(ii) any damage, destruction or loss incurred or
suffered by Rayco, whether
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covered by insurance or not, which has had, or would
reasonably be expected to have, a Material Adverse Effect on
Rayco;
(iii) any change by Rayco in accounting methods or
principles, except for changes required as a result of changes
in generally accepted accounting principles;
(iv) any issuance by Rayco of any partnership or
ownership interests, or any repurchase or redemption by Rayco
of any partnership or ownership interests;
(v) any sale, lease or other disposition or
relinquishment of, or execution and delivery by Rayco of any
agreement or commitment contemplating the sale, lease or other
disposition or relinquishment of, properties and assets of
Rayco other than (a) the sale or other disposition of lots
improved with residences in the ordinary course of business
consistent with past practices, (b) the sale or other
disposition or relinquishment by Rayco of mortgages,
mortgage-backed securities and related documents in the
ordinary course of business and (c) the sale, lease or other
disposition or relinquishment of properties or assets by
Rayco in the ordinary course of business in an amount,
individually or in the aggregate, not in excess of $20,000;
(vi) any merger or consolidation of Rayco with any
other corporation, person or entity or any acquisition by
Rayco of the stock or business of another corporation,
partnership or other entity, or any action taken or any
commitment entered into with respect to or in contemplation
of any liquidation, dissolution, recapitalization,
reorganization or other winding up of the business or
operation of Rayco;
(vii) any borrowing, agreement to borrow funds or
assumption, endorsement or guarantee of indebtedness by Rayco
or any termination or material amendment of any evidence of
indebtedness, contract, agreement, deed, mortgage, lease,
license or other instrument, commitment or agreement to which
Rayco is bound or by which any of them or their respective
properties is bound other than such borrowing, agreement to
borrow, termination or amendment that is in the ordinary
course of business and is, individually or
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in the aggregate, not in excess of $20,000;
(viii) distribution with respect to the partnership
interests of Rayco (except for distributions as provided for
in Section 5.1.8 of this Agreement);
(ix) any increase in the compensation payable or to
become payable by Rayco to the directors, officers or
employees of Rayco (other than (a) as Rayco may be
contractually obligated or (b) as may be made in the ordinary
course of business and consistent with past practices as a
result of normal annual employee performance reviews,
provided, however, that any increase for any employee as a
result of normal annual employee performance reviews shall not
exceed 5% of the compensation paid by Rayco to such employee
in the year immediately preceding such increase), or any
increase in benefits or benefit plan costs (other than costs
outside of the control of Rayco), or any increase in any
bonus, insurance, pension, compensation or other benefit plan
made for or with or covering any directors, officers or
employees of Rayco;
(x) except as agreed to in writing by the Purchaser,
any employment, deferred compensation, consulting, severance,
indemnification or similar agreement entered into or made by
Rayco with any of its officers or employees, or grant of any
severance or termination pay to any of its officers or
employees, or any collective bargaining agreement or other
obligation to any labor organization or employee incurred or
entered into by Rayco;
(xi) any distribution of Plan assets, other than
distributions relating to the payment of benefits pursuant to
any Plan, made for the purpose of reducing the amount by which
the value of the assets of any such Plan at the time of
distribution exceeds the present value of the assets of any
such Plan at the time of distribution exceeds the present
value of all accrued benefits (whether or not forfeitable)
under such Plan at the time of distribution;
(xii) any mortgage, pledge or Encumbrance (other
than Permitted Encumbrances)
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on any of the assets, tangible or intangible, of Rayco;
(xiii) any making of any loan, advance or capital
contribution to or investment in any Person (other than a loan
or advance in an amount not in excess of $10,000);
(xiv) any labor dispute, other than routine
individual grievances, or any activity or proceeding by a
labor union or representative thereof to organize any
employees of Rayco or any lockouts, strikes, slowdowns, work
stoppages or threats thereof by or with respect to any
employees of Rayco; or
(xv) any contract or commitment to do any of the
foregoing or to take any action that, if taken prior to the
date hereof, would have made any representation or warranty in
this Section 4.2 incorrect in any material respect.
4.2.8 Taxes. Rayco has (or will have by the due date for
such return) caused timely to be filed with the appropriate federal,
state, local and other governmental authorities all material returns,
information returns or statements, and reports with respect to Taxes
required to be filed for any Pre-Closing Tax Period by or with respect
to Rayco. Rayco is and always has been taxed as a "partnership" for
U.S. federal income tax purposes. Except as provided on Schedule
4.2.8, (i) there is no material Tax related claim, audit, action,
suit, proceeding or investigation now pending or threatened against,
with respect to or that could directly impact Rayco, (ii) there are
no material liens for Taxes upon the assets of Rayco except liens for
current Taxes not yet due, (iii) none of Rayco, the LLC or REGT is
subject to withholding under Section 1445 of the Code with respect to
the transactions contemplated hereunder, and (iv) Rayco is not under
any contractual obligation to pay the Taxes of another Person.
4.2.9 Contracts, Agreements, Plans and Commitments.
Schedule 4.2.9 sets forth a complete list of the following contracts,
agreements, plans and commitments to which Rayco is a party or by
which Rayco or any of its material properties are bound as of the date
hereof:
(i) any contract, commitment or agreement which
involves aggregate expenditures by Rayco of more than $100,000
per year (other than contracts, commitments or
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agreements listed pursuant to any other provisions of this
Section 4.2.9);
(ii) any indenture, trust, loan agreement, note or
other agreement under which Rayco has outstanding
indebtedness, obligations or liabilities (in each case,
contingent or otherwise) for borrowed money in an amount in
excess of $100,000;
(iii) any lease or sublease for the use or occupancy
of real property which involves aggregate expenditures by
Rayco of more than $50,000 per year, together with a list of
the location of such leased property, the date of termination
of such arrangements, the name of the other party and the
annual rental payments required to be made for such
arrangements;
(iv) any contract or agreement with the LLC or any
Affiliate of the LLC or any director or officer of the LLC or
any of its Affiliates or any "associates" or members of the
immediate family" (as such terms are respectively defined in
Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such
director or officer;
(v) any agreement that restricts the right of
Rayco to engage in any type of business;
(vi) any guaranty, direct or indirect, of the LLC
or any Affiliate of the LLC of any contract, lease or
agreement entered into by Rayco; and
(vii) any partnership, joint venture or other
similar agreement or arrangement;
(viii) any license, franchise or similar agreement;
(ix) any agreement relating to the acquisition or
disposition of any business or assets of a business in excess
of $10,000 (whether by merger, sale of stock, sale of assets
or otherwise);
(x) any agreement of surety, guarantee or
indemnification; and
(xi) any other agreement, commitment, arrangement
or plan not made in the ordinary course of business that is
material to Rayco taken as a whole.
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To the Knowledge of the LLC, each of such contracts
and agreements is in full force and effect and,
except as set forth on Schedule 4.2.9 or in the
Financial Statements, no party is in default under
or in breach of, and no event has occurred that with
notice or lapse of time or both would constitute a
default or breach of, the terms, conditions or
provisions of such contracts and agreements, except
for such failures to be in full force and effect,
defaults or breaches that, individually or in the
aggregate, would not reasonably be expected to have
a Material Adverse Effect.
4.2.10 Litigation. Except as set forth in
Schedule 4.2.10:
(i) To the Knowledge of the LLC, there are no
actions, suits, investigations or proceedings pending or
threatened against or affecting Rayco or any of its respective
properties seeking (a) damages or (b) any other relief that
would delay, prevent or hinder the consummation of the
transactions contemplated by this Agreement;
(ii) To the Knowledge of the LLC, there is not any
judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality
or arbitrator outstanding or pending relating specifically to
Rayco which is not generally applicable to other companies in
the single-family homebuilding industry; and
(iii) To the Knowledge of the LLC, Rayco is not
charged with a violation of or threatened with a charge of a
violation of, any provision of any material law or regulation
relating to any aspect of its business.
11 Insurance. Schedule 4.2.11 sets forth a list of all
material insurance policies (other than title insurance policies) of
Rayco by which Rayco or any of its properties or assets are covered
against losses, all of which are now in full force and effect. There
is no claim by Rayco pending under any such policies as to which
coverage has been questioned, denied or disputed by the underwriters
of such policies or in respect of which such underwriters have
reserved their rights. All premiums payable under all such policies
and bonds have been paid timely and Rayco has otherwise complied fully
with the terms and conditions of such policies. Such policies are of
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the type and in amounts customarily carried by Persons conducting
businesses similar to those of Rayco. The LLC does not have Knowledge
of any threatened termination of, premium increase with respect to, or
material alteration of coverage under, any of such policies. To the
extent that any such policy is owned or held by the LLC or any LLC
Affiliate, it may be terminated after the Closing Date; provided,
however, that the LLC agrees to (i) maintain such policies (or
policies of substantially the same nature) in full force and effect at
all times until the close of business on the Closing Date and
(ii) cooperate with the Purchaser in obtaining replacement insurance
policies at all times until the close of business on the Closing Date.
4.2.12 Patents, Trademarks and Copyrights. Rayco has the
right to use all material patents, trademarks, trade names, service
marks, trade secrets, copyrights and other proprietary intellectual
property rights necessary for the conduct of its business.
Except as set forth in Schedule 4.2.12, there is no existing or, to
the Knowledge of the LLC, threatened infringement, misuse or
misappropriation by others of any such trademarks, trade names,
service marks, trade secrets, copyrights and other proprietary
intellectual property rights that is material to Rayco, there is no
pending or threatened claim by Rayco against others for any such
infringement, misuse or misappropriation, and there is no pending
proceeding involving any claim, and Rayco has no Knowledge of and has
not received any written notice or claim, of any infringement, misuse
or misappropriation by Rayco of any patent, trademark, trade name,
service mark, trade secret, copyright or other proprietary
intellectual property right owned by any third party.
4.2.13 Employee Benefit Matters. Schedule 4.2.13 sets forth
a list of all of the following (true and complete copies of which,
together with such other related documents as the Purchaser may
reasonably request, have been made available to the Purchaser):
(i) (a) each "employee benefit plan", as
such term is defined in Section 3(3) of ERISA, which is
covered by Title I of ERISA, which is maintained, or otherwise
contributed to, by Rayco or any Affiliate of Rayco for the
benefit of the employees of Rayco (a "Rayco Plan"), and (b) if
the Rayco Plan is funded through a trust or any third party
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funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial
statements thereof;
(ii) each management or employment contract or
contract for personal services between Rayco or any Affiliate
of Rayco and any officer, consultant, director or employee of
Rayco that is not by its terms terminable at will or on not
more than 60 days' notice without payment or penalty by Rayco;
(iii) each other plan, contract or arrangement
providing for bonuses, pensions, deferred compensation,
retirement plan payments, profit sharing, incentive pay,
hospitalization or medical expense, insurance for any officer,
consultant, director, annuitant or employee of Rayco or
members of their respective families (other than directors'
and officers' liability policies), whether or not insured;
(iv) each policy regarding severance, vacations
and sick time and each personnel manual; and
(v) each collective bargaining agreement or labor
contract or any other agreement to which Rayco is a party or
which covers any employee of Rayco.
Neither Rayco nor any entity that, with
Rayco, would be treated as a single employer under Section 414 of the
Code maintains or contributes to, or has within the past six years
maintained or contributed to, any employee benefit plan subject to
Title IV of ERISA or Section 412 of the Code, or any "multiemployer
plan" as described in Section 3(37) of ERISA. Each Rayco Plan which
is intended to be qualified under Section 401(a) of the Code is so
qualified and has been so qualified during the period from its
adoption to date. To the Knowledge of the LLC, with respect to each
Rayco Plan, each of such Plan and Rayco (i) is not in material
violation of the requirements of the terms of such Plan, ERISA, the
Code or the Age Discrimination in Employment Act, regulations issued
thereunder or other applicable law, and (ii) is not in material
violation of the reporting and disclosure requirements of Title I of
ERISA. To the Knowledge of the LLC, there is no circumstance that
(i) has resulted in a material liability (whether or not asserted as
of the date
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hereof) of Rayco arising under or related to any other employee
benefit plan (as defined in section 3(3) of ERISA), whether or not
terminated prior to the date hereof, which is not a Rayco Plan, or
(ii) has resulted in a material adverse change in the assets of any
Rayco Plan (other than in connection with any transaction contemplated
by this Agreement) from those reflected on the most recent annual
report, actuarial valuation or financial statements for such Rayco
Plan furnished, or otherwise made available, to the Purchaser, other
than any such change that is necessary to comply with applicable law.
Except as agreed to in writing by the Purchaser, there are no
post-retirement medical or health plans in effect with respect to
employees of Rayco, except as required by Section 4980B of the Code.
Except as greed to in writing by the Purchaser, no employee of Rayco
will become entitled to any retirement, severance or similar benefit
or enhanced benefit solely as a result of the transactions
contemplated hereby.
4.2.14 Title to Assets. Except as set forth in Schedule
4.2.14, Rayco has good and indefeasible title to all of its real
properties purported to be owned in fee, and good and merchantable
title to all of its other material properties and assets, real and
personal, reflected on the Financial Statements or purported to have
been acquired by it after the date thereof (except for assets held
under capitalized leases and properties and assets sold since the date
of the Financial Statements) (collectively, the "Rayco Assets"), in
each case free and clear of any Encumbrances other than Permitted
Encumbrances. To the Knowledge of the LLC, there are no events or
developments affecting any such property or assets (whether real or
personal) pending or threatened, which might materially detract from
the value of such property or assets or materially interfere with any
present or intended use of any such property or assets.
4.2.15 Government Permits. Rayco has all Government Permits
necessary under federal, state or local law to construct, own,
operate, use and maintain its home construction business in the manner
in which it is now being conducted, except for Government Permits the
failure of which to be obtained or given, individually and in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect. There are no proceedings pending, or to the Knowledge of the
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LLC threatened, that seek the revocation, cancellation, suspension or
modification of any material Government Permit.
4.2.16 Environmental Compliance. Except as set forth in
Schedule 4.2.16, to the Knowledge of the LLC, (a) neither Rayco nor
any property owned or controlled by Rayco is subject to any existing,
pending or threatened action, suit, investigation, inquiry or
proceeding by any governmental authority or other third party under,
or in violation of, or subject to any remedial or other obligations
under, any Environmental Law, (b) all material notices, Government
ermits, licenses or similar authorizations, if any, required to be
obtained or filed under any Environmental Law in connection with the
operations of the business of Rayco, including, without limitation,
past or present treatment, storage, disposal or release of a hazardous
substance into the environment, have been duly obtained or filed, (c)
there has been no release or disposal of hazardous substances on the
properties, now or previously owned, leased or operated by Rayco, or
in connection with the operation of the business of Rayco except in
compliance with applicable Environmental Laws and in a manner that
would reasonably be expected not to result in any material liability
to Rayco under any Environmental Law, (d) there are not and have never
been any underground storage tanks, radioactive materials, or radon at
any property now or previously owned or operated by Rayco, (e) all
environmental assessments, investigations, audits and similar
documents relating to any property now or previously owned or operated
by Rayco of which the LLC has Knowledge have been delivered to
Purchaser prior to Closing, (f) no property now or previously owned,
leased or operated by Rayco is listed or proposed for listing, on the
National Priorities List promulgated pursuant to CERCLA, on CERCLIS
(as defined in CERCLA) or on any similar federal, state or foreign
list of sites requiring investigation or clean-up.
4.2.17 Absence of Undisclosed Liabilities. Except as set
forth in Schedule 4.2.17 or in any other Schedule to this Agreement,
Rayco has no outstanding liabilities (whether contingent or otherwise)
or indebtedness, current or long-term, other than liabilities or
indebtedness (i) reflected in the Financial Statements, (ii) incurred
since the date of such Financial Statements in the ordinary
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course of business or (iii) that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Rayco.
4.2.18 Books and Records. The books of account and other
records of the LLC and Rayco, all of which have been made available to
the Purchaser, are complete and correct in all material respects and
have been maintained in accordance with sound business practices.
4.2.19 Intercompany Accounts. Schedule 4.2.19 contains a
complete list of all intercompany balances as of the Balance Sheet Date
between the Sellers and their Affiliates, on the one hand, and Rayco
on the other hand.
4.2.20 No Misstatements. None of the information set
forth in this Agreement (or in the Schedules attached hereto) with
respect to Rayco contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances in which
they were made, not misleading.
4.2.21 Subsidiaries. Rayco does not have any equity
interest in any other Person.
4.2.22 Endangered Species. To the Knowledge of the LLC,
there are no endangered species or protected natural habitat, flora or
fauna located on any of Rayco's real property. To the Knowledge of
the LLC, no portions of such real estate are designated as wetlands.
To the Knowledge of the LLC, Rayco has not received any notice (formal
or informal) regarding any of the matters described in the two
preceding sentences.
4.2.23 Flood Plains. Except as shown on Schedule
4.2.23, to the Knowledge of the LLC, none of Rayco's real property is
located within a 100-year flood plain as designated by any United
States Governmental Entity.
4.2.24 Seismic Safety Problems. To the Knowledge of the
LLC, no seismic safety problems relating to any of Rayco's real
property would prevent or impair residential development thereon.
4.2.25 No Latent Defects; Product Warranties; Product
Liability. Except as set forth in Schedule 4.2.25, to the Knowledge
of the LLC, there are no warranty claims exceeding $5,000 per
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individual house pending or settled in or which resulted in home
repurchases during the period from January 1, 1995 to the date of this
Agreement against Rayco, nor is there any basis for any such claims.
None of the products sold by Rayco is covered by any guaranty,
warranty or other indemnity other than the applicable standard terms
of sale or lease for Rayco, copies of which are included in Schedule
4.2.25.
4.2.26 Condemnation Proceedings. Except as shown on
Schedule 4.2.26, to the Knowledge of the LLC, neither Rayco nor any of
the Sellers has received any notice of any material condemnation or
eminent domain proceedings, or negotiations for the purchase of any
real property in lieu of condemnation, and no material condemnation or
eminent domain proceedings or negotiations have been commended or
threatened in connection with any of the foregoing.
4.2.27 Moratorium. To the Knowledge of the LLC, there are
no moratoriums (including, but not limited to, utility moratoriums) or
other restrictions by governmental entities responsible for issuing
approvals or according other entitlements with respect to any real
property owned or controlled by Rayco, except for restrictions which
in the past have been encountered by Rayco in the ordinary course of
business.
4.2.28 Employees. Except as set forth on Schedule 4.2.28,
to the Knowledge of the LLC, none of the employees of Rayco has
indicated to the LLC or Rayco that he or she intends to resign or
retire as a result of the transactions contemplated by this Agreement
or otherwise within thirty (30) days after the Closing Date.
4.3 Representations and Warranties by REGT. Except as
otherwise disclosed in this Agreement or in the Schedules attached
hereto, REGT hereby represents and warrants that:
4.3.1 Organization and Existence. REGT is a trust
organized and existing under the terms of a Trust Agreement dated
March 9, 1982 (the "Trust Agreement"), and has all requisite power and
authority to own the properties and assets it currently owns and to
carry on the business it currently conducts. REGT heretofore has
delivered or otherwise made available to the Purchaser true, correct
and complete copies of the governing instruments (including, without
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limitation, the Trust Agreement), each as amended to the date hereof,
of REGT.
4.3.2 Authority and Approval. REGT has all
requisite power and authority to execute and deliver this Agreement
and the various other agreements contemplated herein to which REGT is
a party, to consummate the transactions contemplated hereby and
thereby and to perform all the terms and conditions hereof and
thereof to be performed by it. The execution and delivery by
REGT of this Agreement and the various other agreements
contemplated herein to which REGT is a party, the performance
by REGT of all the terms and conditions hereof and thereof to
be performed by it and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and
approved by all requisite actions on the part of REGT. This
Agreement constitutes the various other agreements
contemplated herein to which REGT is a party, when executed
and delivered by REGT, will constitute, the valid and binding
obligation of REGT enforceable against it in accordance with
its terms, except that the enforceability of this Agreement
and the various other agreements contemplated herein to which
REGT is a party is subject to applicable bankruptcy,
insolvency or other similar laws relating to or affecting the
enforcement of creditors' rights generally and to general
principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
4.3.3 Partnership Interest. REGT is the sole
limited partner of Rayco. Except as set forth in Schedule 4.3.3, and
subject to the applicable terms of the Partnership Agreement, REGT
owns the LP Interest free and clear of all Encumbrances. Except as
contemplated by this Agreement, there are no outstanding
subscriptions, options, convertible or exchangeable securities,
warrants, calls or other obligations of any kind issued or granted by,
or binding upon, REGT to purchase or otherwise acquire any security
of, equity interest in or other ownership interest in Rayco. Subject
to the applicable terms of the Partnership Agreement, REGT has full
legal right to sell, assign and transfer the LP Interest to the
appropriate Purchaser Entity and will, upon delivery of the
Conveyance Agreement with respect to the LP Interest to the
appropriate Purchaser Entity pursuant to the terms hereof (assuming
satisfaction of the conditions set forth in Section
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6.2.7 hereof), transfer to such Purchaser Entity good and valid title
to the LP Interest free and clear of any Encumbrances created
by or through REGT or any predecessor.
4.3.4 No Violation. Except as set forth in Schedule 4.3.4,
this Agreement and the execution and delivery hereof by REGT do not,
and the fulfillment and compliance with the terms and conditions
hereof and the consummation of the transactions contemplated hereby
will not:
(i) violate or conflict with any provision of the
Trust Agreement or the Partnership Agreement;
(ii) violate or conflict with any provision of,
or, except with respect to the HSR Act, require any filing,
consent, authorization or approval under, any law or
administrative regulation (including, without limitation, any
Environmental Law) or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree
applicable to or binding upon REGT;
(iii) conflict with, result in a breach of,
constitute a default under (whether with notice or the lapse
of time or both), or accelerate or permit the acceleration of
the performance required by, or require any consent,
authorization or approval under (a) any mortgage, indenture,
loan or credit agreement or any material agreement to which
REGT or Rayco is a party or by which REGT or Rayco is bound or
to which any of REGT's or Rayco's properties are subject or
(b) any lease, license, contract or other agreement or
instrument to which Rayco is a party or by which Rayco is
bound or to which any of its properties is subject; or
(iv) result in the creation or imposition of any
Encumbrance (other than a Permitted Encumbrance) upon any
material assets of Rayco.
4.3.5 Books and Records. The books of account, minutes
books and other records of REGT, all of which have been made available
to the Purchaser, are complete and correct in all material respects
and have been maintained in accordance with sound business practices.
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4.4. Representations and Warranties by the Purchaser.
Except as otherwise disclosed in this Agreement or in the Schedules attached
hereto, the Purchaser hereby represents and warrants that:
4.4.1 Organization and Existence. Each Purchaser Entity is
a corporation duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation, and
each has all requisite corporate power and authority to own and lease
the properties and assets it currently owns and leases and to carry on
its business as such business is currently conducted. Each Purchaser
Entity (other than the Purchaser) is a wholly owned subsidiary of the
Purchaser.
4.4.2 Authority and Approval. Upon the due authorization
and approval by the Boards of Directors of each Purchaser Entity of
(a) the execution and delivery by each Purchaser Entity of this
Agreement and the various other agreements contemplated herein to
which each Purchaser Entity is a party, (ii) the performance by each
Purchaser Entity of all the terms and conditions hereof and thereof to
be performed by it, and (iii) the consummation of the transactions
contemplated hereby and thereby, (a) each Purchaser Entity will have
all requisite corporate power and authority to execute and deliver
this Agreement and the various other agreements contemplated herein to
which each Purchaser Entity is a party, to consummate the transactions
contemplated hereby and thereby and to perform all the terms and
conditions hereof and thereof to be performed by it, (b) the execution
and delivery by each Purchaser Entity of this Agreement and the
various other agreements contemplated herein to which each Purchaser
Entity is a party, the performance by it of all the terms and
conditions hereof and thereof to be performed by it and the
consummation of the transactions contemplated hereby and thereby will
be duly authorized and approved by all requisite corporate action on
the part of each Purchaser Entity; and (c) this Agreement will
constitute, and the various other agreements contemplated herein to
which each Purchaser Entity is a party will, when executed and
delivered, constitute,the valid and binding obligation of each
Purchaser Entity enforceable against it in accordance with its terms,
except that the enforceability of this Agreement and the various other
agreements contemplated herein to
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which each Purchaser Entity is a party is subject to applicable
bankruptcy, insolvency or other similar laws relating to or affecting
the enforcement of creditors' rights generally and to general
principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law).
4.4.3 No Violation. Except as set forth on Schedule 4.4.3,
upon the due authorization and approval by the Boards of Directors of
the Purchaser Entities of (i) the execution and delivery by the
Purchaser Entities of this Agreement and the various other agreements
herein to which the Purchaser Entities are a party, (ii) the
performance by the Purchaser Entities of all the terms and conditions
hereof and thereof to be performed by them, and (iii) the consummation
of the transactions contemplated hereby and thereby, this Agreement
and the execution and delivery hereof by the Purchaser Entities do
not, and the fulfillment and compliance with the terms and conditions
hereof and the consummation of the transactions contemplated hereby
will not:
(i) violate or conflict with any provision of the
certificate of incorporation or bylaws of any Purchaser Entity;
(ii) violate or conflict with any provision of,
or, except with respect to the HSR Act, require any filing,
consent, authorization or approval under, any law or
administrative regulation (including, without limitation, any
Environmental Law) or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree
applicable to or binding upon any Purchaser Entity; or
(iii) conflict with, result in a breach of,
constitute a default under (whether with notice or
the lapse of time or both), or accelerate or permit
the acceleration of the performance required by, or
require any consent, authorization or approval under
(a) any ortgage, indenture, loan or credit agreement
or any other material agreement or instrument to
which any Purchaser Entity is a party or by which any
Purchaser Entity is bound or to which any of their
respective properties is subject or (b) any material
lease, license, contract or other agreement or
instrument to which any Purchaser Entity is a party
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or by which any of them is bound or to which any of their
respective properties is subject.
4.4.4 Funds Available. Each Purchaser Entity has, or
will have prior to the Closing Date, sufficient cash, available lines
of credit or other sources of immediately available funds to enable
it to make payment of its respective portion of the Purchase Price.
4.4.5 Litigation. There are no actions, suits or
proceedings pending or, to the Knowledge of the Purchaser, threatened
against the Purchaser or any of its Subsidiaries that would delay,
prevent or hinder the consummation of the transactions contemplated by
this Agreement.
4.4.6 Investment. The Purchaser (i) understands that the
Securities have not been, and will not be, registered under the
Securities Act of 1933, as amended, or under any state securities
laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving a public offering,
(ii) is acquiring the Securities solely for its own account and for
investment purposes, and not with a view to the distribution thereof,
(iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has had the opportunity to obtain
such information concerning the Companies as it desired in order to
evaluate the risks of purchasing and owning the Securities, and (v) is
able to bear the economic risk and lack of liquidity inherent in
owning and holding the Securities.
ARTICLE 5.
Additional Agreements and Covenants
5.1. Covenants of the Sellers. Industries, the LLC and REGT,
respectively, covenant and agree with the Purchaser as follows:
5.1.1 Certain Changes. Except as expressly may be
permitted hereunder, contemplated hereby or set forth in the Schedules
hereto, from the date hereof until the Closing Date, without first
obtaining the written consent of the Purchaser (which consent shall
not be unreasonably withheld), Industries covenants that no
Corporation will and the LLC covenants that Rayco will not and will
not agree or commit to:
(i) make any material change in the conduct of
its business or operations;
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(ii) terminate or amend in any material respect
any contract, agreement or plan required to be disclosed
pursuant to Section 4.1.9, 4.1.13, 4.2.9 or 4.2.13 except both
in the ordinary course of business and consistent with past
practices or waive, release, grant or transfer any material
rights of value thereunder;
(iii) declare, set aside or pay any dividends, or
make any distributions, in respect of, or issue any of, its
equity securities, ownership interests or securities
convertible into its equity securities or ownership interests
(except for dividends or distributions paid as provided for in
Section 5.1.8 of this Agreement), or repurchase, redeem or
otherwise acquire any such securities or make or propose to
make any other change in its capitalization;
(iv) merge into or with or consolidate with any
other Person or acquire all or substantially all of the
business or assets of any other Person;
(v) make any change in its certificate of
incorporation, certificate of organization, regulations, or
bylaws or equivalent governing instruments (including, without
limitation, the Partnership Agreement);
(vi) purchase any securities of or make any
investments in any other Person;
(vii) other than pursuant to the requirements of
existing contracts or commitments, sell, lease or otherwise
dispose of any of their assets or properties (except assets
and properties sold, leased or otherwise disposed of both in
the ordinary course of business and consistent with past
practices, including, but not limited to, the sale of
residential properties and mortgage loans);
(viii) create, incur, assume or guarantee any
long-term debt or capitalized lease obligation or, except as
may be required under existing creditor or other financing
agreements and as may be made in the ordinary course of
business consistent with past practices, create, incur, assume
or guarantee any material short-term debt;
(ix) except as agreed to in writing by the
Purchaser, enter into any
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employment, deferred compensation, consulting, severance,
indemnification agreement or similar agreement, pay any
bonuses to directors, officers or employees other than those
already accrued in the Financial Statements and made in the
ordinary course of business consistent with past practices,
increase the compensation of any of its employees other than
as Rayco may be contractually obligated by such agreements or
as may be made in the ordinary course of business consistent
with past practices and as a result of the normal annual
employee performance reviews (provided, however, that any
increase for any employee as a result of normal annual
employee performance reviews shall not exceed 5% of the
compensation paid by the relevant Corporation to such employee
in the year immediately preceding such increase), or execute
any collective bargaining agreement or otherwise incur any
obligation to any labor organization or employee;
(x) mortgage, pledge or subject to any other
Encumbrance (except Permitted Encumbrances and Encumbrances
required under existing credit or other financing agreements)
any of its assets, tangible or intangible;
(xi) take any action or enter into any commitment
with respect to or in contemplation of any
liquidation, dissolution, recapitalization,
reorganization or other winding up of its
business or operation;
(xii) enter into any contracts or leases or make
any further additions to its property not in the ordinary
course of business and consistent with past practices;
(xiii) enter into any material settlement (which is
hereby deemed not to include settlements involving the
expenditure of less than $50,000 in any one event) of any
pending or threatened litigation;
(xiv) make or change any material tax election,
change a tax period or method of accounting, file an amended
return, settle any material tax claim or extend any period of
limitations; or
(xv) commit itself to do any of the foregoing;
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provided, however, that the parties acknowledge that this Section
5.1.1 shall not restrict Rayco from making acquisitions of undeveloped
or platted individual lots consistent with prior practice or tracts of
land as provided for in Section 5.4 below. Industries, the LLC and
REGT will not and will not permit any Company to (a) take or agree or
commit to take any action that would make any representation and
warranty hereunder inaccurate in any respect at, or as of any time
prior to, the Closing Date or (b) omit or agree to commit to omit to
take any action necessary to prevent any such representation or
warranty from being inaccurate in any respect at any such time.
5.1.2 Operation of Business. From the date hereof until
the Closing Date, except as permitted hereunder or contemplated hereby
or as consented to in writing by the Purchaser (which consent shall
not be unreasonably withheld), Industries covenants that it shall
cause each Corporation to and the LLC covenants that it shall cause
Rayco to (i) carry on their respective business in the usual and
ordinary course and (ii) use their Best Efforts to preserve and
maintain their respective business organization, employees and
advantageous business relationships, with the end that its goodwill
and going business shall be unimpaired at the Closing Date.
5.1.3 Access. Industries shall cause each Corporation and
the LLC shall cause Rayco to (i) afford to the Purchaser and its legal
counsel, accountants and other authorized representatives, at the
Purchaser's sole expense, risk and cost, reasonable access from the
date hereof until the Closing Date, during normal business hours, to
their respective personnel, properties, books and records (including,
without limitation, copies of title insurance policies, purchase
contracts, warranty records, insurance claims files and litigation
files), and (ii) furnish to the Purchaser such additional financial
and operating data and other information as it may reasonably request
to the extent that such access and disclosure would not violate the
terms of any agreement to which Industries, the LLC, Rayco or any
Corporation is bound or any applicable law or regulation; provided,
however, that the confidentiality of any data or information so
acquired by the Purchaser shall be maintained by the Purchaser and its
representatives in accordance with Section 5.2.6.
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5.1.4 Antitrust Notification. The Sellers shall as
promptly as practicable file with the Federal Trade Commission and the
Department of Justice the notification and report form required for
the transactions contemplated hereby and any supplemental information
which may be reasonably requested in connection therewith pursuant to
the HSR Act.
5.1.5 Best Efforts. The Sellers shall use their
respective Best Efforts to obtain the satisfaction of the conditions
to Closing set forth in Section 6.1 hereof.
5.1.6 Confidentiality. After the Closing Date, the
Sellers shall not, directly or indirectly, disclose or provide to any
other person any non-public information of a confidential nature
concerning the business or operations of any Company, except as is
required in governmental filings or judicial, administrative or
arbitration proceedings.
5.1.7 Public Announcements. At all times until the
Closing Date, the Sellers shall promptly advise, and obtain the
approval of (which approval shall not be unreasonably withheld), the
Purchaser before issuing, or permitting any of the Sellers' directors,
officers, employees, trustees or agents to issue, any press release
or other public statement with respect to this Agreement or the
transactions contemplated hereby.
5.1.8 Dividends. Prior to the Closing Date, the Sellers
shall cause the Companies to pay or make cash dividends or
distributions in accordance with applicable legal requirements so that
on the Closing Date the Net Worth of the Companies shall be as close
as reasonably possible to $40 million. It is understood and agreed to
by the Purchaser that (i) the source of the cash funds to be
distributed as dividends by the Sellers will be funds drawn down under
Rayco's loan agreement with Guaranty Federal, (ii) the Sellers'
compliance with this Section 5.1.8 may violate the Companies' minimum
net worth covenants contained in their existing credit or financing
agreements, and (iii) prior to Closing, the Purchaser in cooperation
with the Sellers shall use its best efforts to take the action
necessary to satisfy the condition to Closing set forth in Section
6.2.7.
5.1.9 Intercompany Accounts. All intercompany balances
between the Sellers and their
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Affiliates on the one hand and the Companies on the other hand will be
reduced to zero prior to the Closing Date.
5.1.10 Notices of Certain Events. Prior to the Closing
Date, the Sellers shall promptly notify the Purchaser of: (a) any
notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; (b) any notice or other
communication from any governmental or regulatory agency or authority
in connection with the transactions contemplated by this Agreement;
and (c) any actions, suits, claims, investigations or proceedings
commenced or, to its Knowledge threatened against, relating to or
involving or otherwise affecting Industries, LLC, REGT or any Company
that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Sections 4.1.10 and 4.2.10
above or that relate to the consummation of the transactions
contemplated by this Agreement.
5.1.11 Resignations. At or prior to the Closing Date,
the Sellers will deliver to the Purchaser the resignations of all
directors of any Corporation.
5.1.12 Year-End Financial Statements. At least five
calendar days prior to the end of the Due Diligence Period, the
Sellers will deliver to the Purchaser copies of (i) the unaudited
balance sheets of each of the Corporations as of December 31, 1995,
and the related unaudited statements of income and cash flow for the
year ended December 31, 1995, including the notes relating thereto,
and (ii) the unaudited balance sheet of Rayco as of December 31, 1995,
and the related unaudited statements of operations, partners' equity
and cash flows for the year ended December 31, 1995, including the
notes related thereto (collectively, the "Year-End Unaudited Financial
Statements"). On or before February 20, 1996, the Sellers will
deliver to the Purchaser copies of (i) the audited balance sheets of
each of the Corporations as of December 31, 1995, and the related
audited statements of income and cash flows for the year ended
December 31, 1995, including the notes relating thereto, certified by
Ernst & Young, independent public accountants, and (ii) the audited
balance sheet of Rayco as of December 31, 1995, and the related
audited
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statements of operations, partners' equity and cash flows for the year
ended December 31, 1995, including the notes related thereto,
certified by Ernst & Young, independent public accountants
(collectively, the "Year-End Audited Financial Statements").
5.1.13 Negotiations. From the date hereof until the earlier
of the termination of this Agreement or the Closing Date, none of the
Sellers, nor any representative, director, officer, agent or advisor
of any of the Sellers shall, in any way, encourage, solicit, negotiate
or propose to enter into or continue any negotiations, or enter into
any agreement or understandings with any party which provides for or
relates to (i) the disposition of the Securities, (ii) the sale of all
or any material assets or any substantial portion of the assets of the
Companies or Rayco, or (iii) any business combination or merger of any
of the Companies with or into any other party. The Sellers shall
promptly inform the Purchaser of the receipt of any proposals (but not
any of the terms of such proposals contained therein other than
whether the proposed purchase price is the same as or higher or lower
than the Purchase Price) which are received by any of the Sellers and
relate to any transaction or proposed transaction of the type
described in the preceding sentence.
5.1.14 Fairness Opinion. From the date hereof until (and
including) January 31, 1996, the REGT shall exercise best efforts to
obtain during such period a written opinion from Dillon Read & Co.,
Inc. that the consideration to be received by the Sellers in the
transactions contemplated by this Agreement is within a range of
fairness from a financial point of view; however, it is agreed and
understood by the Purchaser that the REGT can not guarantee, and does
not represent, warrant or covenant, that it will be able to obtain
such written opinion or that it will be able to obtain such written
opinion within such time period.
5.1.15 Right to Match. If prior to the first anniversary of
the date of termination of this Agreement by the Sellers pursuant to
Section 9.1.9, any of the Sellers receive a bona fide offer from any
Person to purchase a majority of the partnership interests in or
assets of Rayco which the Sellers wish to accept (or if any of the
Sellers have made an offer to any Person to sell a majority of the
partnership interests in or assets of Rayco, which such Person wishes
to accept),
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then, prior to the acceptance of any such offer, the Sellers shall (a)
promptly notify the Purchaser of that offer (including the terms of
that offer) and (b) for a period of 30 days commencing on the date on
which the Purchaser is notified of that offer, offer to sell such
partnership interests or assets solely to the Purchaser on the same
terms on which the Sellers propose to sell such partnership interests
or assets to that Person.
5.2. Covenants of the Purchaser. The Purchaser covenants
and agrees with the Sellers as follows:
5.2.1 Antitrust Notification. The Purchaser shall as
promptly as practicable file with the Federal Trade Commission and the
Department of Justice the notification and report form required for
the transactions contemplated hereby and any supplemental information
which may be reasonably requested in connection therewith pursuant to
the HSR Act.
5.2.2 Best Efforts. The Purchaser shall use its Best
Efforts to obtain the satisfaction of the conditions to Closing set
forth in Section 6.2.
5.2.3 Notification. Promptly after obtaining Knowledge,
but in any event prior to the Closing Date, the Purchaser shall notify
the Sellers in writing of any actual breach by any of the Sellers or
the Companies of any representation, warranty or covenant made herein
(including, without limitation, any representation, warranty or
covenant contained or made in the Schedules attached hereto and the
various other agreements contemplated herein to which any of the
Sellers is a party) (the "Purchaser's Notice of Breach"). Prior to
the end of the Due Diligence Period, the Purchaser shall notify each
of the Sellers in writing of whether the Boards of Directors of the
Purchaser and the Purchaser Entities have duly authorized and approved
the execution and delivery by the Purchaser and the Purchaser Entities
of this Agreement and the various other agreements contemplated herein
to which each of the Purchaser and the Purchaser Entities is a party,
the performance by the Purchaser and the Purchaser Entities of all the
terms and conditions hereof and thereof to be performed by each of
them and the consummation of the transactions contemplated hereby and
thereby (the "Purchaser's Notice of Due Authorization").
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5.2.4 Preservation of Books and Records. For a period of
seven years after the Closing Date, the Purchaser shall (i) preserve
and retain the corporate, accounting, legal, auditing and other books
and records of each Company (including, but not limited to, any
documents relating to any governmental or non-governmental actions,
suits, proceedings or investigations arising out of the conduct of the
business and operations of each Company prior to the Closing Date) and
(ii) make such books and records available at the then current
administrative headquarters of each Company to the Sellers (and their
successors and assigns) and any shareholders, officers, employees,
trustees, beneficiaries, agents and other Affiliates of the Sellers
(and their successors and assigns), upon reasonable notice and at
reasonable times, it being understood that any such person shall be
entitled to make and retain copies of any such books and records as it
shall deem necessary, provided that such person agrees to keep such
information confidential in accordance with Section 5.1.6. The
Purchaser agrees to permit representatives of such person to meet with
employees of the Purchaser and each Company on a mutually convenient
basis in order to enable such Person to obtain additional information
and explanations of any materials provided pursuant to this Section
5.2.4.
5.2.5 Public Announcements. At all times until the Closing
Date, the Purchaser shall promptly advise, and obtain the approval of
(which approval shall not be unreasonably withheld), the Sellers
before issuing, or permitting any of the Purchaser's directors,
officers, employees, agents or Subsidiaries to issue, any press
release or other public statement or filing with respect to this
Agreement or the transactions contemplated hereby except as required
by applicable law or the rules of the New York Stock Exchange.
5.2.6 Confidential Information. In the event that this
Agreement is terminated or, if not terminated, until the Closing Date,
the confidentiality of any data or information received by the
Purchaser regarding the business and assets of any Company shall be
maintained by the Purchaser and its representatives in accordance with
the Confidentiality Agreement dated December 7, 1995, executed by the
Purchaser (the "Confidentiality Agreement").
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5.2.7 Names. The Purchaser acknowledges and covenants that
neither it nor any of its Affiliates will at any time use the names
Ray Ellison or Ray Ellison Industries, Inc., or any variant thereof,
except, after the Closing, the name Rayco or any other name used by
any Company during the ordinary course of business prior to the
Closing, or any variant thereof (collectively, the "Rayco Tradenames")
may be used by the Purchaser or any of its Affiliates after the
Closing. Each of the Sellers acknowledges and covenants that neither
it nor any of its Affiliates will at any time after the Closing use
any Rayco Tradenames.
5.2.8 Notices of Certain Events. Prior to the Closing
Date, the Purchaser shall promptly notify the Seller of: (a) any
notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; (b) any notice or other
communication from any governmental or regulatory agency or authority
in connection with the transactions contemplated by this Agreement;
and (c) any actions, suits, claims, investigations or proceedings
commenced or, to its Knowledge threatened against, relating to or
involving or otherwise affecting the Purchaser that relate to the
consummation of the transactions contemplated by this Agreement.
5.2.9 Collateral Substitution. First State Bank of
Bandera, Texas has issued letters of credit in favor of the City of
San Antonio, Texas, which letters of credit can be drawn upon if Rayco
fails to meet certain commitments to complete residential
subdivisions. A Rayco Affiliate has pledged collateral as security
for such letters of credit. On or before the Closing Date, the
parties to this Agreement shall use their best efforts to cause the
collateral which has been pledged to secure such letters of credit,
which collateral will have a value of not more than $1.5 million, to
be released or substituted. In the event the Purchaser is unable to
obtain the release or substitution of such collateral, the Purchaser
shall indemnify and hold harmless the Rayco Affiliate and the Sellers
against any loss, damage or expense (including reasonable attorneys'
fees) sustained by the Rayco Affiliate and the Sellers as a result of
its failure to obtain such release or substitution.
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5.3 Environmental Assessments.
5.3.1 The Purchaser may, at the Purchaser's sole cost,
obtain a Phase I Environmental Report (a "Phase I Report") on any
property owned or occupied by a Company. The Purchaser may, at the
Purchaser's sole cost, obtain a Phase II Environmental Report (a
"Phase II Report) on any property which, as a result of a Phase I
Report, the Purchaser determines requires further assessment. Any
Phase I Report and any Phase II Report shall be prepared by a
registered professional engineer, shall be issued in favor of both the
Purchaser and the Company which owns or occupies the property which is
the subject of the report, and shall be delivered to the Purchaser and
the Sellers.
5.3.2 Industries and the LLC each covenant that they shall
cause the Companies, at the Companies sole cost, to (i) supply to the
Purchaser historical and operational information which is in the
possession of a Company and which relates to any property which is the
subject of a Phase I Report, and (ii) permit representatives of the
Purchaser to conduct the assessments contemplated by Section 5.3.1
provided such assessments do not unreasonably disrupt the business or
operations of any Company. The Purchaser shall cause any damages
resulting from any such assessment to be repaired at Purchaser's sole
cost, and agrees to indemnify and hold the Sellers and the Companies
harmless from any loss, cost, expense or liability incurred by any
Seller or any Company relating to or arising out of the conduct of any
assessment and which results primarily from any act of the Purchaser,
any representative of the Purchaser, or any person or entity retained
by the Purchaser to conduct or assist in such assessment.
5.3.3 Prior to the end of the Environmental Due Diligence
Period, the Purchaser may deliver to the Sellers a written statement
(the "Environmental Statement") identifying any condition on any
property owned or occupied by a Company or relating to a Company's
business which, in the reasonable opinion of the Purchaser, could lead
to liability under any Environmental Law (an "Environmental Breach").
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5.3.4 (a) If the Purchaser delivers an Environmental
Statement prior to the end of the Environmental Due Diligence Period
and both of the conditions set forth in clauses (i) and (ii) below are
satisfied:
(i) the aggregate book value of all Identified
Properties is $3 million or less, and
(ii) the estimated cost of resolving the
Environmental Breaches at the Identified Properties, as
determined by an Environmental Consultant, is $3 million or
less,
then Industries or the LLC, as the case may be, and the Purchaser
agree to negotiate in good faith in an attempt to reach a mutually
acceptable written agreement with respect to any Identified Property
concerning (A) the remediation or other action necessary to resolve
any or all of the Environmental Breaches specified in the
Environmental Statement with respect to such Identified Property and
(B) the party or parties which will be responsible for the costs of
such remediation or other action (a "Remediation Agreement").
(b) With respect to those Identified Properties for
which a Remediation Agreement has not been executed ("Non-Remediation
Properties") pursuant to Section 5.3.4(a) above, either the Purchaser
may require the Sellers to, or the Sellers may elect to, withdraw such
Non-Remediation Properties from the Companies, in which case (i) the
Sellers shall jointly and severally indemnify the Purchaser against
and hold the Purchaser and each Company harmless from any loss,
damage, cost or expense (including reasonable attorneys' fees and
reasonable fees of environmental consultants) sustained by the
Purchaser or any Company arising out of or relating to such
Non-Remediation Properties and (ii) there will be a corresponding
reduction in the Purchase Price equal to the aggregate book value of
such withdrawn Non-Remediation Properties.
(c) If neither party makes the election to withdraw,
or to require the Sellers to withdraw, such Non-Remediation Properties
as provided in Section 5.3.4(b) above, then Purchaser shall acquire
all Non-Remediation Properties owned or occupied by a Company subject
to all Environmental Breaches and all conditions stated or identified
in any Phase I Report, Phase II Report, the Environmental Statement or
any other environmental report or assessment prepared
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prior to Closing for the Purchaser or any Purchaser Affiliate or
representative ("Conditions") and the Sellers shall have no further
liability with respect to any such Environmental Breaches and
Conditions.
5.3.5 (a) If the Purchaser delivers an Environmental
Statement prior to the end of the Environmental Due Diligence Period
and either of the following conditions set forth in clauses (i) or
(ii) below is satisfied:
(i) the aggregate book value of all Identified
Properties exceeds $3 million, or
(ii) the estimated cost of resolving an Environmental
Breach at the Identified Properties, as determined by an
Environmental Consultant, exceeds $3 million,
then Industries or the LLC, as the case may be, and the Purchaser
agree to negotiate in good faith in an attempt to reach a Remediation
Agreement with respect to any Identified Property.
(b) With respect to those Identified Properties for
which a Remediation Agreement has not been executed ("Excess Non-
Remediation Properties") pursuant to Section 5.3.5(a) above, the
Sellers may elect to withdraw such Excess Non-Remediation Properties
from the Companies, in which case (i) the Sellers shall jointly and
severally indemnify the Purchaser against and hold the Purchaser and
each Company harmless from any loss, damage, cost or expense
(including reasonable attorneys' fees and reasonable fees of
environmental consultants) sustained by the Purchaser or any Company
arising out of or relating to such Excess Non-Remediation Properties
and (ii) there will be a corresponding reduction in the Purchase Price
equal to the aggregate book value of such withdrawn Excess
Non-Remediation Properties.
(c) If the Sellers do not make the election to
withdraw such Excess Non-Remediation Properties as provided in Section
5.3.5(b) above, then the Purchaser shall have the right either to:
(i) terminate this Agreement, in which event
neither the Sellers nor the Purchaser shall have any further
obligations under this Agreement other than their respective
obligations to pay their own costs and expenses under this
section 5.3, the
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Purchaser's indemnification obligations under this Section
5.3, and their respective obligations identified in Section
9.2.4 below, or
(ii) acquire all Excess Non-Remediation
Properties owned or occupied by a Company subject to all
Environmental Breaches and all Conditions and Sellers shall
have no further liability with respect to any such
Environmental Breaches and Conditions.
5.3.6 With respect to the terms of Sections 5.3.3, 5.3.4
and 5.3.5:
(a) "Identified Properties" shall mean
properties with respect to which an Environmental Breach has
been identified and shall be limited to those lots within any
subdivision, or the portion of any property that is not part
of a subdivision, that are reasonably expected to be affected
by an environmental matter, and
(b) "Environmental Consultant" shall
mean an environmental engineering firm selected by the
Purchaser and reasonably acceptable to the Sellers with
experience in performing environmental assessments of
properties similar to the properties owned or operated by the
Companies.
5.4. Land Contracts. The Purchaser and the LLC agree as
follows with respect to Rayco contracts for the acquisition of
undeveloped tracts of land ("Land Contracts"):
5.4.1 Rayco may close all Land Contracts which on the
date of this Agreement may not be terminated by Rayco by their terms
and without penalty in excess of $1,000 individually.
5.4.2 Land Contracts which (i) on the date of this
Agreement may be terminated by Rayco without penalty in excess of
$1,000 individually and (ii) provide for a closing date between the
date of this Agreement and the Closing Date will be reviewed by the
Purchaser during the Due Diligence Period. Rayco may close any such
Land Contract which is not disapproved of in writing by the Purchaser
during the Due Diligence Period.
5.4.3 Between the date of this Agreement and the Closing
Date, Rayco will not enter into or close new Land Contracts which
would or could obligate Rayco to pay an aggregate purchase price in
excess of $200,000 except for (i) Land Contracts approved in writing
by the Purchaser and
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(ii) Land Contracts which may be terminated by Rayco after the Closing
Date without penalty in excess of $1,000 individually.
ARTICLE 6.
Conditions to Closing
6.1. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to proceed with the Closing are subject to the
satisfaction on or prior to the Closing Date of all of the following
conditions, any one or more of which may be waived, in whole or in part, by the
Purchaser:
6.1.1 Compliance. Each of the Sellers shall have
complied in all material respects with each of its covenants and
agreements contained herein and each of its representations and
warranties contained in Sections 4.1, 4.2 or 4.3 hereof shall have
been true in all material respects when made and shall be true in all
material respects on and as of the Closing Date as if made on and as
of such date.
6.1.2 Officers' Certificate. The Purchaser shall have
received (i) a certificate, dated the Closing Date, of an executive
officer of Industries certifying as to the matters specified in
Section 6.1.1 hereof with respect to Industries, (ii) a certificate,
dated the Closing Date, of an executive officer of the LLC certifying
as to the matters specified in Section 6.1.1 hereof with respect to
the LLC, and (iii) a certificate dated the Closing Date, of REGT
certifying as to the matters specified in Section 6.1.1 hereof with
respect to REGT.
6.1.3 Legal Opinions. The Purchaser shall have received
from Matthews & Branscomb, a Professional Corporation, counsel for the
Companies, an opinion dated the Closing Date in substantially the form
set forth as Exhibit C.
6.1.4 HSR Act. The waiting period (and any extension
thereof) under the HSR Act applicable to the transactions contemplated
hereby shall have expired or been terminated.
6.1.5 Statutes; Consents. Except as contemplated by
Section 6.1.4, any other statutory requirements for the valid
consummation of the transactions contemplated hereby shall have been
fulfilled and any other third-party and governmental consents,
approvals or authorizations
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necessary for the valid consummation of the transactions contemplated
hereby shall have been obtained.
6.1.6 No Orders. The Closing shall not violate any order
or decree of any court or governmental body having competent
jurisdiction over the transactions contemplated by this Agreement.
6.1.7 Resignations of Directors. Industries shall have
delivered the resignation of each director of each Corporation.
6.1.8 Employment Agreements. Each of the Executive
Officers shall have executed and delivered an Employment Agreement as
provided for in Section 2.4.
6.1.9 Material Adverse Changes. Since the Balance Sheet
Date no change shall have occurred in the business, assets, properties
or prospects of the Companies which has had or might reasonably be
expected to have a Material Adverse Effect other than (i) changes
reflected in the Financial Statements and (ii) changes listed on
Schedule 4.1.7.
6.1.10 Certificates Required by Code. Each of the Sellers
shall have provided to the Purchaser the appropriate certificate,
dated the Closing Date, that is required pursuant to Section 897 and
1445 of the Code.
6.2. Conditions to the Obligations of the Sellers. The
obligations of the Sellers to proceed with the Closing are subject to the
satisfaction on or prior to the Closing Date of all of the following
conditions, any one or more of which may be waived, in whole or in part, by the
Sellers:
6.2.1 Compliance. The Purchaser shall have complied in all
material respects with each of its covenants and agreements contained
herein, including, without limitation, the payment of the cash sums
provided for in Section 2.3 above, and each of its representations and
warranties contained in Section 4.4 hereof shall have been true in all
material respects when made and shall be true in all material respects
on and as of the Closing Date as if made on and as of such date.
6.2.2 Officer's Certificate. The Sellers shall have
received a certificate, dated the Closing Date, of an executive
officer of the Purchaser certifying as to the matters specified in
Section 6.2.1
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hereof.
6.2.3 Legal Opinion. The Sellers shall have received from
(i) Barton P. Pachino, the Purchaser's Senior Vice President and
General Counsel, an opinion dated the Closing Date in substantially
the form set forth as Exhibit D-1, and (ii) Davis Polk & Wardwell,
counsel to the Purchaser, an opinion dated the Closing Date in
substantially the form set forth as Exhibit D-2.
6.2.4 HSR Act. The waiting period (and any extension
thereof) under the HSR Act applicable to the transactions contemplated
hereby shall have expired or been terminated.
6.2.5 Statutes; Consents. Except as contemplated by
Section 6.2.4, any other statutory requirements for the valid
consummation of the transactions contemplated hereby shall have been
fulfilled and any governmental consents, approvals or authorizations
necessary for the valid consummation of the transactions contemplated
hereby shall have been obtained.
6.2.6 No Orders. The Closing shall not violate any order
or decree of any court or governmental body having competent
jurisdiction over the transactions contemplated by this Agreement.
6.2.7 Guaranty Federal Release. The Purchaser shall have
paid, satisfied and discharged all obligations of Rayco to Guaranty
Federal which are secured by a security interest in the GP Interest
and the LP Interest (which payments shall be made effective as of the
Closing and shall not affect in any way the Closing Date Balance
Sheet).
ARTICLE 7.
Taxes
7.1. Tax Returns.
7.1.1 The Sellers and the Purchaser agree that the tax
returns covering the activities of the Companies and their Affiliates
which must be filed after the Closing, and the respective obligations
of the Sellers, the Companies, the Companies' Affiliates and the
Purchaser with respect to the preparation and filing of such returns,
are as follows:
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(i) A consolidated federal income tax return for
Ellison, Inc., covering the period January 1, 1995, to
December 31, 1995, and including taxable income of the
Corporations for the period January 1, 1995 to January 31,
1995, will be due on or before March 15, 1996. The Sellers
will cause this return to be prepared and filed. The
Purchaser and its Affiliates, including the Corporations,
shall cooperate with the Sellers and make available all
necessary records and information concerning the activities of
the Corporations for the period January 1, 1995 to January 31,
1995, to allow the Sellers or their Affiliates to prepare and
file such return in a timely manner.
(ii) An initial 1995 consolidated federal income
tax return for Industries, including taxable income of the
Corporations for the period February 1, 1995, to December 31,
1995, will be due on or before March 15, 1996. In the event
that the Closing Date occurs on or after March 1, 1996,
Industries shall prepare and submit such return on or before
March 15, 1996 or, if a valid extension is granted, in a
timely manner thereafter. In all other events, the Purchaser
shall cause the Corporations to complete the preparation of
the portions of such return that relate to the Corporations.
The Purchaser shall use reasonable efforts to submit such
information to Industries in a manner that will enable
Industries to file on March 15, 1996, or if such filing date
is not practicable Industries shall seek an extension of time
for filing, in which case such information will be submitted
to Industries at least two weeks prior to the required filing
date. The Sellers will cause this return to be signed and
filed by Industries, and the Sellers and their Affiliates, and
the Purchaser and its Affiliates shall make available all
necessary records and information and shall otherwise
cooperate fully with each other.
(iii) A short-year federal income tax return for
Rayco covering the period February 1, 1995 to December 31,
1995, will be due on or before April 15, 1996. The Purchaser
will be responsible for the preparation and filing of this
return; provided, however, that not later than 15 days prior
to the date such return is to be filed, the
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Purchaser will provide the Sellers with a copy of such return
and give the Sellers an opportunity to provide the Purchaser
with comments with respect thereto. In the event that the
Closing Date occurs on or after April 1, 1996, the LLC shall
prepare and submit such return on or before April 15, 1996 or,
if a valid extension is granted, in a timely manner
thereafter; provided, however, that not later than 15 days
prior to the date such return is to be filed, the LLC shall
provide the Purchaser with a copy of such return and give the
Purchaser an opportunity to provide the LLC with comments with
respect thereto. In all other events, the Purchaser shall
cause Rayco to complete the return. The Purchaser shall use
reasonable efforts to submit such information to the LLC in a
manner that will enable the LLC to file on April 15, 1996, or
if such filing date is not practicable the LLC shall seek an
extension of time for filing, in which case such information
will be submitted to the LLC at least two weeks prior to the
required filing date. The Sellers and their Affiliates, and
the Purchaser and its Affiliates, shall make available all
necessary information and records and shall otherwise fully
cooperate with each other.
(iv) A short-year federal income tax return for
Rayco covering the period January 1, 1996, to the Closing
Date, will be due within three and one-half months after the
Closing Date. The Purchaser will be responsible for the
preparation and filing of this return; provided, however, that
not later than 15 days prior to the date such return is to be
filed, the Purchaser will provide the Sellers with a copy of
such return and give the Sellers an opportunity to provide the
Purchaser with comments with respect thereto.
(v) A consolidated federal income tax return for
Industries covering the period from January 1, 1996, to
December 31, 1996, will be due March 17, 1997. The Sellers
will cause this return to be prepared and filed. The
Purchaser and its Affiliates, including the Corporations,
shall cooperate with the Sellers and make available all
necessary records and information concerning the activities of
the Corporations for the period January 1, 1996, to the
Closing Date, to allow the Sellers or their Affiliates to
prepare and file such
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return in a timely manner.
7.1.2 The Purchaser and its Affiliates, including the
Companies, are responsible for preparing and filing with the
appropriate governmental authorities all returns or reports that
relate to the Taxes of the Companies other than those described in
Section 7.1.1 which are the responsibility of the Sellers. Such
returns or reports shall be prepared on a basis consistent with
returns prepared for prior taxable periods, and with the Closing Date
Balance Sheet so long as such basis is not materially adverse to the
Purchaser or its Affiliates.
7.2. Liability for Taxes.
7.2.1 The Sellers, jointly and severally, shall be liable
for any Taxes imposed on or incurred by any of the Companies for any
Pre-Closing Tax Period. The Sellers, jointly and severally, shall be
liable for any income Taxes imposed on the Companies pursuant to
Treasury Regulation Section 1.1502-6 or similar provisions with
respect to the taxable income of any member of the combined or
consolidated group covered by any combined or consolidated tax return
that include any of the Companies. "Pre-Closing Tax Period" means any
Tax period that (i) ends at or before the close of business on the
Closing Date and (ii) with respect to a Tax period that commences
before and ends after the close of business on the Closing Date, the
portion of such period up to the close of business on the Closing
Date. The Sellers, jointly and severally, shall also be liable for any
liabilities of any of the Companies that arise from any obligation of
any of the Companies to indemnify another Person with respect to
Taxes.
7.2.2 The Purchaser shall be liable for any Taxes imposed
on or incurred by the Companies for which Industries or the LLC are
not liable under Section 7.2.1; provided, however, that the Sellers
shall be liable, jointly and severally, for any sales, use, transfer,
recording, conveyance or similar Taxes imposed by the State of Texas
or any political subdivision thereof arising from the transactions
contemplated in this Agreement.
7.2.3 The Sellers, jointly and severally, shall indemnify
and hold the Purchaser harmless from any liability for Taxes for which
any Company is liable pursuant to Sections 7.2.1 and 7.2.2.
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The Purchaser shall indemnify and hold the Sellers harmless from any
liability for Taxes for which the Purchaser is liable pursuant to
Section 7.2.2.
7.2.4 The Sellers shall be entitled to any refunds (whether
by payment, credit, offset or otherwise) in respect of any Taxes for
which the Sellers are liable under Section 7.2.1. The Purchaser and
its Affiliates shall cooperate with the Sellers in order to permit the
Sellers to take all necessary steps to claim any such refund. Any
such refund received after the Closing by the Purchaser or its
Affiliates, including the Companies, shall be paid to the Sellers
within 10 days after its receipt.
7.2.5 The Sellers and the Purchaser agree that, for
purposes of all required returns or reports with respect to Taxes, the
amount of the unused minimum tax credit under Section 53 of the Code
attributable to each of the Companies that may be carried forward to
taxable periods ending after the Closing Date shall, unless otherwise
required by law or regulations, be determined in accordance with the
principles of Treasury Regulation Section 1.1502-79.
7.3. Section 754 Election. The LLC shall, upon the request of
the Purchaser delivered to the LLC contemporaneously with the delivery by the
Purchaser to the LLC of the Form 1065 of Rayco for the period ending on the
Closing Date, cause Rayco to elect under Section 754 of the Code to adjust the
basis of its property in the manner provided in Sections 734 and 743 of the
Code.
7.4. Tax Proceedings. In the event the Purchaser or any of
its Affiliates, including the Companies, receives any oral or written
communication regarding any pending or threatened examination, claim,
adjustment or other proceeding with respect to the liability of a Company for
Taxes for any period for which the Sellers are or may be liable under Section
7.2.1, the Purchaser shall within 10 days notify the Sellers in writing
thereof. As to any such Taxes for which a Seller is or may be liable under
Section 7.2.1, such Seller shall at its expense control, or settle the contest
of, such examination, claim, adjustment or other proceeding, unless it notifies
the Purchaser in writing within 10 days after receipt of the notice described
in the immediately preceding sentence that such Seller desires not to do so.
The Purchaser and its Affiliates shall cooperate with the Sellers and their
Affiliates in the negotiation and settlement of any
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proceedings described in this Section 7.5 and shall have the right to
participate fully (but not control), at its own expense. The Purchaser shall
provide, or cause to be provided, to the Sellers or their designee necessary
authorizations, including powers of attorney, to control any proceedings which
a Seller is entitled to control pursuant to this Section 7.5; provided,
however, if a Seller assumes the control or settles any such examination,
claim, adjustment or other proceeding, such Seller (or any other Seller) shall
not assert that the Tax, or any portion thereof, with respect to which
Purchaser seeks indemnification is not within the ambit of Section 7.2.3. If a
Seller elects not to assume such control as provided under this Section 7.5,
Purchaser may pay, compromise or contest the Tax at issue and the Seller shall
continue to be liable for its indemnifications obligations hereunder and for
reasonable fees and expenses of Purchaser's counsel.
7.5. Cooperation and Exchange of Information. Except as
otherwise provided in this Article 7, any amount to which a party is entitled
under this Article 7 shall be promptly paid to such party by the party
obligated to make such payment following written notice to the party so
obligated that the Taxes to which such amount relates have been paid or
incurred and that provides details supporting the calculation of such amount.
The Purchaser shall provide, or cause to be provided, to the Sellers copies of
all correspondence received from any taxing authority by the Purchaser or any
of its Affiliates, including the Companies, in connection with the liability of
a Company for Taxes for any period for which a Seller is or may be liable under
Section 7.2.1. The parties shall provide each other with such cooperation and
information as they may reasonably request of each other in preparing or filing
any return, amended return or claim for refund, in determining a liability or a
right to refund or in conducting any audit or other proceeding in respect of
Taxes imposed on the parties or their respective Affiliates. The Purchaser and
its Affiliates shall preserve and retain all returns, schedules, work papers
and other documents relating to any such returns, claims, audits or other
proceedings until the expiration of the statutory period of limitations (with
regard to waivers and extensions) of the taxable periods to which such
documents relate and until the final determination of any payments which may be
required with respect to such periods under this Agreement and shall make such
documents available to representatives of the Sellers upon reasonable notice
and at reasonable times, it being understood that such representatives shall be
entitled to make
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copies of any such books and records as they shall deem necessary. The
Purchaser further agrees to permit representatives of the Sellers to meet with
employees of the Purchaser or the Companies on a mutually convenient basis in
order to enable such representatives to obtain additional information and
explanations of any documents provided pursuant to this Section 7.5. The
Purchaser shall make available, or cause the Companies to make available, to
the representatives of the Sellers sufficient work space and facilities to
perform the activities described in the two preceding sentences. Any
information obtained pursuant to this Section 7.5 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns
or claims for refund or in conducting any audit or other proceeding. Each of
the parties shall provide the cooperation and information required by this
Section 7.5 at its own expense.
7.6. Threshold Amount; Limit on Liability. The Purchaser shall
not be entitled to assert rights of indemnification under Section 7.2.3 unless
and until the aggregate of all Taxes for which such indemnification is required
exceeds $50,000. The aggregate amount of liability of any Seller under this
Article 7, Article 10, and for any other breach of this Agreement shall not
exceed the consideration specified in Section 2.1 of this Agreement with
respect to the Securities of the Company which are being sold by such Seller,
as such amount may be adjusted as provided for in Section 2.5. The Sellers
shall not be entitled to assert rights of indemnification under Section 7.2.3
unless and until the aggregate of all Taxes for which such indemnification is
required exceeds $50,000; provided, however, that such limitation shall not
apply to the Purchaser's obligation to pay to the Sellers any refund as
described in Section 7.2.4.
7.7. Conflict. In the event of a conflict between the
provisions of this Article 7 and any other provisions of this Agreement, the
provisions of this Article 7 shall control.
7.8. Section 338 Election. At the election of the Purchaser,
Industries agrees to join in the making of an election under Section
338(h)(10) of the Code (and any similar state provision) with respect to the
sale of each of the Corporations. If Purchaser makes such election, Industries
shall (i) timely complete, execute and file the appropriate forms, (ii)
cooperate in the making of the required allocation of the purchase price among
each of the Corporation's assets, (iii) not take any position inconsistent with
the Section 338(h)(10) elections or the allocations thereunder, and (iv) timely
provide (and in all events at least
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seven days prior to the applicable filing deadline) Purchaser with executed
originals of all documents to be filed with any taxing authorities.
ARTICLE 8.
Employee Benefits
8.1. Employees. There are an aggregate of approximately 440
individuals who are employed by the Companies as of the date hereof ("Company
Employees"). Industries and the LLC shall promptly furnish to the Purchaser a
list of the Company Employees, which list shall contain the salary level and
date of hire of each Company Employee. Industries and the LLC shall endeavor
to continue the employment of Company Employees to the Closing Date, subject to
turnover and replacement in the ordinary course of business. From the date
hereof and during the one-year period following the Closing Date, neither the
Sellers nor any Seller Affiliate shall offer employment to any Company Employee
unless the Purchaser terminates the employment of such Company Employee or the
Purchaser consents in writing to the employment of such Company Employee by a
Seller or any Seller Affiliate. From the date hereof and through the Closing
Date, without the written consent of the Purchaser, the total number of
individuals employed by the Companies may not be increased by more than 3% from
the number of Company Employees.
8.2. Service Credit to Company Employees. Upon the Closing,
employees of each Company shall receive credit for their service prior to the
Closing Date with such Company or any of its Affiliates (including service with
any predecessor company) for the purpose of determining eligibility for
participation (but not for benefit accrual purposes) under the employee welfare
benefit plans (as defined in Section 3(1) of ERISA) and similar benefit
policies (i.e., vacations, sick days, holidays and short-term disability
programs) of the Purchaser and its Affiliates in which such employees are or
become eligible to participate, but not for purposes of eligibility for
participation, vesting or benefit accrual under employee pension benefit plans.
8.3. Termination of Company Employee Benefit Plans. Subject
to effecting the Closing, and except as provided in Section 8.4.4, Industries
and the LLC shall take or cause to be taken whatever
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action is necessary or appropriate to terminate as of the Closing the
participation of each Company as a participating employer in all the Plans and
Rayco Plans.
8.4. Benefits Plans.
8.4.1 Upon the discontinuation and termination of the
participation of each Company in the Plans and the Rayco Plans as
provided in Section 8.3, the interests and the liabilities of (i) each
Corporation in the Plans shall be assumed by Industries or an
Industries Affiliate as of the Closing Date and (ii) Rayco in the
Rayco Plans shall be assumed by the LLC or an Affiliate of the LLC.
From and after the Closing Date, no Company shall have any interest
in, responsibility for or liability with respect to the Plans or the
Rayco Plans. Without limiting the foregoing and except as provided in
Section 8.4.4, Industries or the LLC shall remain liable for any
claims incurred (whether or not reported) on or prior to the Closing
Date under, respectively, any Plan or Rayco Plan.
8.4.2 After the Closing Date, employees of each Company
continuing active employment shall become eligible to participate,
taking into account Section 8.2 hereof, in the employee benefit plans,
programs and policies sponsored by the Purchaser for the benefit of
its employees generally, excluding plans sponsored or maintained by
the Purchaser for select groups of employees who are officers or
highly compensated employees, for which plans the Purchaser shall
retain the discretion as to which employees are eligible for coverage
or participation.
8.4.3 The Purchaser shall cause the Company Employees and
their eligible dependents to be eligible for coverage under an
employer-sponsored health insurance benefit plan or health maintenance
organization as of the Closing Date (or as of any later date of
terminated coverage under Section 8.4.4) without interruption of
coverage and shall waive all pre-existing conditions, restrictions and
limitations for any medical condition thereof at or prior to the
Closing, except to the extent coverage of any such medical condition
would be limited under the group health insurance plan applicable to
the affected employee at or prior to the Closing Date or later date of
terminated coverage under Section 8.4.4. In the event that any group
health plan providing COBRA coverage
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to existing Company "qualified beneficiaries" (as that term is defined
in Section 4980B of the Code) as of the Closing Date is not treated as
a Continued Plan (as that term is defined below in Section 8.4.4),
until the expiration of all continued coverage rights of such
qualified beneficiaries the Purchaser agrees to cause another of its
group health plans to assume and cover such qualified beneficiaries,
at the beneficiaries' expense, until such expiration.
8.4.4 Prior to the Closing Date, the Purchaser may
designate any of the Plans or Rayco Plans as a "Continued Plan."
Notwithstanding Section 8.3 and the first two sentences of Section
8.4.1, the participation of each Company in any Continued Plan shall
continue, after the Closing Date, until further notice by the
Purchaser. The Purchaser shall reimburse Industries or the LLC, as
appropriate, for any and all liability resulting from and the
reasonable costs (including administrative costs) of covering
employees of any Company after the Closing Date under a Continued
Plan. Coverage of employees of any Company under a Continued Plan
shall be treated as satisfying any requirement under Section 8.4.2 or
8.4.3 with respect to benefits of the same type as those provided
under such Continued Plan for so long as such Continued Plan exists.
8.4.5 Any other provision of this Agreement
notwithstanding, to the extent employees of the Companies participate
as of the date hereof in any "flexible spending account" under a
"cafeteria plan," within the meaning of Section 125 of the Code and
regulations thereunder (a "Company FSA"), sponsorship of such Company
FSA shall be assumed by such Company or Companies as of the Closing.
The Purchaser shall cause each Company FSA to remain in effect until
such time as all Company Employees have had adequate opportunity to
claim reimbursement of claims in connection with contributions to such
Company FSA for the plan year of the Company FSA within which the
Closing Date occurs (the "Company FSA Year"). The Purchaser shall
assume all plan liabilities associated with claims of Company
Employees under each Company FSA for the applicable Company FSA Year
and, if maintained by the Purchaser or the Companies for subsequent
periods, for such subsequent periods. To the extent any amounts
deferred or contributed prior to the Closing by any Company Employee
under a Company FSA during the
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applicable Company FSA Year have not, prior to the Closing Date, been
paid out under such Company FSA in the form of premiums or benefits to
beneficiaries or third party service providers, such deferred amounts
or contributions shall be reflected as a liability of the Company
employing such Company Employee on the Closing Date Balance Sheet.
The Sellers represent, as a condition to the effectiveness of the
obligations set forth in this Section 8.4.5, that each Company FSA is,
as of the date hereof, administered by employees of the Companies, and
that no hiring of additional employees or other actions outside the
ordinary course of business would be required for a Company to assume
sponsorship and administration of such Company FSA as of the Closing
Date.
8.5. Subsequent Dispositions. The Purchaser agrees to
cause any of its successors or assignees or any transferees of the businesses or
lines of business of any Company to assume the obligations of the Purchaser set
forth in this Article 8.
ARTICLE 9.
Termination
9.1. Grounds for Termination. In addition to a
termination as provided for in Section 5.3, this Agreement may be terminated
at any time prior to the Closing Date:
9.1.1 By the mutual written agreement of the Sellers and
the Purchaser;
9.1.2 By any of the Sellers or the Purchaser by written
notice thereof to the other if the purchase and sale of the Securities
contemplated hereby shall not have been consummated on or before April
30, 1996, or such other date, if any, as the Seller and the Purchaser
shall agree upon in writing;
9.1.3 By any of the Sellers or the Purchaser by written
notice thereof to the other if the consummation of such transactions
would violate any nonappealable final order, decree or judgment of any
court or governmental body having competent jurisdiction enjoining,
restraining or otherwise preventing, or awarding substantial damages
in connection with, or imposing any material adverse condition upon,
the consummation of this Agreement or the transactions
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contemplated hereby;
9.1.4 By any of the Sellers following the end of the Due
Diligence Period or the Purchaser during or after the Due Diligence
Period by written notice thereof to the other if the Boards of
Directors of the Purchaser and the Purchaser Entities, during the Due
Diligence Period, have not duly authorized and approved (i) the
execution and delivery by the Purchaser and the Purchaser Entities of
this Agreement and the various other agreements contemplated herein to
which each of the Purchaser and the Purchaser Entities is a party,
(ii) the performance by the Purchaser and the Purchaser Entities of
all the terms and conditions hereof and thereof to be performed by
each of them, and (iii) the consummation of the transactions
contemplated hereby and thereby;
9.1.5 By any of the Sellers by written notice thereof to
the Purchaser if each of the Sellers have not received, from the date
of this Agreement to a date no later than two days after the Due
Diligence Period, the Purchaser's Due Authorization Notice stating
that the Boards of Directors of the Purchaser and the Purchaser
Entities, during the Due Diligence Period, have duly authorized and
approved (i) the execution and delivery by the Purchaser and the
Purchaser Entities of this Agreement and the various other agreements
contemplated herein to which each of the Purchaser and the Purchaser
Entities is a party, (ii) the performance by the Purchaser and the
Purchaser Entities of all the terms and conditions hereof and thereof
to be performed by each of them, and (iii) the consummation of the
transactions contemplated hereby and thereby;
9.1.6 By any of the Sellers or the Purchaser by written
notice thereof to the other if termination is permitted and exercised
pursuant to and in accordance with Section 5.3 above;
9.1.7 By the Purchaser by written notice thereof to the
Sellers if the Purchaser, for any reason whatsoever, elects to
terminate this Agreement and such written notice of such termination
is provided to the Sellers during the Due Diligence Period;
9.1.8 By the Purchaser by written notice thereof to the
Sellers if (i) the results of operations or financial condition of the
Companies taken as a whole as reflected in the Year-End
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Unaudited Financial Statements differ materially from the results of
operations or financial condition of the Companies taken as a whole as
reflected in the Year-End Audited Financial Statements and (ii) the
Purchaser provides such written notice of its election to terminate
this Agreement no later than five business days after, but not
including, the date on which it received a copy of the Year-End
Audited Financials.
9.1.9 By any of the Sellers by written notice thereof to
the Purchaser if (i) the Trustees of the REGT shall not have received
a written opinion on or before January 31, 1996 from Dillon, Read &
Co., Inc. that the consideration to be received by the Sellers in the
transaction contemplated by this Agreement is within a range of
fairness from a financial point of view and (ii) such written notice
is provided to the Purchaser on February 1, 1996.
9.1.10 By any of the Sellers by written notice thereof to
the Purchaser if (i) the Purchaser provides the Purchaser's Notice of
Breach to any of the Sellers or the Companies at any time on or prior
to the Closing Date and (ii) the amount of all losses, damages and
expenses (including attorney's fees) claimed by the Purchaser or that
would reasonably be expected to be claimed by the Purchaser as a
result of the breach or breaches set forth in the Purchaser's Notice
of Breach exceeds, individually or in the aggregate, $2 million;
provided, however, that a party shall not be allowed to exercise any right of
termination pursuant to this Section 9.1 (other than Sections 9.1.4, 9.1.5,
9.1.6 and 9.1.7) if the event giving rise to such termination right shall be
due to the willful failure of the party seeking to terminate this Agreement to
perform or observe in any material respect any of the covenants or agreements
set forth herein to be performed or observed by such party.
9.2. Effect of Termination. The following provisions shall
apply in the event of a termination of this Agreement:
9.2.1 [Intentionally left blank]
9.2.2 If this Agreement is terminated as a result of the
willful failure of the Purchaser to perform its obligations hereunder,
the Purchaser shall be fully liable for any and all damages
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sustained or incurred by the Sellers.
9.2.3 If this Agreement is terminated as a result of the
willful failure of any Seller to perform its obligations hereunder,
each such Seller shall be fully liable for any and all damages
sustained or incurred by the Purchaser.
9.2.4 The Sellers and the Purchaser hereby agree that the
provisions of Sections 5.1.7, 5.2.5, 5.2.6 and 5.3 and Articles 11 and
12 hereof shall survive any termination of this Agreement.
9.2.5 If this Agreement is terminated by the Sellers
pursuant to Section 9.1.9, the Sellers shall pay the Purchaser in cash
within two business days of the date of such termination (a) a fee
(the "Termination Fee") of $2,000,000 and (b) an expense reimbursement
fee of $500,000; provided that if the Purchaser subsequently purchases
any partnership interests in or assets of Rayco pursuant to Section
5.1.15, then upon the consummation of such purchase the Purchaser
shall repay to the Sellers any Termination Fee or expense
reimbursement fee previously paid by the Sellers to the Purchaser
pursuant to this Section.
In addition, if this Agreement is terminated by the
Sellers pursuant to Section 9.1.9 and if, on or prior to the first
anniversary of the date of such termination, a majority of the
partnership interests in or assets of Rayco is acquired directly or
indirectly, in one or a series of related transactions, or one or
more Sellers enter into an agreement on or prior to such first
anniversary pursuant to which such partnership interests or assets
are subsequently acquired directly or indirectly, by one or more
Persons other than the Purchaser, the Sellers shall pay the Purchaser
a fee (in addition to any Termination Fee) in cash on the date of the
closing of such acquisition in an amount equal to (a) plus (b), where
(a) is equal to $2,000,000 less any Termination Fee paid prior to
such date and (b) is equal to half of the amount, if any, by which
the aggregate consideration received or to be received by the Sellers
and any of their Affiliates as a result of such acquisition exceeds
$84,000,000 (or, if less than all of the Partnership interests in or
assets of Rayco is being acquired, an amount equal to the percentage
of the partnership interests or assets being acquired times
$84,000,000).
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9.2.6 If this Agreement is terminated pursuant to Section
9.1.4 or Section 9.1.5 the Purchaser shall pay the Sellers an expense
reimbursement fee (the "Reimbursement Fee") in cash within two
business days of the date of such termination of $500,000. For the
avoidance of doubt, no Reimbursement Fee shall be payable if this
Agreement is terminated pursuant to any other provision of this
Agreement prior to any termination pursuant to Section 9.1.4 or
Section 9.1.5.
9.2.7 THE SELLERS AND THE PURCHASER AGREE THAT, EXCEPT AS
PROVIDED FOR IN SECTIONS 9.2.5 AND 9.2.6 AND EXCEPT WITH RESPECT TO
PROVISIONS OF THIS AGREEMENT WHICH EXPRESSLY SURVIVE TERMINATION OF
THIS AGREEMENT, IF THIS AGREEMENT IS TERMINATED PURSUANT TO THE
PROVISIONS OF THIS AGREEMENT, NO PARTY SHALL HAVE ANY LIABILITY TO ANY
OTHER PARTY ABSENT A WILLFUL BREACH OF THIS AGREEMENT OCCURRING PRIOR
TO TERMINATION. IN THE EVENT OF SUCH WILLFUL BREACH BY ANY PARTY,
THAT PARTY SHALL REMAIN LIABLE TO THE OTHER PARTIES FOR ALL DAMAGES
RESULTING THEREFROM, INCLUDING LOST PROFITS, BUT SHALL NOT BE LIABLE
FOR INDIRECT, UNFORESEEN, SPECULATIVE OR PUNITIVE DAMAGES. Without
limitation other than as set forth in Sections 9.1.1, 9.1.4, 9.1.5 and
9.1.9, if all of the conditions to a party's obligations set forth in
Section 6.1 or 6.2 have been satisfied or waived by the date scheduled
for the Closing pursuant to Article 3, the failure of such party to
perform its obligations on such date shall be deemed to be a willful
breach of this Agreement by such party.
ARTICLE 10.
Extent and Survival of Representations,
Warranties, Covenants and Agreements; Indemnification
10.1. Scope of Representations. EXCEPT AS SET FORTH IN THIS
AGREEMENT, THE VARIOUS OTHER AGREEMENTS CONTEMPLATED HEREIN AND THE SCHEDULES
HERETO, NO REPRESENTATIONS OR WARRANTIES WHATSOEVER ARE MADE BY ANY PARTY TO
THIS AGREEMENT, AND ALL PARTIES TO THIS AGREEMENT DISCLAIM ALL LIABILITY AND
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RESPONSIBILITY, WITH RESPECT TO ANY REPRESENTATION, WARRANTY, STATEMENT OR
INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO ANY OTHER PARTY TO
THIS AGREEMENT (INCLUDING, BUT NOT LIMITED TO, ANY OPINION, INFORMATION OR
ADVICE WHICH MAY HAVE BEEN PROVIDED TO ANY PARTY TO THIS AGREEMENT BY ANY
OFFICER, STOCKHOLDER, PARTNER, DIRECTOR, EMPLOYEE, AGENT, AFFILIATE,
CONSULTANT, TRUSTEE OR REPRESENTATIVE OF SUCH PARTY, OR BY DILLON, READ & CO.,
INC., OR MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, OR BY SUCH PARTY'S
COUNSEL OR ANY OTHER AGENT, CONSULTANT OR REPRESENTATIVE).
10.2. Indemnification of the Purchaser. The Sellers jointly and
severally agree to indemnify the Purchaser against, and hold the Purchaser and,
after the Closing, each Company harmless from, any loss, damage or expense
(including reasonable attorneys' fees) sustained by the Purchaser or any
Company arising out of or resulting from any inaccuracy in or breach of any of
the representations, warranties or covenants of or by any Seller set forth
herein (any such loss, damage or expense being referred to herein as "Purchaser
Indemnified Loss"); provided, however, that (i) the Purchaser shall not be
entitled to assert rights of indemnification under this Article 10 or claims
for any breach of this Agreement unless and until the aggregate of all
Purchaser Indemnified Losses exceeds $100,000 (the "Threshold Amount") (it
being understood that all such Purchaser Indemnified Losses shall accumulate
until such time or times as the aggregate of all Purchaser Indemnified Losses
exceeds such Threshold Amount, whereupon the Purchaser shall be entitled to
indemnification hereunder or assert claims for breach of this Agreement for any
Purchaser Indemnified Losses in excess of, but excluding, such Threshold
Amount); (ii) the Threshold Amount shall not apply to the Sellers' obligations
to the Purchaser pursuant to Articles 2 and 7 and Section 9.2 of this
Agreement; and (iii) the aggregate of all Purchaser Indemnified Losses for
which the Purchaser is entitled to reimbursement hereunder and all amounts for
which the Sellers are liable for breach of this Agreement (including, without
limitation, any liability of a Seller under Article 7) shall not exceed the
Adjusted Purchase Price, and in no event shall the aggregate of all Purchaser
Indemnified Losses for which the Purchaser is entitled to reimbursement
hereunder and all amounts for which a Seller
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is liable for breach of this Agreement (including, without limitation, any
liability of a Seller under Article 7) exceed the Adjusted Purchase Price. For
the avoidance of doubt, it is understood that each of the Sellers will be
jointly and severally responsible for any loss, damage or expense sustained by
the Purchaser or any Company arising out of or resulting from any inaccuracy in
or breach of any of the representations, warranties or covenants of or by any
Seller whether or not such representation, warranty or covenant was made by
such Seller. The Sellers have advised the Purchasers that the Executive
Officers may receive compensation from the Sellers for certain non-compete
agreements contained in the Employment and Non-Competition Agreements and that
any such compensation shall be the sole responsibility of the Sellers. The
Sellers hereby indemnify the Purchasers for any and all obligations and claims
relating to or arising out of the payment of such compensation for such
non-compete agreements contained in the Employment and Non-Competition
Agreements and any agreements between the Sellers and the Executive Officers
with respect to the payment of such compensation for such non-compete
agreements contained in the Employment and Non-Competition Agreements; however,
notwithstanding the foregoing, the Sellers do not agree to and shall not
indemnify the Purchaser for any claim relating to or arising out of (i) an
Executive Officer's failure to perform his obligations under his respective
Employment and Non-Competition Agreement or (ii) the Purchaser's failure to pay
the compensation due an Executive Officer under his respective Employment and
Non-Competition Agreement for services rendered by such Executive Officer under
such Employment and Non-Competition Agreement.
10.3. Indemnification of the Sellers. In addition to the
indemnification provided for in Section 5.3, the Purchaser agrees to indemnify
the Sellers against, and hold the Sellers harmless from, any loss, damage or
expense (including reasonable attorneys' fees) sustained by any Sellers arising
out of or resulting from any inaccuracy in or breach of any of the
representations, warranties or covenants made by the Purchaser herein (any such
loss, damage or expense being referred to herein as a "Seller Indemnified
Loss"); provided, however, that (i) the Sellers shall not be entitled to assert
rights of indemnification hereunder or assert claims for any breach of this
Agreement unless and until the aggregate of all Seller Indemnified Losses
exceeds the Threshold Amount (it being understood that all such Seller
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Indemnified Losses shall accumulate until such time or times as the aggregate
of all Seller Indemnified Losses exceeds the Threshold Amount, whereupon the
Seller Indemnified Parties shall be entitled to indemnification hereunder for
any Seller Indemnified Losses in excess of, but excluding, the Threshold
Amount); (ii) the Threshold Amount shall not apply to the Purchaser's
obligations to Seller pursuant to Articles 2 and 7 and Section 9.2 of this
Agreement; and (iii) the aggregate of all Seller Indemnified Losses for which
the Sellers are entitled to reimbursement hereunder and all amounts for which
the Purchaser is liable for breach of this Agreement (including, without
limitation, any liability of Purchaser under Article 7) shall not exceed $10
million.
10.4. Survival. The representations, warranties, covenants
and agreements set forth in this Agreement and in any certificate or instrument
delivered in connection herewith, and the Sellers' and the Purchaser's
indemnification obligations with respect thereto under this Article 10, shall
(except as provided for in Section 5.3) be continuing and shall survive the
Closing for the eighteen-month period immediately following the Closing Date,
notwithstanding any investigation at any time made by or on behalf of the
Purchaser, but shall thereafter terminate and be of no further force or effect
except to the extent they relate to claims made in writing to the Sellers or
the Purchaser, as the case may be, prior to or on such date; provided, however,
that (i) the representations and warranties set forth in Sections 4.1.3, 4.1.8,
4.1.13, 4.2.3, 4.2.8, 4.2.13 and 4.3.3 and the covenants and agreements set
forth in Sections 5.1.15, 5.2.4, 5.2.7 and 5.3 and in Articles 7 (including all
applicable extensions), 8 (other than Section 8.4.3), 11, 12 and 13 and the
accompanying indemnification obligations shall survive in accordance with their
terms until the expiration of the applicable statute of limitations, and (ii)
the representations and warranties set forth in Sections 4.1.16 and 4.2.16 and
the accompanying indemnification obligations shall survive in accordance with
their terms for the five (5) year period immediately following the Closing
Date.
10.5. Indemnification Procedures. All claims for
indemnification under this Agreement (other than the provisions of Article 7)
shall be asserted and resolved as follows:
10.5.1 A party claiming indemnification under this Agreement
(an "Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party")
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of any third-party claim or claims asserted against the Indemnified
Party ("Third Party Claim") which could give rise to a right of
indemnification under this Agreement and (ii) transmit to the
Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all
papers served with respect to such claim (if any), and the basis of
the Indemnified Party's request for indemnification under this
Agreement. Within 30 days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article 10
with respect to such Third Party Claim and (ii) whether the
Indemnifying Party desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
10.5.2 If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to
assume the defense of the Third Party Claim, then the Indemnifying
Party shall have the right to defend, at its sole cost and expense,
such Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party
to a final conclusion or settled at the discretion of the Indemnifying
Party in accordance with this Section 10.5.2. The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof, but shall consult in good faith with
the Indemnified Party before entering into any compromise or
settlement. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 10.5, and shall
bear its own costs and expenses with respect to such participation.
10.5.3 If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section
10.5.2, or if the Indemnifying Party elects to defend the Indemnified
Party pursuant to Section 10.5.2 but fails to prosecute or settle the
Third Party Claim diligently and promptly, then the Indemnified Party
shall notify the Indemnifying Party that the Indemnified Party elects
to assume
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the defense of the Third Party Claim. The Indemnified Party shall
then have the right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and
proceedings; provided, however, that the Indemnified Party may not
enter into, without the Indemnifying Party's consent, which shall not
be unreasonably withheld, any compromise or settlement of such Third
Party Claim. Notwithstanding the foregoing, if the Indemnifying Party
has delivered a written notice to the Indemnified Party to the effect
that the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article 10 and if such dispute is
resolved in favor of the Indemnifying Party by final, nonappealable
order of a court of competent jurisdiction or by settlement,
arbitration or other binding non- judicialprocedure, the Indemnifying
Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section or of the
Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this
Section, and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
10.5.4 In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder which does not involve
a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice")
describing in reasonable detail the nature of the claim, an estimate
of the amount of damages attributable to such claim and the basis of
the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 60 days from the Indemnifying Party's receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the
claim specified by the Indemnified Party in the Indemnity Notice shall
be deemed a liability of the Indemnifying Party hereunder. If the
Indemnifying Party has timely disputed such claim, as
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provided above, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction.
10.5.5 Payments of all amounts owing by an Indemnifying
Party pursuant to this Article 10 relating to a Third Party Claim
shall be made within 30 days after the latest of (i) the settlement of
such Third Party Claim, (ii) the expiration of the period for appeal
of a final adjudication of such Third Party Claim or (iii) the
expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party
pursuant to Section 10.5.4 shall be made within 30 days after the
later of (i) the expiration of the 60-day Indemnity Notice period or
(ii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under
this Agreement.
10.6. Insurance Proceeds. In determining the amount of any
loss, liability or expense for which the Purchaser is entitled to
indemnification under this Agreement, (i) the gross amount thereof shall be
reduced by any insurance proceeds realized after the Closing by any Company
under any insurance policy or policies maintained by any Company prior to the
Closing and which provided insurance coverage to any Company with respect to a
period prior to Closing and (ii) if the Purchaser has been indemnified by the
Sellers regarding a loss that is covered by an insurance policy of any Company
in effect prior to the Closing, the Sellers shall have the right to receive
(and the Purchaser shall assign the right to receive) any amounts received
after Closing or to be received under such insurance policy by the Purchaser or
the Companies for such loss but only to the extent of any indemnity payments
received by the Purchaser from the Sellers for such loss.
ARTICLE 11.
Brokers
The Sellers represent to the Purchaser that, except for
Dillon, Read & Co. Inc., which the Sellers represent has been retained by them
to assist and advise them in connection with the transactions contemplated by
this Agreement, the Sellers have not, directly or indirectly, employed any
broker, finder
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or intermediary in connection with such transactions who might be entitled
to a fee or commission from the Purchaser upon the execution of this Agreement
or consummation of the transactions contemplated hereby. The Purchaser
represents to the Sellers that, except for Merrill Lynch, Pierce, Fenner &
Smith Incorporated, which has been retained by the Purchaser to advise it in
connection with the transaction contemplated by this Agreement, the Purchaser
has not, directly or indirectly, employed any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission from any of the Sellers upon the execution of
this Agreement or the consummation of the transactions contemplated hereby.
ARTICLE 12.
Expenses
The parties agree that (i) the Sellers shall pay the costs and
expenses of the engagement of Dillon, Read & Co. Inc., to advise it in
connection with the transactions contemplated by this Agreement, (ii) the
Purchaser and the Sellers will each pay 50% of all filing fees which must be
paid to any governmental entity, subdivision or agency in connection with any
HSR Act filing which must be made in connection with the transactions
contemplated by this Agreement and (iii) the Purchaser shall pay all other
filing fees which must be paid to any governmental entity, subdivision or
agency in connection with any other filing which must be made in connection
with the transactions contemplated by this Agreement. Except as specifically
provided herein, all legal and other costs and expenses in connection with this
Agreement and the transactions contemplated hereby shall be paid by the Sellers
(and not any Company) or the Purchaser, as the case may be, depending upon
which party incurred such costs and expenses.
ARTICLE 13.
Notices; Miscellaneous
13.1. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered personally or when
received if sent by registered or certified mail, return receipt requested, or
by facsimile transmission, to the parties at the following addresses (or at
such other address as a party may specify by like notice):
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13.1.1 If to the Purchaser, to:
Kaufman and Broad Home Corporation
10990 Wilshire Blvd.
Los Angeles, California 90024
Attention: Albert Z. Praw
Facsimile: (310) 231-4222
with copies to:
Kaufman and Broad Home Corporation
10990 Wilshire Blvd.
Los Angeles, California 90024
Attention: Barton P. Pachino, Esq.
Facsimile: (310) 231-4280
David W. Ferguson, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Facsimile: (212) 450-4800
13.1.2 If to the Sellers, to:
Rayco Management, L.L.C.
4800 Fredericksburg Road
San Antonio, Texas 78229
Attention: Jack Biegler
Facsimile: (210) 344-9486
with copies to:
Matthews & Branscomb, P.C.
One Alamo Center
106 S. St. Mary's Street, Suite 800
San Antonio, Texas 78205
Attention: James M. Doyle, Jr., Esq.
Facsimile: (210) 226-0521; and
Cauthorn, Hale, Hornberger, Fuller,
Sheehan & Becker
One Riverwalk Place, Suite 620
San Antonio, Texas 78205
Attention: T. Drew Cauthorn, Esq.
Facsimile: (210) 271-1740
13.2. Books and Records. The Sellers agree to deliver, or
cause to be delivered, promptly after the Closing all corporate minute books,
stock transfer records and other records of each Company to the Purchaser, to
the extent not then in the possession of any Company.
85
<PAGE> 91
13.3. Miscellaneous.
13.3.1 Exclusive Agreement. This Agreement supersedes all
prior agreements between the parties (written or oral) other than the
Confidentiality Agreement, and, except as aforesaid, is intended as a
complete and exclusive statement of the terms of the agreement between
the parties.
13.3.2 Choice of Law: Amendments; Headings. This Agreement
shall be governed by the internal laws of the State of Texas (without
regard to the choice of law provisions thereof). This Agreement may
not be changed or terminated orally. No waiver by any party of any
default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence. The headings
and table of contents contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.3.3 Assignments and Third Parties. Except as
specifically contemplated by this Agreement (including, without
limitation, Section 2.1 above), no party hereto shall assign this
Agreement or any part hereof without the prior written consent of the
other parties. No such assignment shall release a party of any of its
obligations under this Agreement. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
Nothing in this Agreement shall entitle any person other than the
Sellers or the Purchaser, or their respective successors and assigns
permitted hereby, to any claim, cause of action, remedy or right of
any kind.
13.3.4 Incorporation of Schedules and Exhibits. The
Schedules and Exhibits identified in this Agreement are incorporated
herein by reference and made a part hereof. The Sellers may revise or
supplement the Schedules attached to this Agreement at any time during
the period from the date hereof to the date two days prior to the end
of the Due Diligence Period.
86
<PAGE> 92
13.3.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse
to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
13.3.6 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and the
same agreement. For convenience, this Agreement and any counterpart
hereof may be executed by a party or parties on separate signature
pages, and all such separate signature pages shall together constitute
the signature page or pages of this Agreement.
13.3.7 Further Assurances. The Sellers and the Purchaser
agree to take such further action and to deliver or cause to be
delivered to each other on the Closing Date and at such other times
thereafter as shall be reasonably agreed any such additional
instrument as any of them may reasonably request for the purpose of
carrying out this Agreement.
13.3.8 Time of the Essence. In the performance of this
Agreement, time is of the essence.
13.3.9 Mediation. The Sellers and the Purchaser agree that
prior to the institution of any legal proceedings concerning a
controversy or claim arising out of or relating to this Agreement, or
the breach thereof, the party seeking resolution of such claim or
controversy (the "Movant") will submit such claim to non-binding
mediation. The Movant shall notify in writing the other party against
whom such mediation is sought (the "Respondent"), describe the nature
of such claim, the provision of this Agreement which has been violated
by the Respondent, and the material facts surrounding such claim. If
the parties are unable to agree on the acting mediator, the Movant
shall
87
<PAGE> 93
appoint one mediator and the Respondent shall appoint one mediator to
appoint the acting mediator within fifteen (15) days of the date of
the foregoing described notice. Within fifteen (15) days of
appointment, such mediators shall appoint an acting mediator, who
shall act as the sole mediator of the claim or controversy. Each
party appointing a mediator shall bear all costs and expenses
associated with such mediator, except that the costs and expenses
associated with the acting mediator shall be borne equally by the
parties. Within thirty (30) days of the appointment of the foregoing
described acting mediator, the Movant and the Respondent shall hold a
mediation hearing before such mediator at such time and place as the
Movant and Respondent may agree. All mediation shall be entered into
in a spirit of cooperation and willingness to reach a mutual
resolution of the dispute. The acting mediator will conduct a full
and fair review of the claim or controversy, and shall meet with
representatives of the Sellers or the Purchaser if either party so
requests. If (i) within 90 days after the Movant has submitted the
claim or controversy to mediation there has been no resolution of the
claim or controversy or (ii) if the parties are unable to reach a
resolution through mediation, the acting mediator shall issue a
written notification to the Sellers and the Purchaser that the
mediation has not been successful. If, after the completion of such
mediation, settlement has not been achieved, all parties to this
Agreement may pursue any legal or other remedies which may be
available to it.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
SELLERS
Ray Ellison Industries, Inc.
By: /s/ JOHN H. WILLOME
----------------------------
John H. Willome, President
Rayco Management, L.L.C.
By: /s/ JOHN H. WILLOME
----------------------------
John H. Willome, President
88
<PAGE> 94
Ray Ellison Grandchildren Trust
By: /s/ RONALD K. CALGAARD
----------------------------
Ronald K. Calgaard, Trustee
By: /s/ A. BAKER DUNCAN
----------------------------
A. Baker Duncan, Trustee
By: /s/ BONNIE ELLISON
----------------------------
Bonnie Ellison, Trustee
EXECUTIVE OFFICERS
/s/ JOHN H. WILLOME
-------------------------------
John H. Willome
/s/ JACK E. BIEGLER
-------------------------------
Jack E. Biegler
/s/ JACK ROBINSON
-------------------------------
Jack Robinson
PURCHASER
Kaufman and Broad Home Corporation
By: /s/ BRUCE KARATZ
----------------------------
Name: Bruce Karatz
---------------------
Title: Chairman and Executive Officer
-------------------------------
89
<PAGE> 95
4.1.4 Violations and Consents (Industries)
Better Homes and Gardens Real Estate Service Contract dated
10/1/93 requires notification upon change of ownership (World
Wide Realty)
The Department of Housing and Urban Development (HUD) requires
notification upon change of ownership (Texas Homestead
Mortgage Company)
<PAGE> 96
4.1.5 Defaults (Industries)
NONE
<PAGE> 97
4.1.7 Changes (Industries)
First Quarter 1996 Incentive Compensation Program
1996 Annual Incentive Compensation Program
<PAGE> 98
1ST QUARTER STRATEGIC FOCUS
ON KEY ELEMENTS NECESSARY TO MAKE 1996 PLAN
I. SALES
1. Key Players
Area Sales Managers
World Wide Managers
2. Incentive
Pat Turner and WW Managers
<TABLE>
<CAPTION>
# Rayco Gross Sales Bonus
------------------- --------
<S> <C>
Over 300 $ 15,000
275-300 $ 5,000
</TABLE>
Cancellation rate cannot exceed 45%
Area Sales Managers
<TABLE>
<CAPTION>
$25,000 Bonus $10,000 Bonus
------------- -------------
<S> <C> <C>
Jose over 475 sales* 425-475 sales*
Kent over 675 sales 625-675 sales
LuAnn over 650 sales 600-650 sales
Becki M. over 35 sales 30-35 sales
</TABLE>
* Does not include Kenton Place
Based on Area Gross Sales-not including inner city.
Area cancellation rate cannot exceed 45%
II. AUTHORIZED STARTS
1. Key Player - Valerie Byrd
2. Incentive
<TABLE>
<CAPTION>
Authorized Starts Bonus
----------------- -------
<S> <C>
675 - 700 $ 5,000
700 - 725 $10,000
725 - 750 $15,000
Over 750 $25,000
</TABLE>
<PAGE> 99
III. DIRECT COST
1st Quarter Strategic targets - slab price and AD Cost
1. Key Players
Slab Price - Larry Oglesby and Tony Pena
AD Cost - Four Regional Construction Managers
2. Incentive
Slab Price -
A. Gary will establish an average cost/neighborhood based
on the last six months of 1995. This will be
approved by Amy and Barbara.
B. Gary will establish a benchmark for the 1st quarter
1996 using the last six months of 1995 history and
any known differences like topo, etc. This will be
approved by Amy and Barbara.
<TABLE>
<CAPTION>
1st Quarter Composite
Reduction Benchmark Bonus
--------------------- -----
<S> <C>
10%-15% $ 5,000
15%-20% $10,000
20%-25% $25,000
Over 25% $35,000
</TABLE>
AD Cost-
A. Barbara will establish a cost measurement for AD costs
based upon 1995 performance. Gary and Amy will
approve.
B. Barbara will measure performance by area for 1st
quarter. Gary and Amy will approve.
<TABLE>
<CAPTION>
1st Quarter Total ADs Bonus
--------------------- -----
<S> <C>
$825,000-900,000 $15,000
$750,000-824,999 $30,000
Under $750,000 $50,000
</TABLE>
Bonus payment may have some subjectivity by Barbara with Gary
and Amy's approval. Transferring dollars spent from
ADs to POs is not the intent of this program.
<PAGE> 100
IV. MORTGAGE ANALYSIS
Objective 1,000+ Mortgage, Analyses in 1996 and 250 Mortgage
Analyses in 1st Quarter
1. Key Players - Deborah Chandler
Becky Thieleman
2. Incentive - Based on number during 1st quarter
<TABLE>
<CAPTION>
Mortgage Analysis Bonus
----------------- -----
<S> <C>
200-225 $ 5,000
225-250 $10,000
250-275 $15,000
Over 275 $25,000
</TABLE>
<PAGE> 101
RAYCO COMPENSATION PROGRAM
The Rayco compensation program is designed to identify those
employees who have a direct affect on the Company's Financial
performance and give those employees a stake in the Company's
profitability.
The program includes the combined earnings of Rayco, Texas
Homestead Mortgage Company, World Wide Realty, and San Antonio Title
Company. For 1996, approximately 100 employees will participate
according to the following schedule:
<TABLE>
<CAPTION>
Combined Total
Earnings Distribution
-------- ------------
<S> <C>
Over $35,000,000 $ 4,867,500
$32,500,000-$35,000,000 $ 3,412,500
$30,000,000-$32,500,000 $ 2,650,000
$27,500,000-$30,000,000 $ 1,977,500
$25,000,000-$27,500,000 $ 1,492,500
Less than $25,000,000 None
</TABLE>
The expense is accrued on the financial statements of Rayco,
and is included in general and administrative expense.
The employees participating in this program consist of four
broad categories. The amounts shown assume Combined Earnings in
excess of $35,000,000:
A. Five Vice-Presidents will receive $250,000 each.
Base salaries range from $51,000 to $65,000. One participant also
receives a production bonus based upon closings.
B. Six department managers and three regional sales
managers are in the category receiving $100,000-$150,000. Base
salaries in this group range from $50,000 to $67,000.
C. Fourteen employees will receive $50,000-$75,000.
This group includes smaller department managers and regional
construction project managers. Base salaries in this category average
the low to mid $30s.
D. Approximately 46 employees will receive between
$20,000 and $40,000. This category consists of key production
employees involved in estimating, architecture, engineering and
various other departments. Base salaries in this category average the
mid to high $20s.
<PAGE> 102
4.1.8 - Taxes (Industries)
NONE
<PAGE> 103
4.1.9 Contracts, Agreements, Plans and Commitments (Industries)
Lease dated May 1, 1993 for the San Antonio Title Company office at
4242 Medical Drive, for a 3 year period and annual rents approximating
$60,000.
Purchase Agreement for GNMA, FNMA, and FHLMC Mortgage Loan Servicing
between Texas Homestead Mortgage Company and First State Bank of
Bandera and Norwest Bank, San Antonio, FKA Valley-Hi National Bank
Lease dated October 1, 1995 between Landata Inc. of San Antonio and
San Antonio Title Company for the operation and maintenance of a title
plant. The lease is month to month with annual rents approximating
$60,000.
First Quarter 1996 Incentive Compensation Program (See 4.1.7)
1996 Annual Incentive Compensation Program (See 4.1.7)
Better Homes and Gardens Real Estate Services Contract
Texas Homestead Mortgage Company "Rate Cap" Agreement
<PAGE> 104
4.1.10 Litigation (industries)
See Schedule of Pending Litigation (4.2.10)
<PAGE> 105
RAYCO, LTD. & AFFILIATES
INSURANCE COVERAGE RECAP
<TABLE>
<CAPTION>
LIMITS DEDUCTIBLE PREMIUM
----------- ---------- -------
<S> <C> <C> <C>
BUILDERS RISK $ 750,000 $ 50,000 $ 32,500
PERSONAL PROPERTY
VEHICLE $ 1,000,000 VARIOUS $ 47,170
EDP 1,028,985 2,500 1,000
CONTRACTORS EQUIP 183,000 2,500 915
MODEL HOMES 5,000,000 50,000 7,500
SHOWROOM 765,000 1,000 2,111
GENERAL BUILDINGS & CONTENTS 7,117,000 5,000 18,504
GENERAL LIABILITY $ 1,000,000 $ 10,000 $257,000
(PUNITIVE DAMAGES NOT COVERED)
UMBRELLA $10,000,000 $ 10,000 $ 79,000
(PUNITIVE DAMAGES NOT COVERED)
(SUBSIDENCE NOT COVERED)
EXCESS INDEMNITY
EACH EMPLOYEE $ 5,000,000 $500,000 $ 37,500
EACH OCCURRENCE 5,000,000
ANNUAL AGGREGATE 10,000,000
CUMULATIVE TRAUMA 1,000,000
--------
TOTAL $483,200
========
</TABLE>
<PAGE> 106
4.1.12 Patents, Trademarks, Etc. (Industries)
NONE
<PAGE> 107
4.1.13 Plans (Industries)
A. See Attached Employee Benefit Plan Summary
B. Employee Injury Benefit Program
C. First Quarter 1996 Incentive Compensation Program
D. 1996 Annual Incentive Compensation Program
E. Severence Policy
F. Vacation Policy
G. Personnel Manual
<PAGE> 108
EMPLOYMENT BENEFITS
NOVEMBER 1, 1995
I. GROUP MEDICAL/LIFE INSURANCE
A. HUMANA HEALTH CARE PLANS PPO (or preferred provider
organization) is currently the group medical insurance available to all
full-time employees.
The Company provides group medical insurance for full-time employees
at the Company's expense. Dependent coverage is available for a monthly
premium of $110.00 to the employee while the company pays balance. Deductions
are calculated by dividing the yearly cost by the number of the employee's pay
periods. See attached for brief description of benefits.
B. PRESCRIPTION DRUG COVERAGE is included in the Humana Health
Care Plan. A $15.00 copayment per prescription is required at participating
pharmacies. The participating pharmacies are all Eckerd's of San Antonio and
some surrounding areas. A membership card must be present with prescription at
participating pharmacy. Coverage includes a 100-unit or 34-day supply,
whichever is less, per prescription or refill. Generic medications will be
used when available.
If member elects a nonparticipating provider then the plan pays 70% of
covered expenses after a $15.00 copayment per prescription or refill. The
member must file a claim form to receive reimbursement.
C. The DENTAL PLAN 981 is also part of the Humana Health Care
Plan. Again, the member must choose a participating dentist from the provider
list in order to receive discounted fees for numerous dental treatments.
D. CIGNA LIFE INSURANCE as a group life insurance is a core
benefit to all fulltime employees. There, it is provided at no charge to the
employee. The policy amount is calculated at one times the employee's annual
salary.
THE FOLLOWING PROGRAMS ARE OFFERED THROUGH PAYROLL DEDUCTIONS AT NO
COST TO RAYCO. THE EMPLOYEE MAY PAY THE PREMIUMS USING THE PRETAX DOLLARS
THROUGH THE 125 PLAN.
EYE CARE PLAN OF AMERICA
- Discount Plan on usual retail eyewear purchases is available
to full-time employees with monthly premiums of:
$1.00 for employee only
$2.00 for employee and one member
$3.00 for family coverage
<PAGE> 109
2
o AMERICAN DENTAL
- Referral Plan through a network of participating providers is
available in the following categories based on monthly premiums:
$ 8.90 employee only
$15.90 employee and one
$19.90 family
Includes a schedule of benefits listing prices per procedures. 140
procedures in all.
- Dental Indemnity Plan based on monthly premiums on coverage as
follows:
$17.36 employee only
$34.70 employee and one
$43.40 family
Some preexisting conditions covered. Employee may choose any licensed
dentist. Full coordination of benefits with other plans. Increased benefits
each year for three years. Low deductible. Orthodontia benefits for eligible
members.
o COLONIAL LIFE & ACCIDENT INSURANCE
- Short term disability benefits available at a monthly premium which
depends on coverage. Includes accidental death and dismemberment benefits.
CIGNA LIFE INSURANCE
- Employee must purchase through the cafeteria plan elections.
Supplemental life insurance in which premium is based on coverage amount.
II. SECTION 125 - CAFETERIA PLAN
A. Child Care Reimbursement plan available.
Administered by company Payroll department.
B. Medical Reimbursement plan included. Administered by
LifeRe.
ELIGIBILITY
An employee becomes eligible for participation in the above plans following
completion of the 90-day continuous employment period. In addition, the
employee must be classified full-time status.
Upon separation of employment, employees and their dependents may apply for
continuation of group health coverage as provided by law.
<PAGE> 110
ELLISON INC.
HUMANA HEALTH CARE PLANS
<TABLE>
<CAPTION>
BENEFITS PARTICIPATING NON-PARTICIPATING
-------- ------------- -----------------
<S> <C> <C>
INPATIENT CARE 90% AFTER $300 DEDUCTIBLE 80% AFTER $600 DEDUCTIBLE
OUTPATIENT SURGERY 90% - NO DEDUCTIBLE 80% AFTER $600 DEDUCTIBLE
OUTPATIENT NON-SURGICAL 90% - NO DEDUCTIBLE 80% AFTER $600 DEDUCTIBLE
HOSPITAL EMERGENCY ROOM
FACILITY - 90% AFTER $25 DEDUCTIBLE 80% AFTER $600 DEDUCTIBLE
PER VISIT AND $25 CO-PAYMENT PER VISIT
PHYSICIAN - 100% AFTER $20 COPAYMENT 80% AFTER $600 DEDUCTIBLE
AND $25 CO-PAYMENT PER VISIT
ROUTINE OFFICE VISITS 100% AFTER $20 COPAYMENT 80% AFTER $600 DEDUCTIBLE
PREVENTIVE CARE:
WELL BABY CARE THROUGH THE 100% WELL BABY CARE AFTER 80% WELL BABY CARE AFTER
FIRST 24 MONTHS $20 COPAYMENT PER INSURED $600 DEDUCTIBLE
PHYSICALS UP TO $250 EVERY 80% AFTER $20 COPAYMENT 50% NOT SUBJECT TO DEDUCTIBLE
24 MONTHS PER INSURED
PHYSICIAN
INPATIENT 90% 80% OF REASONABLE CHGS. AFTER DED.
OUTPATIENT 90% 80% OF REASONABLE CHGS. AFTER DED.
PRESCRIPTIONS SEE RIDER SEE RIDER
</TABLE>
IN THE EVENT OF A PREGNANCY THE $20 CO-PAYMENT WILL BE REQUIRED AT THE INITIAL
VISIT ONLY.
This is a brief plan description. It is not the plan document and does not
include all of the covered services, limitations and inclusions of the plan.
Complete terms of the plan are contained in the group plan documents.
<PAGE> 111
4.1.14 Encumbrances on Assets (Industries)
NONE
<PAGE> 112
4.1.16 Environmental Matters (Industries)
NONE
<PAGE> 113
4.1.17 Liabilities (Industries)
NONE
<PAGE> 114
4.1.19 Intercompany Balances (industries)
<TABLE>
<S> <C> <C>
Balances at 9/30/95 Amount Receivable
From/To (Payable)
San Antonio Title Company Texas Homestead Mortgage Co. $ 62,679
World Wide Realty Texas Homestead Mortgage Co. ($28,044)
Texas Homestead Mortgage Co. World Wide Realty $ 28,044
San Antonio Title Co ($ 62,679)
Rayco $ 4,968,950
Ellison Investments 84-1, Inc. ($6,706,392)
</TABLE>
<PAGE> 115
4.1.28 Terminating Employees
NONE
<PAGE> 116
4.2.3 Encumbrances on GP Interest and LP Interest
The Limited Partnership and General Partnership Interests are
pledged as collateral to Guaranty F.S.B.
<PAGE> 117
4.2.4 Violations and Consent (Management)
The indebtedness to Guaranty F.S.B. prohibits the transfer of
ownership.
<PAGE> 118
4.2.5 Defaults (LLC)
NONE
<PAGE> 119
4.2.7 Changes (LLC)
First Quarter 1996 Incentive Compensation Program (See 4.1.7)
1996 Annual Incentive Compensation Program (See 4.1.7)
<PAGE> 120
4.2.8 Taxes (Rayco)
Rayco is currently undergoing a sales tax audit of the period
1/1/92 - 7/1/95. No material tax liability has been revealed.
<PAGE> 121
4.2.9 Contracts, Agreements, Plans and Commitments (LLC)
Lease dated September 16, 1991 for the Rayco Showroom at 12235
San Pedro. Lease is for the period of six years with two
three-year renewal options. Monthly payments approximate
$150,000 annually and include property taxes insurance, and
letter of credit fees.
Main office lease to an affiliate, Rayco Management LLC., dated
January 1, 1996 for approximately 6,132 sq. ft. for five years
at $4,300 per month.
Guaranty F.S.B. Debt
Advertising Agreements for the Trade-Out of Billboards
See Schedule of Pending Land Purchases
1996 Purchase commitments with Hart Lumber Company and Ince
Distributing
First Quarter 1996 Incentive Compensation Program
1996 Annual Incentive Compensation Program
Overhead income received from Ray Ellison Mortgage Acceptance
Corp. paid monthly at $8,000 per month.
See attached list of outstanding commitments for
contributions, dues, and public relations expenditures.
Letters of credit in the amount of $1,564,387 secured by GNMA
securities and unsecured letters of credit in the amount of
$399,065. All letters of credit are for subdivision
development.
See Attached Schedule of Lot Development Projects under
Construction
<PAGE> 122
PROJECTED PURCHASES (LAND AND LOTS)
REVISED 1/23/96
<TABLE>
<CAPTION>
NUMBER PRICE PURCHASE CASH/ EARNEST
OF PER PRICE OPTION MONEY/
LOTS/ACRES LOT/ACRE CONTRACT TERM DOWN PAYMENT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. NEW TERRITORIES 26 LOTS $6,800 $183,600 CASH N/A $9,000
2. MODCO 25 LOTS $3,566 $89,150 CASH N/A N/A
3. WESTCREEK 70 AC $17,653 $1,235,696 CASH N/A $25,000
4. CINNAMON HILLS 13+ AC $40,000 $525,000 CASH N/A $100,000
(KENTON PLACE)
5. LONGS CREEK 24 AC $10,000 $240,000 CASH N/A $10,000
6. SALADO BLUFF 42 LOTS $35,500 $1,491,000 TERMS 2 YEARS $25,000
7. BENKE 27+ AC $12,000 $332,000 CASH N/A $25,000
(FIELDSTONE)
8. HELOTES (NANCE) 73+ AC $12,500 $1,005,000 CASH N/A $25,000
---------- --------
TOTAL $5,101,446 $219,000
========== ========
</TABLE>
<TABLE>
<CAPTION>
CONTRACT DEVELOPMENT FEASIBILITY CLOSING CASH PAYMENT PROBABILITY
STATUS STATUS PERIOD DATE TO SCHEDULE OF
CLOSE CLOSING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. NEW TERRITORIES TITLE COMPLETE 20 DAYS 01/22/96 $173,600 N/A 100%
COMPANY
2. MODCO TITLE COMPLETE N/A 01/24/96 $89,150 N/A 90%
COMPANY
3. WESTCREEK TITLE RAW LAND 17 DAYS 01/31/96 $1,210,694 N/A 90%
COMPANY
4. CINNAMON HILLS TITLE RAW LAND 60 DAYS 02/01/96 $425,000 N/A 90%
(KENTON PLACE) COMPANY
5. LONGS CREEK TITLE RAW LAND 26 DAYS 02/12/96 $230,000 N/A 90%
COMPANY
6. SALADO BLUFF TITLE COMPLETE N/A 03/01/96 $263,200 QTLY P&I 100%
COMPANY
7. BENKE TITLE RAW LAND 60 DAYS 03/01/96 $307,000 N/A 90%
COMPANY
8. HELOTES (NANCE) TITLE RAW LAND 60 DAYS 06/10/96 $980,000 N/A 75%
COMPANY
----------
TOTAL $3,678,646
==========
</TABLE>
NOTE: The feasibility periods for all contracts except Longs Creek have
expired. The Longs Creek feasibility period expires on 2/5/96.
Cinnamon Hills, Benke, and Nance contracts are contingent upon final
plot approval on the property.
DISTRIBUTION:
JACK WILLOME AMY O'NEIL
JACK BIEGLER LOCKSLEY SIMMONS
JACK ROBINSON
<PAGE> 123
PROJECTS UNDER CONSTRUCTION
<TABLE>
<CAPTION>
UNIT CONTRACTOR CONTRACT CONTRACT UNPAID
AMOUNT DATE BALANCE
<S> <C> <C> <C> <C>
CREEKSIDE #1 V.K. KNOWLTON $1,409,959.84 8/31/95 $231,742.65
CREEKSIDE #2 V.K. KNOWLTON $655,203.37 9/28/95 $428,919.46
GUILBEAU #5/NEW TERRITORIES 12-B V.K. KNOWLTON $497,771.20 9/11/95 $101,934.98
ASHLEY PLACE #2 V.K. KNOWLTON $1,044,466.25 9/25/95 $623,135.78
KENTON PLACE V.K. KNOWLTON $397,162.90 1/26/96 $397,162.90
REDLAND WOODS #5 V.K. KNOWLTON $683,192.68 11/17/95 $571,137.78
NORTHWEST CROSSING #40 PIPELAYERS, INC. $690,514.60 9/15/95 $237,745.17
LONGS CREEK #9 PIPELAYERS, INC. $579,492.29 7/15/96 $269,030.35
LONGS CREEK #10 PIPELAYERS, INC. $627,702.80 1/22/96 $627,702.80
CRESTRIDGE #1 ELLA CONTRACTING $674,804.55 6/30/95 $207,885.41
CRESTRIDGE #2 ELLA CONTRACTING $382,286.82 1/15/96 $382,286.82
CREEKSIDE OUTFALL L&J CONSTRUCTION $186,994.50 12/19/95 $186,984.50
LINCOLN PARK #2 YANTIS $597,874.40 11/28/95 $206,167.30
LONGS CREEK #9 & #l0 OUTFALL YANTIS $288,702.70 $288,702.70
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
Vendor Contribution Dues P.R. Amount
- ------ ------------ ---- ---- ------
<S> <C> <C> <C> <C>
Aging Research and Education Center x S10,000 in 1996
Alamo Area Council - Boy Scouts of x $3,000
America (Hispanic Program)
Cancer Therapy and Research Center x S2,000 per year - last
payment in 1996
Child Care Collaborative x S5,000 per year
through 1999
Incarnate Word College x $5,000
Our Lade of the Lake University x $2,000
Salvation Army x $ 1,000 per year
through 1998
San Antonio Education Partnership x $15,000 per year
through 1998
San Antonio Medical Foundation x $1,000 per year
Trinity University - Business Affifliates x $2,500
Trinity University - Ray Ellison Luncheon x $5,000 for the luncheon
and Symposium and $3,750 to teachers
United Way x $42,500
University of Texas Health Science x $1,000
Center at San Antonio
Greater Austin-San Antonio Corridor x $1,000 per year
Council, Inc.
Greater San Antonio Chamber of x $4,000
Commerce
Responsible Development for San Antonio x $10,000 in 1996
San Antonio Economic Development Fdtn x $10,000
San Antonio Hispanic Chamber of x $1,000
Commerce
Urban Land Institute x $2,250
Greater SA Chamber of Commerce x $6,000 per year for a
Forward San Antonio total of $30,000 to be
paid in full on or before
December 31, 1998
</TABLE>
<PAGE> 125
4.2.10 Litigation
See Schedule of Pending Litigation Attached
<PAGE> 126
Pending Litigation, Claims and Potential Claims
Rayco, Ltd.
Texas Homestead Mortgage Company
San Antonio Title Company
World Wide Realty/Better Homes & Gardens
January 22, 1996
UPDATED TO JANUARY 31, 1996
GLORIA SILVESTRO VS RAYCO, LTD. (RICHMOND LUMBER DIVISION)
Sexual harassment, discrimination and assault claim. This is one of the most
bogus claims that has been made. The claimant alleges that she was passed over
for promotion to manager even though she was better qualified. Prior to her
employment with Rayco (first as a clerk, then as an office manager with small
staff) she operated a home cleaning business out of her residence. The person
receiving the position, as General Manager of Richmond, had a college degree in
appropriate studies, had been a home builder, and worked in the Estimating
Department of Rayco for several years, in a supervisory position with much
greater authority. The assault was nothing more than being bumped into in a
crowded hallway. The sexual harassment claim is equally as weak. At the
request of the claimant, the EEOC issued a right-to-sue letter.
The damages sought have not been determined. It is expected that the greatest
exposure will be for the cost of defense. Defense cost are estimated at
$15,000 to $30,000.
JIM HAMILTON VS RAYCO
This is an age discrimination claim. Again, the claimant requested a
right-to-sue letter. Claimant alleges that he was discharged in order to
control medical benefit costs. Claimant had been terminated once for failing
to follow the dress code and attendance rules; he was rehired about one year
later. Again, the claimant began to ignore the customers and company policies
and was discharged. It is expected that the greatest exposure will be for the
cost of defense. Future defense costs are estimated at $15,000 to $25,000.
The settlement demands are so ridiculous that this case is not likely to
settle. The matter has been removed to the federal court. Removal has been
contested by Claimant fees. The case has been remanded back to the state
district court. Claimant's counsel appears to be attempting to build
attorney's fees.
1
<PAGE> 127
SERGIO GARCIA VS RAYCO
Claimant alleges faulty wiring. Investigation reveals power surges from the
utility transfer. Rayco will be fully indemnified by the electrical
contractor. Only nominal attorney's fees have been incurred. An offer to
repurchase the residence has been made. If the repurchase is accepted, Rayco
will be in a near break even position. Future attorney's fees may run
$1,000.00 if the settlement is approved and $10,000.00 if the settlement is
not approved.
CHRIS WEBER VS RAYCO AND JESSE MURPHY
Claimant is an attorney who had provided services to three community
associations. The association directors voted to terminate his services.
Claimant sued Rayco (and General Counsel who was also on the association
boards) for civil conspiracy and defamation. These claims are being defended
by insurance carriers. The primary defense is provided by the carriers for the
three associations; motions for summary judgment will be filed shortly.
Although the claim is for $2,500,000 in lost income, it is believed that there
is no evidence to support the claims. It is believed that this is a frivolous
claim. Motion for Summary Judgement has been granted as to Jesse Murphy, named
individually as codefendant. Rayco did not join in the Motion, but will file
its own motion later. Because the only allegation against Rayco was conspiracy
and it takes two to conspire, it is strongly expected that Rayco will be
dismissed on summary judgment. Both Rayco and Jesse Murphy are represented by
insurance carrier appointed attorneys. Rayco has a $5,000.00 deductible. I do
not believe any additional reserve should be set up in excess of the insurance
deductible. Rayco's insurance appointed attorney will be substituted for
Rayco's retained counsel. The case will be subject to appeal.
ROLANDO GOMEZ CLAIM AGAINST RAYCO, LTD.
Claimant alleges faulty construction. A review of the plans reveals an error;
the PI of the soil was shown as 49 but the actual PI is 65. Therefore the slab
was in fact under designed. An offer to repurchase the home has been made.
This matter is being submitted to JAMS for binding arbitration. If the
residence were repurchased, repaired and resold, the expected financial
exposure is estimated at $20,000.00 to $35,000.00, depending on the attorney's
fee award by the arbitrator.
2
<PAGE> 128
ARTURO VILLAREAL CLAIM AGAINST RAYCO, LTD.
Home buyer is concerned with foundation movement but does not want to rescind
the purchase. There has been excessive movement, but proper drainage has now
been restored. Rayco has offered a price guarantee, good for ten years. The
maximum risk is not expected to exceed $10,000. This matter is now near its
end, resulting in a repurchase.
CLARK BOEKEN VS RAYCO
Claimant alleges defective construction on a "build on your lot" residence.
The foundation is well designed, but a leaky swimming pool on one side and a
water consuming tree on the other have caused a slight flex. There is a
hairline crack, but it does not endanger the residence. Arbitration has been
ordered by the district court. Maximum risk is estimated at $20,000 including
attorney's fees. We are presently awaiting the arbitration hearing date.
Rayco filed suit to compel arbitration. Hearing date scheduled for March 7 and
8, 1996.
CARLOS MORAN COMPLAINT AGAINST TEXAS HOMESTEAD MORTGAGE COMPANY
Self-employed Hispanic borrower went to apply for loan, but before application
was complete was told that it would be futile because income tax forms showed
too little income. Borrower got angry and left. He was immediately asked to
return and have his loan application completed. Because the issue did not
involve any racial discrimination, and the employees involved were promptly
reprimanded, the total estimated risk (defense and settlement) is estimated at
less than $10,000. Claimant has offered to settle for $4,000.00. THMC has
offered $1,000.00.
EUGENE AND CARRIE HILL AGAINST RAYCO AND TEXAS HOMESTEAD MORTGAGE COMPANY
Black buyers were informed that Texas Homestead Mortgage Company would not
approve their loan but Texas Homestead Mortgage Company also asked if they
would like the loan package submitted directly to VA. It was and VA rejected
the loan. The sale was cancelled and the residence resold. Several months
later, the buyers contracted for a more expensive residence in another Rayco
community. Because no significant changes in income, debt or credit history
had been made, the second loan was rejected by Texas Homestead Mortgage
Company. The first home was resold to a black family; the second home was sold
to a white family. No outside expenses or settlement costs are expected. No
settlement demand has been made and no offer has been made.
3
<PAGE> 129
AMY AIRD POTENTIAL CLAIM AGAINST RAYCO, LTD.
Amy Aird resigned from Rayco and appears to be attempting to make a claim
against Rayco for unspecified reasons. She began having personal problems
which began to interfere with her work. She was reassigned to a less
responsible position, but quit when her sick time was used up. She has counsel
but no claim has been made by counsel. Ms. Aird demanded one year salary in
settlement at the time of her resignation. She resigned on September 22, 1995;
the limitations for bringing a discrimination claim are rapidly running. She
retained counsel, but no demand has been made and no suit or complaint has been
filed.
LIZCANO VS RAYCO, LTD.
Claimant is an employee of a contractor. He fell from a ladder which was
struck by a small tractor. Liability is nil and the defense if provided by the
insurance carrier. A Motion For Summary Judgment is pending in this case. I
expect Rayco to be dismissed from the case shortly. I would only allocate the
$5,000.00 deductible.
KRISTIN SQUYRES
Suit filed January 22 and served January 25, 1996, alleging construction
defects. Suit will be abated for non-compliance with statutes and to compel
arbitration. In August, 1995, Rayco offered a replacement home; this was
listed by Customer Service Manager for possible repurchase in 1996.
VERNON MOTES VS RAYCO
This claim was not earlier reported because it was Rayco's belief that
accounting provided claimant resolved all issues. The file was dormant for
months. It was learned January 30 that suit had been filed. Later a notice of
judgment was received by mail. A review of the court records shows that
citation was served on December 26, 1995, a date when the registered agent was
on vacation. Motion for new trial is being prepared; if motion is rejected, an
appeal will be filed. There are meritorious defenses. The suit alleges
commissions due in the amount of $65,000.00 and lost future commissions of
$280,000.00.
MARISSA KNUFFKE VS LISA BRANDT AND WORLD WIDE REALTY/BETTER HOMES & GARDENS
Suit for failure to disclose a malfunctioning septic system. The septic had
failed a prior inspection but repairs were made. The septic system failed
several months after closing. This is being defended under the E & 0 policy
through Better Homes & Gardens. Clemens & Spencer is representing World Wide
Realty/Better Homes & Gardens.
4
<PAGE> 130
TONI GREEN VS RAYCO
Personal injury; claims raped in model home during business hours; police
investigation does not believe claim in legitimate. This is an insured claim;
our attorney is Ron Hood, from Houston.
OTHER MATTERS: There is a small number of homes that are experiencing
unexpected foundation movement. When Rayco cannot readily
solve the problem, an offer is made to repurchase the
residence. The home is then placed in the rental market until
the foundation is stabilized and the home is ready for resale.
Foundation movement is disclosed on the resale. It is
believed that this process costs approximately ten percent
(10%) of the price of the residence. Very few homes fall into
this category.
5
<PAGE> 131
4.2.10 Litigation (Continued)
Rayco has contracted to purchase two tracts of land adjoining the
Villages of Westcreek Subdivision from VWC, Ltd. The Earnest Money Contract
between VWC, Ltd. and Rayco provides that, at the written request of Rayco,
VWC, Ltd. shall annex the property being acquired by Rayco into the Villages of
Westcreek as contemplated by the Villages of Westcreek Declaration of
Covenants, Conditions and Restrictions. Centex Real Estate Corporation has
notified VWC, Ltd. that, in the opinion of Centex, VWC, Ltd. does not have the
Declarant status necessary to annex the property to be acquired by Rayco into
the Villages of Westcreek, that VWC, Ltd. does not have the right to assign
Declarant status to Rayco, and that Centex will oppose any attempts to effect
such annexation and will join the Villages of Westcreek Homeowners Association
in legal action to prevent such annexation from occurring.
<PAGE> 132
4.2.11 Insurance
See Insurance Summary 4.1.11
<PAGE> 133
4.2.12 Patents, Trademarks, etc. (LLC)
NONE
<PAGE> 134
4.2.13 Rayco Plans
A. See Plans and Policies Decribed in 4.1.13
B. Employee Home Purchase Discount Programs
C. Deferred Compensation Death Plan Benefit for the following:
John H. Willome
Jack Robinson
Jack Biegler
Amy O'Neil
Gary Gentz
Ken Gancarczyk
Herb Quiroga
<PAGE> 135
4.2.14 Encumbrances (Rayco)
Guaranty Federal Savings Debt
Kansas City Life Insurance note payable collateralized by the
Main Office Building.
The adjoining parking lot to the north of the main office
building is leased on a month to month basis for $200/month.
Cash Surrender Value of Principal Mutual Life Insurance
Policies
<PAGE> 136
4.2.16 Environmental Matters (Rayco)
NONE
<PAGE> 137
4.2.17 Liabilities (Rayco)
NONE
<PAGE> 138
4.2.19 Intercompany Balances (Rayco)
<TABLE>
<CAPTION>
Balances at 9/30/95 Amount Receivable
From/To (Payable)
<S> <C>
Texas Homestead Mortgage Co ($4,968,950)
</TABLE>
<PAGE> 139
4.2.23 Flood Plains
See Attached Schedule
<PAGE> 140
TOTAL LAND LOCATED WITHIN THE 100 YR. FLOOD PLAIN.
1. Eckert Crossing Subdivsion, 9.241 Acres of land, located on the
Northwesterly portion of the City of San Antonio, off Eckert Road and
Border Mist Dr.
2. Redland Woods Subdivision, 64.896 Acres of land, located on the
Northerly portion of the City of San Antonio, off Redland Road and
Gold Canyon Road.
3. Canyon Oaks Subdivision, 68.056 Acres of land, located on the
Northerly portion of the City of San Antonio, off Gold Canyon Road and
F. M. 1604.
4. Northampton Subdivision, 19.38 Acres of land, located on the
Northeasterly portion of the City of San Antonio, off Sequin Road and
Manderly Place.
5. Ventura Subdivision Unit 25 and 26, 28.50 Acres of land, located on
the Northeasterly portion of the City of San Antonio, off Sequin Road
and Proposed Walzem Road Extension.
<PAGE> 141
4.2.25 Warranty Claims
See Attached List
HOME/RWC of Texas Limited Warranty Program
<PAGE> 142
RAYCO 1995 REPURCHASES, RESCISSIONS OR SUBSTITUTIONS OF COLLATERAL
7453 Myrtle Trail - (Matthews)
Original move-in date 10/89. Rayco offered to place the buyer into
another similar home and substitute the collateral for the loan.
The house was experiencing significant foundation movement.
No litigation was involved.
A new home was built and the collateral was substituted.
11094 Cedar Park - (Kehoe)
Original move-in date 6/90.
Litigation occurred alleging a faulty foundation. A settlement and
repurchase agreement was reached between Rayco and the plaintiff which included
repurchase of the home, moving expenses, $5,000 damages, and $2,500 plaintiff's
attorney fees.
7710 Autumn Park (Garza)
Original move-in date 4-91. Ex-model home. Litigation
occurred alleging a faulty foundation. Settlement of the case included
rescission of the contract and $5,000 plaintiff's attorney fees.
7714 Autumn Park - (Geary)
Same as above (7710 Autumn Park). Original move-in 4-91. Ex-model,
same plaintiff attorney handled case. Alleged faulty foundation. Settlement
of the case included rescission of the contract and $5,000 in plaintiff's
attorney fees.
11335 Candle Park - (Higginbotham)
Original move-in 9/90. Litigation occurred alleging a faulty
foundation. The transaction was rescinded to settle the case. Rayco paid
$2,500 in plaintiffs attorney fees.
1
<PAGE> 143
8146 Bent Meadow - (Colunga)
Original move-in 8-93 Litigation occurred alleging faulty sheetrock
and/or framing of the residence. The transaction was rescinded and $750
plaintiff attorney fees were paid to settle the case.
6607 Meadow Fawn - (Grelle)
Original move-in date 12-92. Litigation occurred alleging a faulty
foundation. The case was settled for repurchase of the home and $2500 in
plaintiff's attorney fees.
8323 Pine Meadow - (Martin)
Original move-in date 12-92. Rayco offered to place the buyer into
another similar home and substitute the collateral for the loan.
The house was experiencing significant foundation movement. No
litigation involved. A new home was built and the collateral was substituted.
2
<PAGE> 144
POSSIBLE REPURCHASES, RESCISSIONS, OR SUBSTITUTION OF COLLATERAL IN 1996
AND/OR COST OF REPAIRS THAT MAY EXCEED $5,000
7450 Myrtle Trail - (Tougas)
Original move-in 11-88.
Excessive foundation movement. Rayco has agreed to pay existing note
balance.
7603 Stone Crop - (Garcia)
Original move-in 12-92.
Plaintiff attorney is involved, alleging defective wiring and framing
of the residence. At this time, Rayco does not believe these defects exist,
however expert and attorney fees coupled with the exposure from a jury trial
outweigh the benefits of proof of no defect.
Rayco outside attorney has made an offer to repurchase or rescind.
16511 Eagle Cross - (Villarreal)
Original move-in 5-92.
The homeowner (Mr. Villarreal) is an Engineer II of the City of San
Antonio Dept. of Aviation. He is alleging a structural problem with the home
due to a faulty foundation. Significant foundation movement is occurring.
Rayco has made alternative offers to repair and guarantee market value, provide
a new home and substitute the collateral on the existing loan, or repurchase
the home and pay for moving expenses.
There is no plaintiff attorney involved that we are aware of as of
1/20/96.
Repairs may range $6,000-9,000.
3
<PAGE> 145
300 Hill Country Lane - (Boeken)
The Rayco Custom Home Dept. built a home on Mr. Boeken's "acreage" size
lot. Differential foundation movement occurred in the new home after final
inspection but prior to closing. Mr. Boeken has refused to close.
Attorneys are involved and Binding Arbitration will occur soon.
Mr. Boeken has previously demanded that piers be installed around the
residence and Rayco pay Mr. Boeken $130,000 for diminution in value of the
residence.
Repairs may range from a few thousand dollars (no piers) to $20,000
(piers) or more, depending upon the outcome of the Arbitration.
8135 Chestnut Barr - (Gomez)
Original move-in 3-94.
Attorneys are involved, and Binding Arbitration will occur soon.
A minimal amount of differential foundation movement occurred. An
investigation revealed that an incorrect plasticity index was used in the
design criteria for the foundation, and the foundation was under-designed.
When this was discovered, Rayco offered to repurchase the home.
Mr. Gomez has asked for an exorbitant amount.
4819 Fern Lake - (Squyres)
Original move-in 1-94.
Differential foundation movement occurring. Plaintiff attorney
involved. Rayco offered to repair or place Squyres into a new home and
substitute the loan collateral.
Plaintiff attorney to respond.
4
<PAGE> 146
7959 D Real Road - (Lazarr)
Original move-in 4-94. Custom home. Plaintiff attorney involved.
Two-story brick home with brick mortar that may not meet hardness criteria.
Also wind bracing issue.
Original bricker no longer available.
Repairs could range $4,000 - $15,000.
16614 Calico Creek - (Reilly)
Original move-in 12-92. Old model. No plaintiff attorneys involved
at this time.
Significant foundation movement. Rayco has offered to install piers.
Repairs expected in the $7,000-8,000 range.
11222 Cedar Park - (Quintanilla)
Original move-in 6-29-91.
Significant foundation movement. Rayco has offered piers. Repairs
expected in the $8,000-10,000 range. No plaintiff attorneys involved at this
time.
9214 Roquefort - (Blanchard)
Original move-in 6-93.
Rayco has just been made aware of this situation and will investigate
and respond. A Regional Customer Service Manager reports significant
foundation movement.
THE ABOVE SITUATIONS ARE ONES THAT WE ARE AWARE OF THAT ARE LIKELY TO
RESULT IN REPURCHASE, RESCISSION, SUBSTITUTION OF COLLATERAL OR REPAIR
EXPENSES EXCEEDING $5,000 IN 1996. THERE MAY BE OTHER SIMILAR
SITUATIONS, WHICH WE ARE PRESENTLY UNAWARE OF, THAT MAY OCCUR IN 1996.
5
<PAGE> 147
REPAIR EXPENSES IN 1995 THAT EXCEEDED $5,000 ON A HOME
Presently, Rayco does not track these expenses summarily. Copies of
all repairs and invoices are kept in each individual house file. Expenses in
excess of $5,000 in 1995 for repairs on a home could include homes that were
built in 1995, or earlier. This includes thousands of homes.
Subcontractors are held accountable for construction defects when
possible. There are very few homes that the cost of repair exceeds $5,000.
To the best of the Director of Customer Service's knowledge, $5,000 or
more in repair costs was spent on only one home at the following address in
1995:
8207 Talkenhorn - (Patternson)
Water seepage into the garage foundation occurred. Approximately
$7,500 has been spent in evaluation and grading work to resolve this situation.
There is a plaintiff attorney involved here. The customers want Rayco to buy
their house.
Binding Arbitration or a guarantee of market value may occur here.
6
<PAGE> 148
RAYCO
CONSTRUCTION LITIGATION
Most of the soils in Bexar County are expansive. They experience
volume changes that correlate in chances with the moisture content of the
soils. These changes in volume may result in movement of the foundations which
are supported by the soils. Some degree of movement of the foundation is
expected and will occur.
When the volume changes of the soils are uneven underneath the
foundation, differential foundation movement may occur, which can place stress
on the structure.
Design engineers take into account the soil conditions when designing
a foundation. Proper foundation maintenance, also, can minimize foundation
movement. However, at times, a properly designed and maintained foundation may
experience an unacceptable amount of differential movement.
Rayco takes a proactive approach in educating its customers about
foundation movement and the importance of maintenance. Relative to the number
of homes constructed, the problems with foundation movement are minimal.
Differential foundation movement is the most likely construction
related issue to result in attorney involvement with the customer.
Approximately two years ago, an agreement of Binding Arbitration to
solve disputes was installed into the Rayco Purchase Agreement. It is expected
this will expedite the resolution of disputes, and limit damages when Rayco is
unable to reasonably satisfy the customer.
Rayco makes a concerted effort to set customer expectations, respond
fairly and avoid disputes.
<PAGE> 149
[SAMPLE]
HOME/RWC OF TEXAS
5300 Derry Street, Harrisburg, PA 17111-3598
717-561-4480
LIMITED WARRANTY PROGRAM
INSURER: WARRANTY UNDERWRITERS INSURANCE COMPANY
PLACE VALIDATION STICKER HERE
SUBJECT TO
CHANGE. NO
WARRANTY INVALID WARRANTY
WITHOUT STICKER AND WILL BE ISSUED
APPLICATION FOR WARRANTY UNLESS THE
FORM (#8316) BUILDER
COMPLIES
[HOME/RWC OF TEXAS LOGO] WITH ALL
WARRANTY
PROGRAM
STANDARDS.
Within six weeks after receiving this Warranty book, you should receive a
validation sticker from the Administrator. If you do not, contact your BUILDER
to verify the forms were properly processed and sent to the Adminstrator. You
do NOT have a warranty without the validation sticker.
THIS LIMITED WARRANTY DOES NOT COVER CONSEQUENTIAL OR INCIDENTAL DAMAGES.
LIABILITY UNDER THIS LIMITED WARRANTY IS LIMITED TO THE FINAL SALES PRICE
LISTED ON THE APPLICATION FOR WARRANTY FORM.
THE BUILDER MAKES NO HOUSING MERCHANT IMPLIED WARRANTY OR ANY OTHER WARRANTIES,
EXPRESS OR IMPLIED, IN CONNECTION WITH THE ATTACHED SALES CONTRACT OR THE
WARRANTED HOME, AND ALL SUCH WARRANTIES ARE EXCLUDED, EXCEPT AS EXPRESSLY
PROVIDED IN THIS LIMITED WARRANTY. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND
THE FACE OF THIS LIMITED WARRANTY.
Some states do not allow the exclusion or limitation of incidental or
consequential damages by the Builder so all of the above limitations or
exclusions may not apply to you.
HR #8320
(c) 1994 Harrisburg, PA
Rev. 9/24/94
<PAGE> 150
[SAMPLE]
[HOME/RWC OF TEXAS LETTERHEAD]
DEAR HOMEBUYER:
Congratulations on the purchase of your new home. This is probably the
largest, most important single investment you've ever made and we wish you many
years of enjoyment.
This limited warranty affords you protection for ten full years of home
ownership. During the first two years, your Builder provides the warranty
coverage described in this booklet. The warranty program stands behind your
Builder and protects you in the event your Builder fails to perform. During
the next eight years, your warranty protects your home against major structural
defects as defined in the warranty.
Your warranty does contain certain exclusions and limitations. It is just as
important for you to understand these exclusions/limitations as it is for you
to understand your coverages.
Take a minute now to read this booklet in its entirety. This booklet defines
the warranty's responsibilities to you and your responsibility to your home.
It is vital that homeowners and condominium associations perform required
maintenance. Without such maintenance this warranty will be voided. Your
Builder or the Administrator's staff will be able to answer any questions you
may have about the warranty or specific construction standards and how they
apply to your home.
Again, congratulations and enjoy your new home!
Very truly yours,
HOME/RWC OF TEXAS
<PAGE> 151
[SAMPLE]
CONTENTS
- -------------------------------------------------------------------------------
INTRODUCTION
-----------------------------------------------------------------------
HOME OWNER MAINTENANCE FOR HOMES CONSTRUCTED ON ACTIVE SOILS
-----------------------------------------------------------------------
SECTION A. THE LIMITED WARRANTY PROGRAM
-----------------------------------------------------------------------
Protection Provided.................................................. 2
Condominium Coverage - Common Elements .............................. 2
Builder's Responsibility and Purchaser's Rights: Years One and Two .. 2
Conditions Affecting Builder's and/or Insurer's Responsibilities
for Warranty program and Purchaser's Rights ......................... 2
How to Make a Warranty Claim; Dispute Settlement .................... 3
Timing of Arbitration Actions ....................................... 5
Role of Home/RWC of Texas ........................................... 5
General Terms and Conditions Affecting This Agreement ............... 5
SECTION B. DEFINITIONS AND EXCLUSIONS
-----------------------------------------------------------------------
Definitions ......................................................... 5
Exclusions .......................................................... 6
SECTION C. WARRANTY STANDARDS
-----------------------------------------------------------------------
Purpose of the Standards ............................................ 7
Conditions Applicable ............................................... 7
Additional Conditions: Purchaser's Responsibility ................... 8
Standards Applicable During Year One Only ........................... 8
Standards Applicable During Year One and Two ....................... 16
Standards Applicable During Year Three Through Ten ................. 16
SECTION D. ADDENDUMS AND APPENDIX
-----------------------------------------------------------------------
HUD/VA Addendum .................................................... 17
<PAGE> 152
[SAMPLE]
LIMITED WARRANTY PROGRAM
INTRODUCTION
HOME/RWC of Texas ("Administrator",) administers the limited warranty program
as described in this Agreement. During the first two (2) years of this
program, the Builder, as identified on the Application For Warranty Form, is
the warrantor. The Builder has purchased warranty coverage from Warranty
Underwriters Insurance Company ("Insurer") to benefit the Purchaser both by
acting if the Builder fails to perform its obligations set forth herein and by
providing Major Structural Defects warranty coverage, all as described in this
Agreement. Section A describes the protection which this program affords to
the Purchaser; Section B defines the terms used in this Agreement and sets
forth the exclusions of the warranty; Section C sets forth warranty standards
which will govern the interpretation and operation of this warranty.
THIS AGREEMENT INCLUDES PROCEDURES FOR INFORMAL SETTLEMENT OF DISPUTES,
INCLUDING BINDING ARBITRATION, IN ACCORDANCE WITH THE PROCEDURES OF THE FEDERAL
ARBITRATION ACT; SEE SECTIONS A.5.F.-G. ADDITIONAL INFORMATION MAY BE RECEIVED
BY CALLING THE ADMINISTRATOR AT 717-561-4480. YOU SHOULD READ THIS AGREEMENT
IN ITS ENTIRETY IN ORDER TO UNDERSTAND THE PROTECTION IT AFFORDS, THE
EXCLUSIONS APPLICABLE TO IT, THE WARRANTY STANDARDS WHICH WILL GOVERN ITS
INTERPRETATION AND OPERATION, AND THE PURCHASER'S RESPONSIBILITIES.
It should be understood by the Purchaser that every newly constructed home
needs maintenance to prolong the life of your home. It is the Purchaser's
responsibility, not the Builder's, to maintain the home. Regular maintenance
includes such items as preserving soil drainage conditions, caulking, cleaning,
resealing or repainting of finished surfaces as necessary, routine maintenance
of mechanical systems, etc. Section C.4 describes many of these items in the
comments section. In a condominium, the association has the same maintenance
responsibilities for common elements. ANY DAMAGE OR DEFECT CAUSED OR WORSENED
BY NEGLECT, ABNORMAL USE, OR IMPROPER MAINTENANCE AND OPERATION OF THE HOME,
THE SURROUNDING LOT, OR THE COMMON ELEMENTS OF A CONDOMINIUM WILL NOT BE
COVERED BY THIS AGREEMENT.
HOME OWNER MAINTENANCE FOR HOMES CONSTRUCTED ON ACTIVE SOILS
Soils having a high clay content can expand and contract when variations occur
in the moisture content of the soils. Where seasonal moisture changes in the
sub-surface soils are common, it is the responsibility of the homeowner to
provide proper ongoing maintenance. Although foundations are specifically
designed for soil conditions in each area, conditions may be encountered that
were not revealed by sub-surface exploration and testing.
Additionally, improper homeowner maintenance can adversely affect the
performance and structural integrity of any foundation constructed on active
soils and void the warranty coverage. These post-construction practices are
beyond the control of the design engineer and the Builder.
To minimize the probability of movement and displacement in the foundation
caused by moisture content variations, the following post-construction
maintenance and requirements must be executed. Failure to do so by the
homeowner will void the warranty coverage provided by this Agreement.
1. A final grade certificate has been issued for the lot on which your home is
located. This confirms that the final grade, as established by the Builder,
meets the warranty requirements. The homeowner is responsible for maintaining
such grades in accordance with the final grade certificate. The grade around
the foundation shall be maintained by the homeowner in such a manner that
surface drainage is away from the foundation, and shall not permit water to
pond or become trapped in localized areas against the foundation as this can
cause variations in moisture content that can damage the foundation.
2. Watering shall be done in a uniform systematic manner as equally as possible
on all sides of the foundation to keep the soil moist, NOT SATURATED. Areas
of soil that do not have ground cover may require more moisture as they are
more susceptible to evaporation, causing a moisture content imbalance.
3. During extreme hot and dry periods, close observations should be made around
the foundation to insure adequate watering is being provided, preventing soil
from separating or pulling back from the foundation.
4. Gutters and downspouts shall be maintained to prevent injection of moisture
into the soil from roof run-off in localized areas. Downspout extensions
shall be maintained to discharge a minimum of five feet away from the
foundation wall.
5. Studies show that trees planted within twenty (20) feet of the foundation
can damage the structural integrity of the foundation. Trees planted in close
proximity to the foundation can develop a root system which can penetrate
beneath the foundation and draw moisture from the soil. Areas around trees
will require more water in periods of extreme drought. If the homeowner plants
a tree closer than twenty (20) feet to the foundation, warranty coverage may be
affected. Precautionary measures such as the installation of a root shield or
root injection system should be taken to maintain moisture equilibrium.
6. Placing flower gardens and beds or shrubs next to the foundation and
watering these areas heavily will generally result in a net increase of the
soil moisture content in that localized area. This may result in a soil
expansion in that localized area of the foundation. The homeowner must
maintain a balanced soil moisture content around the perimeter of the
foundation.
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SECTION A. THE LIMITED WARRANTY PROGRAM
The Builder is the warrantor during the first two years of this Agreement. The
Insurer will perform the Builder's obligations hereunder during the first two
years of this Warranty if the Builder fails to do so, and is the warrantor
providing a major Structural Defect warranty as defined in Section B, during
the third through tenth years of this Warranty. The Administrator will
administer the limited warranty program for participating Builders and the
Insurer. The Administrator is neither a warrantor nor the Insurer. The
protection provided under the limited warranty program is automatically
transferable to subsequent Purchasers during the ten year term of this
Agreement.
1. PROTECTION PROVIDED
Subject to the exclusions set forth in Section B.2, the Limited Warranty
program provides you with the following protection:
a. YEAR ONE COVERAGE
Commencing on the effective date of warranty as specified on the Application
For Warranty Form, and subject to the terms and conditions listed herein,
the Builder warrants that for a period of one year your home will be free
from defects due to nonconformity with the warranty standards set forth in
Section C of this Agreement. With respect to fixtures, appliances and items
of equipment, the warranty is for one year or the manufacturer's written
warranty, whichever is less.
b. YEARS ONE AND TWO COVERAGE
Commencing on the effective date of warranty as specified on the Application
For Warranty Form, and subject to the terms and conditions listed herein, the
Builder warrants that for a period of two years, your home will have no
Major Structural Defects (as defined in Section B of this Agreement) and that
certain portions of the cooling, heating, ventilating, electrical, and
plumbing systems will be free from defects due to nonconformity with the
warranty standards set forth in Section C.5 of this Agreement.
c. YEARS THREE THROUGH TEN COVERAGE
Commencing at the beginning of the third year following the effective date
of warranty as specified on the Application For Warranty From, and subject
to the terms and conditions listed herein, the Insurer will protect your
home for a period of eight years against loss resulting from Major
Structural Defects (as defined in Section B of this Agreement).
2. CONDOMINIUM COVERAGE - COMMON ELEMENTS
This Agreement shall only be applicable to warranted common elements.
Warranted common elements are those portions of a condominium structure which
serve two or more residential units, and are contained wholly within a
residential structure. Warranty coverage for common elements shall be for the
same periods and to the same extent as similar or comparable items in
individual residential units. Examples of common elements which are covered
by the warranty are hallways, meeting rooms and other spaces wholly within the
residential structure and designated for the use of two or more units; and
those portions of the electrical, heating, ventilating, cooling, and plumbing
systems which serve two or more units. Examples of common elements which are
not covered under this warranty agreement are club houses, recreational
buildings and facilities, exterior structures, exterior walkways or any other
non-residential structure which is a part of the condominium.
3. BUILDER'S RESPONSIBILITY AND PURCHASER'S RIGHTS: YEARS ONE AND TWO
If a defect in your home arises due to nonconformity with the warranty
standards during the first year of this Agreement, or if a covered defect in
your home's cooling, ventilating, electrical, or plumbing systems arises due to
nonconformity with the warranty standards during the first two years of this
Agreement, the Builder will repair, replace, or pay you the reasonable cost of
repairing or replacing the defective item; if a Major Structural Defect arises
in your home during the first two years of this Agreement, the Builder will
repair, replace, or pay you the reasonable cost of repairing or replacing the
defective item, limited to such actions as are necessary to restore
load-bearing capability to the load-bearing components of the home and to
repair those elements of the home damaged by the Major Structural Defect which
make the home physically unsafe.
4. CONDITIONS AFFECTING BUILDER'S AND/OR THE INSURER'S RESPONSIBILITIES FOR
WARRANTY PROGRAM AND PURCHASER'S RIGHTS
In each instance, the Builder's and/or the Insurer's responsibilities for
warranty coverage under this program are subject to the following.
a. In the event of a warranty claim, the decision of whether to repair or
replace a defective item, or to pay you the reasonable cost of repair or
replacement, is solely the Builder's or the Insurer's, as applicable.
b. The Builder's and the Insurer's aggregate total liability for all claims
made during the term of this Limited Warranty Agreement is limited to and
shall not exceed the sale price listed on the Application For Warranty Form.
c. In the first two years, if the Builder does not fulfill its obligations
under this Agreement, the Insurer will be responsible for the Builder's
obligations, subject to a one-time deductible of $250. In years 3 to 10,
the Insurer's liability is subject to a deductible of $500.00 per claim. In
the case of the common elements of a condominium, at all times, the
deductible shall be $250 per unit affected by the common elements defect, up
to a maximum aggregate total of $5,000.00 per free standing residential
structure.
In each instance, the deductible must be paid by you prior to repair or
replacement by the Insurer. In the event of a cash payment in lieu of
repairs, the deductible will be subtracted from the cash payment.
d. Actions taken to cure defects will not extend the period of coverage
specified in this Agreement.
e. When the Builder or the Insurer finishes repairing or
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replacing a defective item, or prior to paying you the reasonable cost of
doing so, you must sign and deliver to the Builder or the Insurer, as the
case may be, a full and unconditional release, in recordable form, of all
legal obligations with respect to the defect, any conditions arising from
the defect or any repair of the defect. Provided that if the Builder or the
Insurer repairs or replaces a defective item, the repairs or replacement
item will continue to be covered by this warranty.
f. In the event the Builder or the Insurer repairs or replaces, or pays you
the reasonable cost of the repair or replacement of any defective item
covered by this Agreement, the Builder and the Insurer shall be subrogated
to all of your rights of recovery therefore against any person or entity
(including the Builder if its obligations hereunder have been performed by
the Insurer), and you agree to execute and deliver any and all instruments
and papers and to take any and all other actions necessary to secure such
rights, including, but not limited to, assignment of the proceeds of any
other insurance or warranties to the Builder or the Insurer, as appropriate.
You shall do nothing to prejudice such rights of subrogation.
g. This Agreement provides coverage only in excess of coverage provided by
other warranties or insurance, whether collectible or not.
h. If a claim under this Agreement involves a common element in a
condominium, the claim may be made only by an authorized representative of
the condominium association. However, if the Builder retains a voting
interest in the association of more than 50%, the claim may be made by unit
owners representing 10% of the voting interests in the association.
If a claim under this Agreement involves a common element affecting multiple
units, and all affected units are not warranted by the Limited Warranty
Program, the Insurer's liability shall be limited to only those units
warranted by the Insurer. The Insurer's limit of liability shall be
prorated based upon the number of units warranted by the Insurer.
i. Notwithstanding anything to the contrary contained in this Agreement, if
a claim is resolved by the payment of cash, in lieu of repair or
replacement, the payment shall be made to or on behalf of you and any
mortgagees (or their successors), as your interests may appear, provided
neither the Builder nor the Insurer shall have any obligation to make
payment jointly to the Purchaser and mortgagee, where the mortgagee has not
notified the Insurer in writing of its security interest in the home prior
to the payment of the claim. A mortgagee shall be completely bound by any
agreement or conciliation accepted by the Purchaser or arbitration relating
to a claim hereunder.
j. If a Major Structural Defect (as defined in Section B of this Agreement)
arises in your home during years three through ten of this Agreement, the
Insurer, at its sole option, will repair or replace, or pay you the
reasonable cost of repairing or replacing, the defective item. The
responsibilities of the Insurer as set forth herein, will be limited to such
actions as are necessary to restore load-bearing capability to the
load-bearing component of the home and to repair those elements of the home
damaged by the Major Structural Defect which make the home physically
unsafe.
5. HOW TO MAKE A WARRANTY CLAIM; DISPUTE SETTLEMENT
a. Carefully read and review this Agreement and the standards contained
herein to determine whether the defect is covered.
b. NOTICE TO YOUR BUILDER AND THE INSURER FOR DEFECTS ARISING IN YEARS 1 AND
2
If you have a complaint which you believe is covered by this Agreement and
it arises during the first two years of this Agreement, you must send a
notice to the Builder which is clear and describes the defect in reasonable
detail.
Written notice of a defect covered during years one and two must be
received by the Builder no later than seven (7) calendar days following the
expiration of the applicable warranty period. If notice to the Builder does
not result in satisfaction within a reasonable time, written notice must be
given to HOME/RWC of Texas, as the Administrator, at 5300 Derry Street,
Harrisburg, Pennsylvania 17111-3598 ATTN - Construction Claims. The notice
must describe each defect in reasonable detail and must be forwarded by
Certified Mail, Return Receipt Requested. The Administrator shall have the
responsibility to notify Warranty Underwriters Insurance Company, "Insurer",
of the claim.
c. NOTICE OF MAJOR STRUCTURAL DEFECT CLAIM ARISING IN YEARS 3 THROUGH 10
If you have a claim as a result of a major structural defect occuring during
the third through tenth year of this Agreement, you must notify the
Administrator of this Agreement, who will investigate the claim. All such
claims must be presented in writing to HOME/RWC of Texas, at 5300 Derry
Street, Harrisburg, Pennsylvania 17111-3598 ATTN - Construction Claims, by
Certified Mail, Return Receipt Requested within a reasonable time after the
major structural defect arises but in no event later than thirty (30) days
after the expiration of the term of this Agreement. Claims received after
that period will not be honored. Any such notice must describe the defect
in reasonable detail.
d. CONTENT OF TIMING OF NOTICE TO HOME/RWC OF TEXAS
PLEASE NOTE THAT HOME/RWC OF TEXAS MUST RECEIVE A WRITTEN NOTICE OF CLAIM
WITHIN THIRTY DAYS AFTER THE EXPIRATION OF THE APPLICABLE WARRANTY PERIOD.
FOR EXAMPLE, IF THE DEFECT IS ONE WHICH IS COVERED UNDER THE THE BUILDER'S
ONE-YEAR WARRANTY PERIOD, NOTICE MUST BE RECEIVED BY HOME/RWC OF TEXAS
WITHIN THIRTY DAYS OF THE END OF THE FIRST YEAR, OR THE NOTICE WILL NOT BE
HONORED. NOTICE TO THE BUILDER DOES NOT CONSTITUTE NOTICE TO HOME/RWC OF
TEXAS, NOR WILL IT BE DEEMED TO EXTEND APPLICABLE COVERAGE PERIODS. THIS
NOTICE MUST CONTAIN THE FOLLOWING INFORMATION:
(1) THE ENROLLMENT NUMBER AND EFFECTIVE DATE OF WARRANTY. IF UNKNOWN,
THE HOMEOWNER WILL BE ASSESSED A $25.00 SEARCH FEE WHICH SHOULD BE
INCLUDED WITH YOUR NOTICE;
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(2) THE BUILDER'S NAME AND ADDRESS;
(3) YOUR NAME, ADDRESS, AND PHONE NUMBER (BOTH HOME AND WORK);
(4) A REASONABLY SPECIFIC DESCRIPTION OF THE DEFECT(S);
(5) THE PAGE AND SECTION NUMBER OF THIS AGREEMENT CONTAINING THE
APPLICABLE WARRANTY STANDARD(S); AND
(6) A COPY OF YOUR WRITTEN NOTICE TO THE BUILDER (IF THE CLAIM AROSE
DURING YEARS 1 AND 2).
e. 30 DAYS RESPONSE
You have an obligation to cooperate with the Administrator's inspection and
investigation of your claim. From time to time, the Administrator may
request information from you regarding your claim. Failure by you or your
appointed representative to respond with the requested information within 30
days of the date of request will result in the closing of your claim file.
f. INSPECTION AND MEDIATION
During the first thirty days following HOME/RWC OF TEXAS' receipt of proper
notice of a defect, HOME/RWC OF TEXAS will review and mediate the claim by
communicating with the Builder, you and any other individuals or entities
who HOME/RWC OF TEXAS believes possesses relevant information. If, after
thirty days, HOME/RWC OF TEXAS has not been able to successfully mediate the
claim, or at any earlier time when HOME/RWC OF TEXAS believes that the
Builder and you are at an impasse, then HOME/RWC OF TEXAS will notify you
that your claim is an "unresolved dispute".
HOME/RWC OF TEXAS, at any time following the receipt of proper notice of
your claim, may schedule an inspection of the defect. You must provide
HOME/RWC OF TEXAS reasonable access for any such inspection as discussed in
sub-paragraph (h.) below.
Where a claimed defect is filed that cannot be observed or determined under
normal conditions, it is the homeowner's responsibility to substantiate that
the condition does exist. Any cost involved shall be paid by the owner, and
if properly substantiated, reimbursement shall be made by your Builder or
WPIC, whichever is liable for the claim.
g. BINDING ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT
Any "unresolved dispute" (defined below) that you may have with the Builder,
the Administrator or the Insurer shall be submitted to binding arbitration
governed by the procedures of the Federal Arbitration Act, 9 U.S.C. 1 et.
seq. Copies of this Act are available from the Administrator. You commence
the arbitration process by giving the Administrator written notice of your
demand for Arbitration of an unresolved dispute. The dispute will be
submitted to the American Arbitration Association, or such other independent
arbitration service as is agreeable to the Administrator and you (herein
referred to as Arbitrator) within 20 days after the Administrator's receipt
of your notice of demand for Arbitration. If you submit a demand for
Arbitration, you must pay the Arbitrator's filing fee prior to the matter
being referred to the Arbitrator. The Arbitrator shall have the power to
award the cost of this fee to you or to split it among the parties to the
Arbitration. The Arbitration shall be conducted in accordance with the
Arbitrator's rules and regulations to the extent that they are not in
conflict with the Federal Arbitration Act. As used herein, the term
"unresolved dispute" shall mean all claims, demands, disputes,
controversies, and differences that may arise between the parties to this
Agreement of whatever kind or nature, including without limitation,
disputes: (1) as to events, representations, or omissions which pre-date
this Agreement; (2) arising out of this Agreement or other action performed
or to be performed by the Builder, the Administrator or the Insurer pursuant
to this Agreement; (3) as to repairs or warranty claims arising during the
term of this Agreement; and/or (4) as to the cost to repair or replace any
defect covered by this Agreement.
Either party may, within one year after an arbitration award, apply to the
U.S. District Court in which the home is situated, to confirm the award.
The forwarding of a written demand for arbitration shall toll the running of
any applicable statute of limitations for the matter to be arbitrated. THE
DECISION OF THE ARBITRATOR SHALL BE FINAL AND BINDING UPON ALL PARTIES.
Inasmuch as this Agreement provides for mandatory arbitration of disputes,
if any party commences litigation in violation of this Agreement, such party
shall reimburse the other parties to the litigation for their costs and
expenses including attorneys' fees incurred in seeking dismissal of such
litigation.
The Builder or the Insurer shall have 60 days after receipt of the
arbitration award in which to comply with the arbitrator's decision. Repairs
will be commenced as soon as possible and will be completed within 60 days
with the exception of any seasonal repairs or items that would reasonably
take more than 60 days to complete. The Builder will complete such repairs
or replacement with diligence but without the necessity of incurring
overtime or weekend expenses.
h. RIGHT OF ACCESS
You must provide the Builder, or if applicable, the Insurer, with reasonable
weekday access during normal business hours in order to perform its
obligations. Failure by you to provide such access to the Builder or the
Insurer may relieve the Builder or the Insurer of its obligations under this
Agreement.
i. ADDITIONAL PROTECTION: THE INSURER
If the Builder does not fulfill its obligations under this Agreement, the
Insurer will be responsible for the Builder's obligations, subject to a
one-time deductible as described in Section A.4.c.
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6. TIMING OF ARBITRATION ACTIONS
This Agreement provides a procedure for you to give notice to both the Builder
and the Insurer of potential claims, to have an inspection at no cost to you,
and to give the Builder or the Insurer, as appropriate, an opportunity to
fulfill their obligations hereunder. If you institute arbitration proceedings
against the Builder or the Insurer for any obligation arising or claimed to
have arisen under this Agreement prior to giving the Builder or the Insurer the
proper notices and opportunities to cure provided under this Agreement, you
agree to indemnify the Builder and the Insurer, as appropriate, for all costs
and expense of such arbitration, including reasonable attorneys' fees,
regardless of whether you have an otherwise legitimate claim under this
Agreement. In the event you strictly follow the procedures provided in this
Agreement and you commence arbitration proceedings, alleging that the Builder
or the Insurer failed to honor their obligations hereunder, the arbitrator or
court shall have the authority to award costs, including reasonable attorney's
fees and expert fees, to the substantially prevailing party in such
arbitration. In no event shall the Administrator or the Insurer have any
obligation to reimburse you if the Builder fails to pay to you arbitration
costs which may be awarded to you hereunder.
7. ROLE OF HOME/RWC OF TEXAS
The Administrator of this Warranty Agreement is neither a warrantor nor an
insurer. In the event you commence any legal action against the Administrator,
in its individual capacity, you agree to reimburse the Administrator for all
costs and expenses of arbitration, including reasonable attorney's fees, unless
such arbitration arises out of an independent wrongful action of the
Administrator.
8. GENERAL TERMS AND CONDITIONS AFFECTING THIS AGREEMENT
The following terms and conditions of general applicablity will govern the
interpretation and operation of this Agreement:
a. The Builder must assign to you all manufacturers' warranties on products
included in the sale price of your home.
b. This Agreement is separate and apart from and cannot be affected by your
contract with the Builder. It cannot be altered or amended in any way by
any other agreement which you may have.
c. If the Builder fails to complete items of work, in order to maintain the
Insurer's coverage, it is Purchaser's responsibility to take reasonable steps
to complete such items where the failure to do so may lead to structural
damage. The warranty period for any item completed after the Effective Date
shall be deemed to have commenced on the Effective Date.
d. All notices required under this Agreement must be in writing and sent by
certified mail, postage prepaid, to the recipient's address shown on the
Application For Warranty Form, or to whatever other address the recipient
may designate in writing.
e. Should any provision of this Agreement be determined by a court of
competent jurisdiction to be unenforceable, that determination will not
affect the validity of the remaining provisions.
f. This Agreement is binding on the Builder and the Purchaser, his heirs,
executors, administrators, successors and assigns.
g. This Agreement shall be interpreted and enforced in accordance with the
laws of the state in which the home is located.
h. This Agreement cannot be modified, altered or amended in any way except by
a formal written instrument signed by all of the parties hereto.
i. If performance by the Builder or the Insurer of any of their respective
obligations under this Agreement is delayed by an event not resulting from
their own conduct, such performance will be excused until the delaying
effects of the event are remedied. Such events include acts of God or the
common enemy, war, riot, civil commotion or sovereign conduct, or acts or
omissions by the Purchasers or any other person, not a party to this
Agreement.
j. Whenever appropriate, it is intended that the use of one gender in this
Agreement includes all genders and use of the singular includes the plural.
SECTION B. DEFINITIONS AND EXCLUSIONS
1. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the meanings
set forth herein:
a. Purchaser: The Purchaser shall include the first Purchaser of the home
under this Agreement and any and all successors in title, lessees having a
leasehold interest in the home of at least fifty years, and a mortgagee in
possession of the home. With respect to condominium common elements, the
Homeowner's Association is the purchaser.
b. Builder: The person, corporation, partnership, or other entity which is a
participating member of this Warranty Program and which obtained this
Agreement for the Purchaser.
c. Effective Date of Warranty: The date specified on the Application For
Warranty Form.
d. Home: A single family dwelling, a two-or-more unit structure which may be
conveyed as a single unit, and the common elements which comprise the
building in which a condominium unit is situated and which it shares in
common with other units in the building.
e. Major Structural Defects (MSD): All of the following conditions must be
met to constitute a Major Structural Defect:
(1.) Actual physical damage to one or more of the following specified
load bearing segments of the home;
(2.) Causing the failure of the specific major structural components; and
(3.) Which affects its load-bearing function to the degree
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that it materially affects the physical safety of the occupants of the
home:
Load-bearing components of the home deemed to have MSD potential:
(i) roof framing members (rafters and trusses);
(ii) floor framing members (joists and trusses);
(iii) bearing walls;
(iv) columns;
(v) lintels (other than lintels supporting veneers);
(vi) girders;
(vii) load-bearing beams; and
(viii) foundation systems and footings.
Examples of non-load-bearing elements which will be deemed not to have Major
Structural Defect potential are:
(i) non-load-bearing partitions and walls;
(ii) wall tile or paper, etc.;
(iii) plaster, laths, or dry wall;
(iv) flooring and subflooring material;
(v) brick, stucco, stone, or veneer;
(vi) any type of exterior siding;
(vii) roof shingles, sheathing, and tar paper;
(viii) heating, cooling, ventilating, plumbing, electrical, and
mechanical systems;
(ix) appliances, fixtures, or items of equipment; and
(x) doors, trim, cabinets, hardware, insulation, paint, and stains.
f. Cooling, Ventilating, and Heating Systems: All ductwork, refrigerant
lines, steam and water pipes, registers, convectors, and dampers.
g. Plumbing Systems: All pipes (supply and waste) and their fittings, as
well as gas supply lines and vent pipes located within the home.
h. Electrical Systems: All wiring, electrical boxes, and connections, up to
the public utility connection.
i. Fixtures, Appliances and Items of Equipment, including Attachments and
Appurtenances: Water heaters, pumps, stoves, refrigerators, compactors,
garbage disposals, stoves and ranges, dishwashers, washers and dryers,
bathtubs, sinks, commodes, faucets and valves, lights and fixtures,
switches, outlets, circuit breakers, thermostats, furnaces and oil tanks,
humidifiers, oil purifiers, ventilating fans, air conditioning material,
in-house sprinkler systems, and similar items.
j. Administrator: HOME/RWC of Texas
k. Warrantor: The Builder in years one and two and Warranty Underwriters
Insurance Company "Insurer" in years three through ten.
2. EXCLUSIONS
The following are not covered under this Agreement (by the Builder or the
Insurer):
a. Failure of the Builder to complete construction of the home or any part
of the home on or before the Effective Date or damages arising from such
failure. An incompleted item is not considered a defect hereunder, although
the Builder is otherwise obligated to complete such items.
b. Any defect which does not result in actual physical damage or loss.
c. All consequential damages including, but not limited to, damage to the
home that is caused by a covered defect but is not itself a covered defect
and costs of shelter, transportation, food, moving, storage, or other
incidental expenses related to relocation during repairs.
d. Personal property damage or bodily injury.
e. Any claim reported to the Insurer after an unreasonable delay or later
than thirty days after the expiration of the applicable warranty period.
f. Loss or damage caused to the home, persons or property directly or
indirectly by insects, birds, vermin, rodents, or wild or domestic animals.
g. Any loss or defect which arises while the home is used primarily for
nonresidential purposes.
h. Loss or damage caused by soil movement, including subsidence, expansion
or lateral movement of the soil (excluding flood and earthquake) which is
covered by any other insurance or for which compensation is granted by
legislation.
i. Normal deterioration or normal wear and tear.
j. Any deficiencies in or damage caused by material or work supplied by
anyone other than the Builder or its employees, agents, or subcontractors,
including but not limited to the items listed as additional exclusions on
the Application For Warranty Form.
k. Damages or losses not caused by a defect in construction of the home by
the Builder or its employees, agents, or subcontractors, but resulting
instead from acts or omissions of the Purchaser, his agents, employees,
licensees, invitees, accidents, riots, civil commotion, nuclear hazards,
acts of God or nature, fire, explosion, blasting, smoke, water escape,
windstorms, hail, lightning, falling trees, aircraft, vehicles, flood, mud
slides, sinkholes, faults, crevices, earthquake, including land shock waves
or tremors before, during or after a volcanic eruption.
l. Loss or damage resulting from Purchaser's or condominimum association's
failure to perform routine maintenance.
m. Loss or damage resulting from the Purchaser's failure to minimize or
prevent such loss or damage in a timely manner provided that Purchaser knew
or reasonably should have known, that such damage or loss might occur or
worsen.
n. Loss or damages to or resulting from defects in outbuildings.
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including, but not limited to detached carports, except outbuildings
which contain plumbing, electrical heating, cooling or ventilation systems
serving the home (a fence, utility line or similar union shall not cause an
outbuilding to be considered attached), site located swimming pools and
other recreational facilities; driveways; walkways; patios not structurally
attached; boundary and retaining walls, bulkheads; fences; landscaping
(including sodding, seeding, shrubs, trees and plantings) french drains;
septic systems; off-site improvements; or any other improvements not a part
of the home itself.
o. Following the first year of this Agreement, loss or damage resulting
from concrete floors of basements and attached garages and chimneys which
are constructed separate from foundation walls or other structural elements
of the home.
p. Loss or damage to real property which is not part of the home (land
is not considered part of the home) covered by this Agreement and which may
or may not be included in the final Sales Price listed on the Application
For Warranty Form.
q. Loss or damage resulting from, or made worse by, changes in the
grading of the property surrounding the home by anyone except the Builder or
its employees, agents or subcontractors, or changes in the grading or
drainage resulting from erosion or subsidence.
r. Loss or damage resulting from, or made worse by, modifications or
additions to the home, or property under or around the home, made after
commencement of the term of this Agreement (other than changes made in order
to meet the obligations of this Agreement).
s. Loss or damage resulting from, or made worse by dampness,
condensation or heat build-up caused by the failure of the Purchaser to
maintain proper ventilation.
t. Any defect, damage or loss which is caused or made worse by failure
of the Purchaser to notify the Builder or the Administrator, as applicable,
of any defect within a reasonable period of time.
u. Any defect, damage, or loss which is caused or made worse by failure
by anyone other than the Builder or its agents, employees, or subcontractors
to comply with the manufacturers' warranty requirements concerning
appliances, fixtures or items of equipment.
v. Loss or damage resulting from, or made worse by, negligent
maintenance or operation of the home and its systems by anyone other than
the Builder or its employees, agents, or subcontractors.
w. Following the first year of this Agreement, any deficiencies in
fixtures, appliances, and items of equipment whether or not components of
the cooling, ventilating, heating, electrical, plumbing or in-house
sprinkler systems. During the first year of this agreement, coverage on
fixtures, appliances, and items of equipment (including attachments and
appurtenances) is for one year or the manufacturer's written warranty
period, whichever is less. Damage caused by improper maintenance or
operation, negligence, or improper service of such systems by the Purchaser
or its agents will not be covered by this Agreement.
x. Loss or damage resulting from a condition not resulting in actual
physical damage to the home, including uninhabitability or health risk due
to the presence or consequences of insects, unacceptable levels of radon,
formaldehyde, carcinogenic substances, or other pollutants and contaminants;
or the presence of hazardous or toxic materials.
y. Loss or damage caused directly or indirectly by flood, surface water,
waves, tidal water, overflow of a body of water, or spray from any of
these (whether or not driven by wind), water which backs up from sewers or
drains, changes in the water table which were not reasonably foreseeable, or
water below the surface of the ground (including water which exerts pressure
on or seeps or leaks through a building, sidewalk, driveway, foundation,
swimming pool, or other structure) wetlands, springs or aquifers.
z. Violations of applicable building codes or ordinances unless such
violation results in a defect which is otherwise covered under this
agreement. Under such circumstances, the obligation of the Insurer under
this agreement shall only be to repair the defect, but not to restore or
bring the home to conform to code.
aa. Any loss or damage resulting from the weight and/or performance of
any type of waterbed or any other furnishings excessive in weight for which
the home was not designed.
- -------------------------------------------------------------------------------
SECTION C. WARRANTY STANDARDS
1. PURPOSE OF THE STANDARDS
This section establishes the standards by which it will be determined whether
your home has a problem which is covered by this Agreement and the obligation
of the Builder or the Insurer to correct those defects. Where specific
standards and obligations are not set forth, the standard shall be the accepted
industry practice for workmanship and materials.
2. CONDITIONS APPLICABLE
Your Builder warrants that it has constructed your home in compliance with
local building codes as well as one of the following model codes accepted by
the Administrator. In the event that your home is not constructed in accordance
with one of the following accepted model codes then the Builder shall have full
responsibility for warranty claims arising from such noncompliance for the full
ten-year
7
<PAGE> 159
[SAMPLE]
period. If the Builder fails to perform, the Insurer will repair or pay the
cost of repair of defects otherwise covered by this agreement, but will be
under no obligation to cause the home to conform to code. The codes acceptable
to the Administrator include the following:
<TABLE>
<CAPTION>
Building Code Mechanical Code Plumbing Code Electrical Code
<S> <C> <C> <C>
o CABO 1 & 2 Family Dwelling Code o BOCA National Mechanical Code o BOCA National Plumbing Code o National Electrical Code
o BOCA National Building Code o Uniform Mechanical Code o Uniform Plumbing Code
o Standard Building Code o Standard Mechanical Code o Standard Plumbing Code
o Uniform Building Code
</TABLE>
3. ADDITIONAL CONDITIONS: PURCHASER'S RESPONSIBILITY
The applicability of warranty coverage is conditioned upon the purchaser's
proper maintenance of the home, common elements, and surrounding property to
prevent damage due to neglect, abnormal use or improper maintenance.
4. STANDARDS APPLICABLE DURING YEAR ONE ONLY
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
a. MASONRY AND CONCRETE
- -----------------------------------------------------------------------------------------------------------------------------------
1. Concrete Foundation Wall Cracks Shrinkage or settlement cracks are common Any cracks greater than 1/8 inch in width
and should be expected within certain will be repaired by surface patching or
tolerances. pointing; Builder is not responsible for
color variations. Any cracks greater than
2. Cracks in block or veneer walls Settlement cracks are common and should 3/8 inch in width will be repaired by
(blocks, bricks and mortar joints) be expected within certain tolerances. surface patching or pointing; Builder will
not be responsible for color variations
Any cracks greater than 1/4 inch in width
or 1/8 inch in vertical displacement will
3. Cracks in concrete basement floors Shrinkage (hairline) cracks are common be repaired by surface patching or other
and should be expected within certain remedies.
tolerances.
4. Vertical or horizontal movement of Concrete floor slabs are engineered to None.
concrete floor slabs at joints move at expansion and contraction joints.
5. Cracks in attached garage slab Shrinkage cracks are common and should be Cracks exceeding 1/4 inch in width or 1/4
expected within certain tolerances. inch in vertical displacement will be
repaired by patching or other remedies.
6. Concrete floors in rooms designed for Slopes purposefully created for drainage If the uneveness exceeds 1/4 inch in a
living having pits, depressions or are not covered. 32 inch measurment, it will be corrected.
uneveness
7. Concrete slab cracks which cause * * * The problem will be corrected so that the
finished floor coverings to rupture defect is not readily noticeable.
8. Powdering, scaling or pitting of If the problem is caused by erosion due to If the deterioration occurs under normal
concrete (aggregate showing or loose) salt, chemicals or unusual weather, the use and conditions, the Builder will
Builder is not responsible. repair it.
9. Vertical or horizontal separation of Minor separation is normal as is minor Separation of more than 1 inch will be
stoops away from the house puddling of rain water. repaired as will excessive water puddling.
- -----------------------------------------------------------------------------------------------------------------------------------
b. LOT GRADING AND DRAINAGE
- -----------------------------------------------------------------------------------------------------------------------------------
1. Ground settlement around foundation, Ground settlement should not disrupt water If the final grading was performed by the
utility trenches, or other filled areas. drainage away from the house, although Builder, he will replace fill in
settlement around the foundation, at excessively settled areas only once.
utility tranches and other filled areas of
up to 6 inches should be expected. In all
cases, the purchaser is responsible for the
removal and replacement of shrubs, grass, etc.
</TABLE>
<PAGE> 160
[SAMPLE]
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
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<S> <C> <C>
2. Improper grades and swales which After normal rainfall, water should not The Builder is responsible for
cause standing water and affects the stand in the yard for more than 24 hours establishing the proper grades and swales;
drainage in the immediate area nor 48 hours in swales. No decision after that, the purchaser is responsible
surrounding the home which may affect regarding coverage will be made while for maintaining them.
the foundation. frost or snow or saturation exist on the
ground.
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c. FOUNDATION WATERPROOFING
- -----------------------------------------------------------------------------------------------------------------------------------
1. Water leading into basement Dampness of floors and walls is common Actual leakage of water (actual
and not covered by this warranty. The flow and accumulation) into the
Builder will not be responsible if the basement will be corrected.
cause is improper landscaping,
maintenance or negligence by the
purchaser.
2. Inadequate ventilation of crawl Adequate ventilation of the space The Builder shall correct to meet
spaces. between the bottom of the floor joists warranty standard.
and the earth under the building is
important to minimize vapor build-up
in the crawl space area. This
ventilation may be provided by a
sufficient number of ventilation
openings, or other approved method
of ventilation. The minimum net
area of ventilation openings shall not
be less than one square foot for each
150 square feet of crawl space area
where the ground surface does not have
an approved vapor barrier has been
installed, or one square foot for each
1500 square feet of crawl space area
where an approved vapor barrier has been
installed. There shall be one such
opening within three feet of each corner
of the crawl space wall.
3. Condensation on walls, joists, support The movement of water vapor from the None.
columns and other components of the crawl ground below a foundation (including
space, basement or cellar. crawl spaces, basements and cellars
may cause the introduction of large
amounts of water by evaporation from the
ground. These conditions are beyond the
Builder's control. Excessive vapor
build-up may cause condensation on the
structural components of the foundation.
Maintaining adequate ventilation and
moisture control is considered as
routine maintenance and is the
responsibility of the purchaser.
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d. CARPENTRY (ROUGH-IN)
- -----------------------------------------------------------------------------------------------------------------------------------
1. Walls which bulge, bow or are All interior and exterior framed walls The Builder will correct to meet
out-of-plumb have minor differences. Walls which warranty standard.
bulge or bow in excess of 1/4 inch
within a 32 inch measurement (floor to
ceiling or wall to wall) is a defect.
Walls which are out of plumb in
excess of 3/4 inch within a vertical
measurement of eight feet is a defect.
</TABLE>
<PAGE> 161
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
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<S> <C> <C>
2. Floor squeaks or subfloor appears A squeak proof floor cannot be assured. For large areas of floor squeaks or floor
loose. Floor squeaks and loose sub-flooring are squeaks caused by a defective floor joist,
often temporary and passing conditions, the Builder will correct within reasonable
caused by lumber shrinkage or temperature repair capability. Where a finished ceiling
changes. An isolated floor squeak is not exists under the floor, the corrective work
a defect, unless caused by a defective may be attempted from the floorside. Where
floor joist in the system. A large area of Where necessary, remove the finish floor
floor squeak which is noticeable, loud material to make the repair and reinstall.
and objectionable is a defect.
3. Uneven wood framed floors. Uneven floor joists causing high or low The Builder will correct to meet the war-
areas exceeding 1/4 inch within a 32 inch ranty standard.
distance, measuring perpendicular to the
high or low area, is a defect. Floor slope
which exceeds 1/240 of the width or length
within a room, measured in the direction of
the slope, is a defect. Example, the slope
in a room ten feet wide may not exceed 1/2
inch.
- ------------------------------------------------------------------------------------------------------------------------------------
e. INSULATION
- ------------------------------------------------------------------------------------------------------------------------------------
1. In adequate insulation This warranty assures that your insulation Builder will install sufficient insulation
will meet the applicable energy code re- to meet the applicable code requirements.
quirements. If your contract with your
Builder provided for additional insulation,
that is a matter between you and him and is
not covered by this agreement.
2. Air infiltration from electrical Electrical connection boxes are backed by None.
outlets the exterior wall, which may cause air
infiltration. This is common in new con-
struction.
- ------------------------------------------------------------------------------------------------------------------------------------
f. ROOFING
- ------------------------------------------------------------------------------------------------------------------------------------
1. Roof Leaking The roof should not leak and no leaks All roof and flashing leaks not caused by
should arise from flashings, except where snow and ice buildup or other neglect by
snow and ice are allowed to build up. Pre- the purchaser will be required. The
vention of snow and ice buildup is the Builder is not responsible for color
purchaser's responsibility. variations.
2. Leaks in gutters and downspout Gutters and leaders should not leak. How- Leaks not caused by purchaser's neglect
leaders ever, during heavy rains, overflow should will be repaired.
be expected. The purchaser is responsible
for keeping the gutters and leaders open
and free from debris.
3. Water stays in gutters Purchaser is responsible for keeping gut- Builder will repair so that if free from
ters and leaders open and free from debris, the standing water depth will not
debris. exceed 1 inch.
4. Insufficient attic or roof Attic spaces shall have adequate ventila- Builder will correct to meet the warranty
ventilation lation. This may be accomplished by pro- standard.
viding a natural ventilation area equal to
1/150 of the attic area. When an accepted
vapor barrier is installed on the warm side
of the ceiling, net free cross-ventilation
area may not be less than 1/300 of the
attic area to be ventilated. The net free
cross-ventilation area may not be less than
1/300 of the attic area required to be
ventilated when at least 50% of the required
ventilating area is
</TABLE>
<PAGE> 162
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
provided by ventilators located in the
upper portion of the space to be
ventilated and at least 3 feet above eave
or cornice vents, with the balance or the
required ventilation to be provided by
eave or cornice vents.
5. Leakage of elements through attic Even when properly installed, wind- If leakage is due to poor workmanship or
louvers, vents, including ridge and driven snow and rain may enter through materials, the Builder will correct.
soffit vents. vents. This is not a defect.
- ------------------------------------------------------------------------------------------------------------------------------------
g. SIDING AND CAULKING
- ------------------------------------------------------------------------------------------------------------------------------------
1. Exterior trim poor workmanship. Separation at joints in the exterior trim, The Builder will correct by caulking
and between the trim and the surfaces of or other methods.
exterior siding or masonry should not
exceed 3/8 inch. Siding, trim and masonry
must be capable of excluding the elements.
2. Wall leaks due to caulking shrinkage All caulking shrinks and replacement is All junctions and separations of wall
a purchaser's maintenance item. surfaces will be recaulked once to
prevent water leakage.
3. Exterior joint separation of siding, Loose siding due to improper installation, The Builder will correct to meet
delamination of veneer siding or loose or separation or delamination due to warranty standards. Exact match cannot
siding. improper workmanship and materials is a be assured. The Builder is not
defect. Separated, loose or delaminated responsible for discontinued colors,
siding due to improper maintenance is styles or textures. The Builder will
not a defect. match as closely as possible.
4. Paint or stain peels or fades Exterior paints and stains should not The Builder will correct to meet
peel or deteriorate during the first year warranty standards. If peeling or
of warranty coverage. However, some fading deterioration affects 75% of a wall,
is normal and is caused by weathering. the entire wall will be refinished.
Varnish or lacquer on the exterior will The exact color and texture cannot be
deteriorate quickly and is not covered by assured. The Builder will match color
this warranty. Mildew and fungus on siding and texture as closely as possible.
are caused by climactic conditions or
nearby bodies of water, and are not
covered by this warranty.
5. Cracks in stucco wall finish Cracks in stucco wall finishes are common Cracks in excess of 1/8 inch in width
and should be expected within certain will be repaired once.
tolerances.
- ------------------------------------------------------------------------------------------------------------------------------------
h. CHIMNEYS AND FIREPLACES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Not enough draw or down draft Trees too close to the chimney or high If the problem is caused by improper
winds can cause down drafts. Some homes construction or design, it will be
are extremely air-tight and a window may corrected.
have to be opened in order to maintain
an effective draft.
2. Chimney separated from home Some minor separation is normal and Separation in excess of 1/2 inch in any
should be expected within certain 10 foot measurement will be corrected by
tolerances. caulking or other measures.
3. Cracking of firebrick It is expected that heat will cause None.
cracking
4. Fireplace brick veneer cracking Some cracking is common and should be Cracks in brick veneer greater than 1/4
expected within certain tolerances. inch in width will be repaired by pointing
or patching. An exact color and texture
match cannot be assured. The Builder is
not responsible for color variations. The
Builder will match as closely as possible.
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5. Creosote or resin build up or creosote Creosote seepage is caused by the build up Builder is responsible for constructing
seepage through chimney of creosote in the chimney flue which is the chimney to meet accepted industry
direct result of the materials and manner standards. Since the Builder does not
in which the fireplace or stove is have control over the purchaser's use and
utilized. Burning of non-seasoned wood or choice of combustible substances, the
improper operation will greatly enhance Builder is not responsible unless caused
this situation. Chimney flues should be by improper construction.
cleaned regularly.
6. Water infiltration into the firebox. A certain amount of water infiltration None.
can be expected under certain weather
conditions, such as during wind driven
rains and snow. This is beyond the
Builder's control and is not a defect.
- ------------------------------------------------------------------------------------------------------------------------------------
i. WINDOWS AND DOORS
- ------------------------------------------------------------------------------------------------------------------------------------
1. Warpage of doors Some warping, cupping, bowing or twisting, Defective doors will be repaired or
especially of exterior doors, is normal and replaced and the finish matched as closely
is caused by surface temperature changes. as possible.
Such warping, cupping, twisting or bowing,
however, should not cause the doors to
become unusable or allow entrance of the
elements. The amount of warp, bow, cup or
twist shall be measured by placing a
straight edge, taut wire or string on the
suspected concave face of the door at any
angle (horizontal, diagonal or vertical).
The measurement of the warp, bow, cup or
twist shall be made at the point of
maximum distance between the bottom of the
straight edge, taut wire or string and the
face of the door, allowing for recesses in
the door from glazing or panels. The warp,
bow, cup or twist shall not exceed 1/4
inch.
2. Shrinkage of door panels Expansion and contraction is normal and None.
may cause unfinished surfaces to appear.
3. Door panel splits Some splitting is normal and should be The Builder will correct to meet warranty
expected within certain tolerances. The standards. The Builder will match the
splitting should not allow the entrance finish as closely as possible; an exact
of light. match cannot be assured.
4. Glass breakage This is not covered by your warranty. You None.
should inspect your property and bring any
glass breakage to the Builder's attention
prior to occupancy.
5. Garage door malfunctions Following proper installation, maintenance The Builder will correct to meet warranty
is the purchaser's responsibility. standards.
6. Rain or snow enters through garage The Builder will install the door to meet The Builder will correct, if necessary, to
door the manufacturer's specifications. Some meet warranty standards.
entrance of the elements should be
expected under certain weather conditions.
7. Windows do not operate Reasonable pressure should open and close The Builder will correct to meet warranty
windows. standards.
</TABLE>
<PAGE> 164
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8. Drafts around windows and doors Some draft is normal and can be corrected The Builder will correct to meet warranty
with storm windows. Minor alterations to standards.
adjustable thresholds, weather-stripping
and other elements are considered as
routine maintenance and are the respon-
bility of the purchaser. Defective weather-
stripping and improperly fitted windows and
doors are defect.
9. Condensation and frost on windows. Condensation or frost on windows is caused None.
by temperature difference between the inte-
rior and the exterior of the home, as well
as the personal living habits of the occu-
pants. These conditions are beyond the
control of the Builder and will not be
considered as a defect.
10. Water infiltration around doors Windows and doors should be installed in None.
and windows. accordance with the manufacturer's specifi-
cations, are other acceptable method. No
water should pass beyond the interior face
of the unit or flow into the wall area or
room. All caulking materials expand and
contract due to temperature variations and
dissimilar materials. Maintenance of weather-
stripping and caulking is considered as
routine maintenance and is the responsibility
of the purchaser.
11. Screen panels do not fit properly; If a pre-closing walk-through is performed, The Builder will correct improperly fitted
screen mesh is torn or damaged. defects, such as rips or gouges in the screen panels. Defects, such as rips and
screen mesh must be documented in writing gouges will be corrected if properly
to the Builder by the purchaser prior to documented.
occupancy. If the Builder does not perform
a pre-closing walk-through, the purchaser
must document in writing to the Builder
such defects within seven days of closing.
The screen panels shall fit properly.
- ------------------------------------------------------------------------------------------------------------------------------------
j. INTERIOR WALLS AND TRIM
- ------------------------------------------------------------------------------------------------------------------------------------
1. Faulty workmanship trim Some separations at joists in moldings and Separation in excess of 1/4 inch will be
between moldings and adjacent surfaces is corrected by caulking or other methods.
normal and should be expected within
certain tolerances.
2. Wall or ceiling cracks Hairline cracks and seam or tape cracks, Cracks, exceeding 1/8 inch in width will
along with other slight imperfections are be repaired once. The Builder is
normal and should be expected within responsible for repainting only the
certain tolerances. Nail pops are common affected are unless the majority of a
and are due to contraction and expansion wall is affected. Color will be
of lumber products. They are beyond the matched as closely as possible.
Builder's controls and are not covered by
this warranty.
3. Cracking of ceramic tile Cracking of grout joints is common and is Broken tiles will be replaced and
a home maintenance item. excessive cracking of grout joints will
be repaired once. Builder is not
responsible for discontinued patterns
or colors or for variations in colors.
</TABLE>
13
<PAGE> 165
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4. Wallpaper or covering begins to peel The purchaser should be careful not to The peelings will be corrected by repair
cause this problem by negligences, such or replacement. Builder is not
as consistent use of the shower without responsible for discontinued patterns or
the exhaust fan being on. Mis-matches of colors or for variations in color.
wall paper edging is not covered.
- -----------------------------------------------------------------------------------------------------------------------------------
k. FLOORING AND COVERING
- -----------------------------------------------------------------------------------------------------------------------------------
1. Separation between finished floor Separation not exceeding 1/4 inch is Builder will correct to meet warranty
boards normal and should be expected. standards.
2. Nails popping through resilient Only nails which have broken through the The nail pops will be repaired and the
flooring floor covering will be repaired. covering repaired or replaced in the area
damaged. Builder is not responsible for
discontinued patterns or colors or for
variations in color.
3. Sub-floor imperfections causing Minor ridges or indentations not exceeding The Builder will correct to meet warranty
ridges or depressions in resilient 1/8 inch are common and should be expected. standards. The affected area only will be
flooring. The ridge or indentations is measured by corrected, including the affected floor
placing a 6 inch straight edge covering. The Builder is not responsible
perpendicularly over the ridge or for discontinued patterns or colors, but
indentation, with three inches of the will match as closely as possible. An
straight edge extending over the exact match cannot be assured.
imperfection, while tightly holding the
other three inches to the floor.
4. Floor covering becomes loose or bubbles *** The affected area will be repaired or
replaced. Builder is not responsible for
discontinued patterns or colors or for
variations in color.
5. Gaps in seams of resilient coverings Minor gaps and separations not exceeding The Builder will correct the affected
1/8 inch are common and should be expected. area only to meet warranty standards.
When the purchaser installs the flooring The Builder is not responsible for
and covering, sub-flooring preparation is discontinued patterns or colors or for
the responsibility of the purchaser. If variations in color. An exact match
sub-floor repairs are to be made where the cannot be assured.
purchaser installed floor covering, the
removal and replacement of the floor
covering is the purchaser's responsibility.
6. Gaps in carpet seams Seams will be apparent. Spotting or fading The Builder will correct to meet
of carpet is not covered by this warranty. warranty standards.
Gaps at seams should not be apparent.
- ------------------------------------------------------------------------------------------------------------------------------------
l. CABINETS AND COUNTER TOPS
- ------------------------------------------------------------------------------------------------------------------------------------
1. Chips, cracks, scratches or Cracks, chips and scratches not reported The Builder will correct to meet
delamination to vanity or kitchen to the Builder prior to occupancy will warranty standards
countertops, including porcelain and not be covered by this warranty. Counter
fiberglass fixtures, or cabinets. top material should not deliminate.
2. Cabinet doors or drawers warp Minor warpage is common and should be Warpage in excess of 1/4 inch from the
expected with certain tolerances. face of the cabinet will be corrected.
3. Cabinet separates from wall or ceiling Some separation is common and should be Separation in excess of 1/4 inch will be
expected within certain tolerances. corrected.
</TABLE>
4
<PAGE> 166
[SAMPLE]
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
m. COOLING AND HEATING
- -----------------------------------------------------------------------------------------------------------------------------------
1. Insufficent cooling Where applicable, the cooling systems The Builder will correct the system to
should be able to maintain a temperature meet warranty standards.
of 78 degrees (measured 5 feet above the
center of the floor) under local outdoor
ASHRAE specifications. In the case of
excessive outdoor temperature, a 15
degree difference is acceptable.
Purchaser is responsible for minor
adjustment such as balancing dampersand
registers. All rooms will vary in
temperature by 3 or 4 degrees. This is
acceptable.
2. Insufficient heating The heating system should be able to The Builder will correct the system to
maintain a temperature of 70 degrees meet the warranty standards.
(measured 5 feet above the center of the
floor) under local outdoor ASHRAE
specifications. Purchaser is responsible
for minor adjustments such as balancing
dampers and registers. On extremely cold
days, a 5 to 6 degree difference between the
actual inside temperature and the thermostat
setting is acceptable. All rooms will vary
in temperature by 3 to 4 degrees. This is
acceptable.
3. Ductwork noisy When metal ducts heat and cool, some Builder will correct the oil canning noise
noise will result. Very loud noise known only.
as oil canning is not acceptable.
- -----------------------------------------------------------------------------------------------------------------------------------
n. PLUMBING
- -----------------------------------------------------------------------------------------------------------------------------------
1. Pipes freeze and burst Purchaser is responsible for maintaining Builder will correct if defect is caused by
suitable temperatures in the home to defective workmanship or materials.
prevent pipes from freezing. Proper
winterization including draining pipe
lines and supplying outside faucets, is a
homeowner's maintenance item.
2. Plumbing fixtures, appliances and *** Leaks or malfunctions in faucets, valves,
trim fittings leaks or malfunctions appliances and trim fittings caused by
defects in materials or workmandship will
be corrected.
3. Pipes noisy Expansion and contraction caused by Loud, hammering noises in pipes will be
water flow will cause some noise which corrected.
is to be expected.
4. Cracks or chips in porcelain or The purchaser should inspect these items The Builder will be responsible for these
fiberglass before taking occupany and report them items only if reported prior to occupancy.
to the Builder prior to occupancy.
- -----------------------------------------------------------------------------------------------------------------------------------
o. ELECTRICAL
- -----------------------------------------------------------------------------------------------------------------------------------
1. Outlets, switches or fixtures fail *** The Builder will correct defective outlets,
switches and fixtures.
2. Consistently blown fuses or circuit The Builder is not responsible if caused The Builder will correct defects caused by
breakers kicking off by the purchaser overloading in the improper workmandship and materials only.
system. Ground-fault Circuit-interrupters
(GFCI's) are designed to kick off as
necessary for safety reasons. This is not
considered as a defect.
</TABLE>
15
<PAGE> 167
[SAMPLE]
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5. STANDARDS APPLICABLE DURING YEARS ONE AND TWO
1. Water supply stops Drought or causes other than defective The Builder will correct faulty
workmanship and materials will not be workmanship and materials only.
covered by this warranty.
2. Pipe leaks Condensation on pipes is normal and is The Builder will correct pipe leaks only.
not covered by this warranty. Leaks in Leaks in faucets, valves, joints and
faucets, valves, joints and fittings are fittings are the purchaser's
applicable to first year coverage only. responsibility.
3. Clogged drain and sewers This is a Purchaer's maintenance item. The Builder will correct only if caused
The Builder will be responsible only if by a defect in materials and workmanship.
the cause is a defect in construction. The purchaser will pay for Builder's
repair if not a defect in workmanship
and materials.
4. Ductwork separates Ductwork should not separate. The Builder will correct to meet warranty
standards.
5. Wiring fails to carry specified *** The Builder will correct tomeet acceptable
electrical load warranty standards if failure is caused
by a defect in workmanship or materials.
6. Major Structures Defects The criteria for establishing the existence Builder will correct the Maor Structural
of a Major Structural Defect is set forth Defect, limited to such actions as are
in Section B.1.(e) of this Limited Warranty necessary to restore the load-bearing
Agreement. capability of the component concluded to
meet the criteria of a Major Structural
Defect, and to correct those items of the
home damaged by the Major Structural
Defect.
6. STANDARDS APPLICABLE DURING YEARS THREE THROUGH TEN
Major Structural Defects The criteria for establishing the existence The Insurer will correct the defective
of a Major Structural Defect is set forth Major Structural Defect, limited to such
in Section B.1.(e) of this Limited Warranty actions as are necessary to restore the
Agreement. load-bearing capability of the component(s)
to meet the criteria of a Major Structural
Defect, and to correct those items of the
home damaged by the Major Structural
Defect.
</TABLE>
16
<PAGE> 168
[SAMPLE]
SECTION D: ADDENDUM
- -------------------------------------------------------------------------------
D.1 HUD/VA ADDENDUM (Applicable to FHA Financial Homes Only): February 1, 1992
- -------------------------------------------------------------------------------
1. SECTION A.1.a. YEAR ONE COVERAGE. The following language is added:
Notwithstanding anything to the contrary herein contained, during the first
year of coverage, the Builder will correct problems with, or restore the
reliable function of, appliances and equipment damaged during installation or
improperly installed by the Builder. In addition, the Builder will correct
Construction Deficiencies in workmanship and materials resulting from the
failure of the Home to comply with standards of quality as measured by
acceptable trade practices. "Construction Deficiencies" are defects (not of a
structural nature) in the Home that are attributable to poor workmanship or to
the use of inferior materials which result in the impaired functioning of the
Home or some part thereof. Defects resulting from Purchaser abuse or from
normal wear and tear are not functioning of the Home or some part thereof.
Defects resulting from Purchaser abuse or from normal wear and tear are not
considered Construction Deficiencies.
2. SECTION A.4.c. The following language is substituted: In the first two
years, if the Builder does not fulfill its obligations under this Agreement,
the Insurer will be responsible for the Builder's obligations, subject to a
one-time deductible of $250. The Insurer's liability in years 3 through 10
under this Agreement is subject to a deductible of $250 per claim. In each
instance, the deductible must be paid by you prior to the repair or replacement
by the Insurer. In the event of payment, the $250 will be subtracted from the
cash payment. In the case of the common elements of a condominium, the
deductible shall be $250 per home affected by each common element defect,
limited to a maximum of $5,000 per free standing structure.
3. The following is added to the agreement: SECTION A.4.i. Where a covered
defect is determined to exist and where either the Builder or the Insurer
elects to pay the reasonable cost of repair or replacement in lieu of
effectuating such repair or replacement, the cash offer must be in writing and
the Purchaser will be given two (2) weeks to respond. Cash offers over $5,000
are subject to an on-site review by a HUD approved fee inspector (inspection
costs to be paid by the Builder or the Insurer, as appropriate) unless:
(i) The cash offer is made pursuant to a binding bid by an
independent third party contractor, which will accept an award of a
contract from the Purchaser pursuant to such bid;
(ii) Payment is being made in settlement of legal action; or
(iii) The Purchaser is represented by legal counsel.
4. The following language is substituted: SECTION B.1.c. EFFECTIVE DATE. The
Effective Date will be the date on which closing or settlement occurs in
connection with the initial sale of the Home. In no event will the Effective
Date be later than the date of FHA endorsement or the Purchaser's Mortgage on
the Home.
5. The following language is added: SECTION B.1.e. MAJOR STRUCTURAL DEFECTS.
Failure of roof sheathing shall be deemed a major structural defect.
6. SECTION B.2.h. The following language is substituted: Loss or damage
caused by soil movement, including subsidence, expansion or lateral movement of
the soil (excluding flood and earthquake) which is covered by any other
insurance or for which compensation is granted by state legislation.
7. The following language is added: SECTION C.5.7.
<TABLE>
<CAPTION>
Potential Problems Comments Builder's Obligation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Septic System Fails Freezing, soil saturation, underground Builder will repair or replace faulty
springs, water run-off, excessive use and workmanship and materials and conform
increase in the water table are among the with the Sewage Enforcement Officer's
causes not covered by this warranty. instructions as per design and
installation only.
</TABLE>
17
<PAGE> 169
4.2.26 Condemnation Proceedings
NONE
<PAGE> 170
4.2.28 Termination Employees
NONE
<PAGE> 171
4.3.3 Encumbrances (REGT)
Guaranty F.S.B. Debt
<PAGE> 172
4.3.4 Violations and Consents (REGT)
Guaranty F.S.B. Debt
<PAGE> 173
SCHEDULE 4.4.3
VIOLATIONS AND CONSENTS OF PURCHASER
None.
<PAGE> 174
EXHIBIT A
TO
PURCHASE AGREEMENT
ASSIGNMENT OF GENERAL PARTNERSHIP INTEREST
This Assignment of General Partnership Interest (this "Assignment") is
between Rayco Management, L.L.C., a Texas limited liability company
("Assignor"), the sole general partner of Rayco, Ltd., a Texas limited
partnership (the "Partnership"), and ___________________________ ("Assignee").
The Partnership is organized and existing under the terms of an Amended and
Restated Agreement of Limited Partnership dated effective as of January 1,
1995, as amended (the "Partnership Agreement"). Capitalized terms which are
used but not defined in this Assignment shall have the meanings provided for in
the Partnership Agreement.
1. Assignment.
(a) Assignor hereby transfers and assigns to Assignee
Assignor's entire interest as a general partner in the Partnership, consisting
of a two percent (2.0%) general partnership interest in the Partnership
(collectively the "Transferred Interest"). The Transferred Interest includes
Assignor's capital account in the Partnership and Assignor's Percentage
Interest in the income, losses and distributions of the Partnership (which
interest is more particularly described in the Partnership Agreement), and the
Transferred Interest will consist of 100% of each such item. Assignor grants
to Assignee the right to be substituted as a limited partner of the Partnership
with respect to the Transferred Interest. This transfer and assignment shall
be effective as of __________, 1996 (the "Effective Date").
(b) Assignor represents and warrants to Assignee that the
Assignor is the sole owner of the Transferred Interest and that the Transferred
Interest is correctly described in paragraph 1(a) above, that the Transferred
Interest will be assigned free and clear of any and all liens and encumbrances
except for a security interest which secures obligations of Rayco, Ltd., to
Guaranty Federal Savings Bank, and that Assignor has full right, power and
authority to assign and transfer the Transferred Interest to Assignee. The
Transferred Interest is transferred and assigned subject to all the terms and
provisions of the Partnership Agreement.
2. Agreements of Assignee.
Assignee agrees to become a substituted General Partner of the
Partnership and to serve as a General Partner of the Partnership, accepts the
transfer and assignment of the Transferred Interest subject to the terms and
conditions of the Partnership Agreement, agrees to comply with and be bound by
all of the provisions of the Partnership Agreement, including, without
limitation, all of the obligations of the Assignor under the Partnership
Agreement, and assumes and agrees to perform all Assignor's obligations with
respect to the Transferred Interest and as a General Partner of the
Partnership. Assignee represents and warrants that it has full right, power
and authority to acquire the Transferred Interest and to own and hold an
interest as a General Partner of the Partnership.
<PAGE> 175
3. Miscellaneous.
This Assignment shall be governed by and construed in
accordance with the laws of the State of Texas. This Assignment and the
rights, powers and duties set forth herein shall bind and inure to the benefit
of the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Assignment this
____ day of _______, 1996.
ASSIGNOR
--------
Rayco Management, L.L.C.
By:
-----------------------------------
Name:
-------------------------
Title:
------------------------
ASSIGNEE
--------
--------------------------------------
By:
-----------------------------------
Name:
-------------------------
Title:
------------------------
2
<PAGE> 176
EXHIBIT B
TO
PURCHASE AGREEMENT
ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST
This Assignment of Limited Partnership Interest (this "Assignment") is
between the Ray Ellison Grandchildren Trust ("Assignor"), a limited partner of
Rayco, Ltd., a Texas limited partnership (the "Partnership"), and
_________________________________ ("Assignee"). The Partnership is organized
and existing under the terms of an Amended and Restated Agreement of Limited
Partnership dated effective as of January 1, 1995, as amended (the "Partnership
Agreement"). Capitalized terms which are used but not defined in this
Assignment shall have the meanings provided for in the Partnership Agreement.
1. Assignment.
(a) Assignor hereby transfers and assigns to Assignee
Assignor's entire interest as a limited partner in the Partnership, consisting
of a ninety-eight percent (98.0%) limited partnership interest in the
Partnership (collectively the "Transferred Interest"). The Transferred
Interest includes Assignor's capital account in the Partnership and Assignor's
Percentage Interest in the income, losses and distributions of the Partnership
(which interest is more particularly described in the Partnership Agreement),
and the Transferred Interest will consist of 100% of each such item. Assignor
grants to Assignee the right to be substituted as a limited partner of the
Partnership with respect to the Transferred Interest. This transfer and
assignment shall be effective as of __________, 1996 (the "Effective Date").
(b) Assignor represents and warrants to Assignee that the
Assignor is the sole owner of the Transferred Interest and that the Transferred
Interest is correctly described in paragraph 1(a) above, that the Transferred
Interest will be assigned free and clear of any and all liens and encumbrances
except for a security interest which secures obligations of Rayco, Ltd., to
Guaranty Federal Savings Bank, and that Assignor has full right, power and
authority to assign and transfer the Transferred Interest to Assignee. The
Transferred Interest is transferred and assigned subject to all the terms and
provisions of the Partnership Agreement.
2. Agreements of Assignee.
Assignee agrees to become a substituted Limited Partner of the
Partnership and to serve as a Limited Partner of the Partnership, accepts the
transfer and assignment of the Transferred Interest subject to the terms and
conditions of the Partnership Agreement, agrees to comply with and be bound by
all of the provisions of the Partnership Agreement, including, without
limitation, all of the obligations of the Assignor under the Partnership
Agreement, and assumes and agrees to perform all Assignor's obligations with
respect to the Transferred Interest and as a Limited Partner of the
Partnership. Assignee represents and warrants that it has full right, power
and authority to acquire the Transferred Interest and to own and hold an
interest as a Limited Partner of the Partnership.
<PAGE> 177
3. Miscellaneous.
This Assignment shall be governed by and construed in
accordance with the laws of the State of Texas. This Assignment and the
rights, powers and duties set forth herein shall bind and inure to the benefit
of the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Assignment this ____ day
of _______, 1996.
ASSIGNOR
--------
The Ray Ellison Grandchildren Trust
By:
------------------------------------
Ronald K. Calgaard, Trustee
By:
------------------------------------
A. Baker Duncan, Trustee
By:
------------------------------------
Bonnie Ellison, Trustee
ASSIGNEE
--------
---------------------------------------
By:
------------------------------------
Name:
--------------------------
Title:
-------------------------
2
<PAGE> 178
EXHIBIT C
TO
PURCHASE AGREEMENT
FORM OF OPINION OF COUNSEL FOR THE SELLERS
Kaufman and Broad Home Corporation
10990 Wilshire Blvd.
Los Angeles, California 90024
Gentlemen:
We have acted as counsel to Ray Ellison Industries, Inc., a Delaware
corporation ("Industries"), Rayco Management, L.L.C., a Texas limited liability
company (the "LLC"), and the Ray Ellison Grandchildren Trust ("REGT") in
connection with the purchase and sale of all the outstanding common stock (the
"Shares") of Satex Properties, Inc., Texas Homestead Mortgage Company and San
Antonio Title Co., the general partnership interest (the "GP Interest") in
Rayco, Ltd., a Texas limited partnership (the "Partnership"), and the limited
partnership interest (the "LP Interest") in the Partnership, under a Purchase
Agreement dated January __, 1996 (the "Agreement") between the Sellers and you.
This opinion is given pursuant to Section 6.1.3 of the Agreement. Capitalized
terms not otherwise defined herein are defined as set forth in the Agreement.
In connection with the opinions expressed below, we have examined the
Agreement and the Conveyance Agreements. We have participated in the
preparation of the Agreement and the other documents referred to therein. As
to various questions of fact material to our opinion we have relied upon the
representations made in the Agreement and upon certificates of officers or
trustees of the Sellers. We have also examined such certificates of public
officials, corporate documents and records and other certificates, opinions and
instruments and have made such other investigations as we have deemed necessary
in connection with the opinions hereinafter set forth.
In rendering the opinions set forth below, we have assumed that (i)
all parties to the Agreement and the Conveyance Agreements other than the
Sellers (the "Other Parties") have all necessary power and authority to enter
into the Agreement and the Conveyance Agreements to which they are a party and
to exercise their respective rights thereunder and (ii) the Agreement and the
Conveyance Agreements have been duly and validly authorized, executed and
delivered by the Other Parties and that the Agreement and the Conveyance
Agreements constitute the legal, valid and binding obligations of the Other
Parties, enforceable in accordance with their respective terms. In addition,
we have assumed (i) the legal capacity of natural persons, (ii) the genuineness
of all signatures, (iii) the authenticity of all documents submitted to us as
originals, and (iv) the conformity to original documents of all documents
submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
1. Industries has been duly organized as a corporation and is
validly existing and in
<PAGE> 179
good standing under the laws of the State of Delaware. Each
of the Corporations has been duly organized as a corporation
and is validly existing and in good standing under the laws of
the State of Texas. The LLC has been duly organized as a
limited liability company and is validly existing and in good
standing under the laws of the State of Texas. REGT has been
organized and continues in existence under the terms of the
Trust Agreement. Rayco has been duly organized as a limited
partnership and is validly existing and in good standing under
the laws of the State of Texas.
2. The Shares constitute all the issued and outstanding capital
stock of the Corporations. Industries is the sole owner of
all the Shares. The Shares have been duly authorized and
validly issued and are fully paid and non-assessable. The GP
Interest and the LP Interest constitute all the partnership
interests in Rayco. The LLC is the sole owner of the GP
Interest and REGT is the sole owner of the LP Interest.
3. Each of the Sellers has the power and authority to enter into
and perform the Agreement and the Conveyance Agreements and to
transfer the Securities owned by it. The execution, delivery
and performance of the Agreement and the Conveyance Agreements
have been duly authorized by all requisite corporate actions
of Industries and all requisite actions of the LLC.
4. The Agreement is legal, valid and binding obligation of each
of the Sellers and is enforceable against each of the Sellers
in accordance with its terms. The Conveyance Agreements are
legal, valid and binding obligations of the LLC and REGT and
are enforceable against the LLC and REGT in accordance with
their terms.
5. The execution and delivery of the Agreement by Industries does
not and the performance by Industries of the terms of the
Agreement and the transfer of the Shares will not conflict
with or result in a violation of the Articles of Incorporation
or By-laws of Industries or any agreement, instrument, order,
writ, judgment or decree known to us to which Industries is a
party or is subject. The execution and delivery of the
Agreement and the Conveyance Agreements by the LLC do not and
the performance by the LLC of the terms of the Agreement and
the Conveyance Agreements and the transfer of the GP Interest
will not conflict with or result in a violation of the
Articles of Organization or Regulations of the LLC or any
agreement, instrument, order, writ, judgment or decree known
to us to which the LLC is a party or is subject. The
execution and delivery of the Agreement and the Conveyance
Agreements by REGT do not and the performance by REGT of the
terms of the Agreement and the Conveyance Agreements and the
transfer of the LP Interest will not conflict with or result
in a violation of the Trust Agreement or any other agreement,
instrument, order, writ, judgment or decree known to us to
which REGT is a party or is subject.
2
<PAGE> 180
6. We have no knowledge of any action, suit, proceeding or
investigation pending or threatened against any of the Sellers
seeking to enjoin or otherwise prevent consummation of the
transactions contemplated by the Agreement or Conveyance
Agreements.
7. Except for filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, no approval,
authorization or other action by, or filing with, any
governmental authority, is required in connection with the
execution and delivery of the Agreement and the Conveyance
Agreements by any of Sellers or the performance by any of
Sellers of its obligations under the Agreement or any of the
Conveyance Agreements.
The foregoing opinions are qualified by the following:
A. We are members of the Bar of the State of Texas. Accordingly,
as to matters of law set forth above, our opinions are limited to matters of
Texas law and the federal laws of the United States of America.
B. Our opinions are subject to the further qualifications that
the enforceability of the Agreement and the Conveyance Agreements may be
limited by and subject to (i) applicable bankruptcy, insolvency,
reorganization, fraudulent transfer or conveyance, moratorium or other similar
laws affecting creditors' rights and (ii) general principles of equity,
commercial reasonableness and conscionability.
C. In rendering the opinion expressed in numbered paragraphs 5
and 6 above, our inquiry has been limited to discussions with attorneys of this
firm who have performed legal services for the Sellers.
This opinion may be relied upon only by you and your counsel and only
in connection with the execution of the Agreement and the Conveyance Agreements
and the consummation of the transactions contemplated therein, and, without our
prior written consent, may not be quoted in whole or in part or otherwise
referred to in any report or document furnished to any person or entity.
Very truly yours,
3
<PAGE> 181
EXHIBIT D-1
TO
PURCHASE AGREEMENT
FORM OF OPINION OF INSIDE COUNSEL FOR THE PURCHASER
Ray Ellison Industries, Inc.
- ------------------------------
- ------------------------------
- ------------------------------
Rayco Management L.L.C.
- ------------------------------
- ------------------------------
- ------------------------------
Ray Ellison Grandchildren Trust
- ------------------------------
- ------------------------------
- ------------------------------
Gentlemen:
I have acted as counsel to Kaufman and Board Home Corporation, a
Delaware corporation (the "Purchaser"), in connection with the purchase and
sale of all the outstanding common stock (the "Shares") of Satex Properties,
Inc., Texas Homestead Mortgage Company and San Antonio Title Co., the general
partnership interest (the "GP Interest") in Rayco, Ltd., a Texas limited
partnership (the "Partnership"), and the limited partnership interest (the "LP
Interest") in the Partnership, under a Purchase Agreement dated January __,
1996, (the "Agreement") between the Purchaser and you. This opinion is given
pursuant to Section 6.2.3 of the Agreement. Capitalized terms not otherwise
defined herein are defined as set forth in the Agreement.
In connection with the opinions expressed below, I have examined the
Agreement and the Conveyance Agreements. I have participated in the
preparation of the Agreement and the other documents referred to therein. As
to various questions of fact material to my opinion I have relied upon the
representations made in the Agreement and upon certificates of officers of the
Purchaser. I have also examined such certificates of public officials,
corporate documents and records and other certificates, opinions and
instruments and have made such other investigations as we have deemed necessary
in connection with the opinions hereinafter set forth.
In rendering the opinions set forth below, I have assumed that (i) all
parties to the Agreement and the Conveyance Agreements other than the Purchaser
(the "Other Parties") have all necessary power and authority to enter into the
Agreement and the Conveyance Agreements to which they are a party and to
exercise their respective rights thereunder and (ii) the Agreement and the
Conveyance Agreements have been duly and validly authorized, executed and
delivered by the Other Parties and that the Agreement and the Conveyance
Agreements constitute the legal,
<PAGE> 182
valid and binding obligations of the Other Parties, enforceable in accordance
with their respective terms. In addition, we have assumed (i) the legal
capacity of natural persons, (ii) the genuineness of all signatures, (iii) the
authenticity of all documents submitted to us as originals, and (iv) the
conformity to original documents of all documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, I am of the opinion that:
8. The Purchaser and each Purchaser Entity has been duly
organized and is validly existing and in good standing under
the laws of (a) the State of Delaware with respect to the
Purchaser and (b) the state of incorporation of each other
Purchaser Entity.
9. The Purchaser and each Purchaser Entity has the corporate
power and authority to enter into and perform the Agreement
and the Conveyance Agreements. The execution, delivery and
performance of the Agreement and the Conveyance Agreements
have been duly authorized by all requisite corporate action,
and the Agreement and the Conveyance Agreements have been duly
executed and delivered by the Purchaser and each Purchaser
Entity.
10. The Agreement and the Conveyance Agreements are legal, valid
and binding obligations of the Purchaser and each Purchaser
Entity. Had Section 13.3.2 of the Agreement and paragraph 3
of each of the Conveyance Documents provided that each such
document shall be governed by and construed in accordance with
the laws of the State of California (without regard to choice
of law principles), rather than the laws of the State of Texas
(without regard to choice of law principles) as they now
provide, the Agreement and the Conveyance Agreements would be
enforceable against the Purchaser and each Purchaser Entity in
accordance with their respective terms.
11. The execution and delivery of the Agreement and the Conveyance
Agreements do not and the performance by the Purchaser and
each Purchaser Entity of the terms of the Agreement and the
Conveyance Agreements will not conflict with or result in a
violation of the Certificate of Incorporation or By-laws of
the Purchaser or any Purchaser Entity or any agreement,
instrument, order, writ, judgment or decree known to us to
which the Purchaser or any Purchaser Entity is a party or
is subject.
12. I have no knowledge of any action, suit, proceeding or
investigation pending or threatened against the Purchaser or
any Purchaser Entity seeking to enjoin or otherwise prevent
consummation of the transactions contemplated by the Agreement
or the Conveyance Agreements.
The foregoing opinions are qualified by the following:
2
<PAGE> 183
A. I am a member of the Bar of the State of California.
Accordingly, as to matters of law set forth above, my opinions are limited to
matters of California law and the federal laws of the United States of America.
B. My opinions are subject to the further qualifications that the
enforceability of the Agreement and the Conveyance Agreements may be limited by
and subject to (i) applicable bankruptcy, insolvency, reorganization,
fraudulent transfer or conveyance, moratorium or other similar laws affecting
creditors' rights and (ii) general principles of equity, commercial
reasonableness and conscionability.
C. In rendering the opinion expressed in numbered paragraphs 4
and 5 above, my inquiry has been limited to discussions with attorneys on the
legal staff of the Purchaser who have performed legal services for the
Purchaser or any Purchaser Entity.
This opinion may be relied upon only by you and your counsel and only
in connection with the execution of the Agreement and the Conveyance Agreements
and the consummation of the transactions contemplated therein, and, without our
prior written consent, may not be quoted in whole or in part or otherwise
referred to in any report or document furnished to any person or entity.
Very truly yours,
3
<PAGE> 184
EXHIBIT D-2
TO
PURCHASE AGREEMENT
FORM OF OPINION OF OUTSIDE COUNSEL FOR THE PURCHASER
Ray Ellison Industries, Inc.
- ------------------------------
- ------------------------------
- ------------------------------
Rayco Management L.L.C.
- ------------------------------
- ------------------------------
- ------------------------------
Ray Ellison Grandchildren Trust
- ------------------------------
- ------------------------------
- ------------------------------
Gentlemen:
We have acted as counsel to Kaufman and Broad Home Corporation, a
Delaware corporation (the "Purchaser"), in connection with the purchase and
sale of all the outstanding common stock (the "Shares") of Satex Properties,
Inc., Texas Homestead Mortgage Company and San Antonio Title Co., the general
partnership interest (the "GP Interest") in Rayco, Ltd., a Texas limited
partnership (the "Partnership"), and the limited partnership interest (the "LP
Interest") in the Partnership, under a Purchase Agreement dated January __,
1996, (the "Agreement") between the Purchaser and you. This opinion is given
pursuant to Section 6.2.3 of the Agreement. Capitalized terms not otherwise
defined herein are defined as set forth in the Agreement.
In connection with the opinions expressed below, we have examined the
Agreement and the Conveyance Agreements. We have participated in the
preparation of the Agreement and the other documents referred to therein. As
to various questions of fact material to our opinion we have relied upon the
representations made in the Agreement and upon certificates of officers of the
Purchaser. We have also examined such certificates of public officials,
corporate documents and records and other certificates, opinions and
instruments and have made such other investigations as we have deemed necessary
in connection with the opinions hereinafter set forth.
In rendering the opinions set forth below, we have assumed that (i)
all parties to the Agreement and the Conveyance Agreements have all necessary
power and authority to enter into the Agreement and the Conveyance Agreements
to which they are a party and to exercise their respective rights thereunder
and (ii) the Agreement and the Conveyance Agreements have been duly and validly
authorized, executed and delivered by all parties and that the Agreement and
the Conveyance Agreements constitute the legal, valid and binding obligations
of all parties, and as to the parties to the Agreement and the Conveyance
Agreement other than the Purchaser are enforceable in accordance with their
respective terms. In addition, we have assumed (i) the legal capacity of
natural persons, (ii) the genuineness of all signatures, (iii) the authenticity
of all documents submitted to us as originals, and (iv) the conformity to
original documents of all
<PAGE> 185
documents submitted to us as copies.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
13. Had Section 13.3.2 of the Agreement and paragraph 3 of each of
the Conveyance Documents provided that each such document
shall be governed by and construed in accordance with the laws
of the State of New York (without regard to choice of law
principles), rather than the laws of the State of Texas
(without regard to choice of law principles) as they now
provide, the Agreement and the Conveyance Agreements would be
enforceable against the Purchaser and each Purchaser Entity in
accordance with their respective terms.
14. Except for filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, no approval,
authorization or other action by, or filing with, any U.S.
Federal or New York State governmental authority, is required
in connection with the execution and delivery of the Agreement
and the Conveyance Agreements by the Purchaser or any
Purchaser Entity or the performance by the Purchaser or any
Purchaser Entity of its obligations under the Agreement or the
Conveyance Agreements.
The foregoing opinions are qualified by the following:
A. We are members of the Bar of the State of New York.
Accordingly, as to matters of law set forth above, our opinions are limited to
matters of New York law and the federal laws of the United States of America.
B. Our opinions are subject to the further qualifications that
the enforceability of the Agreement and the Conveyance Agreements may be
limited by and subject to (i) applicable bankruptcy, insolvency,
reorganization, fraudulent transfer or conveyance, moratorium or other similar
laws affecting creditors' rights and (ii) general principles of equity,
commercial reasonableness and conscionability.
This opinion may be relied upon only by you and your counsel and only
in connection with the execution of the Agreement or the Conveyance Agreements
and the consummation of the transactions contemplated therein, and, without our
prior written consent, may not be quoted in whole or in part or otherwise
referred to in any report or document furnished to any person or entity.
Very truly yours,
5
<PAGE> 186
EXHIBIT E-1
TO
PURCHASE AGREEMENT
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment and Non-Competition Agreement (the
"AGREEMENT") dated as of January 22, 1996, is entered into between Rayco, Ltd.,
a Texas limited partnership (the "COMPANY"), and John H. Willome (the
"EXECUTIVE").
WHEREAS, the Executive has in the past served as the [specify
title] of the Company; and
WHEREAS, the Company and the Executive wish to enter into an
employment agreement whereby the Executive will continue to provide services to
the Company in accordance with the terms and conditions stated below;
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT AND RESPONSIBILITIES
Section 1.1 Employment and Term. (a) Until [specify date
of first anniversary of closing] (the "term" of this Agreement), the Executive
will be employed by the Company and will provide such services as the Company
may reasonably request consistent with the terms of this Agreement.
(b) During the first 60 days of this Agreement, the
Executive will work 5 days per week (approximately 35 hours per week) and will
be paid $1,000 per day ($5,000 per week). During the balance of the term of
this Agreement, the Executive will be available to work up to 3 days per week
as reasonably scheduled by Company and will be paid $1,000 for each day worked.
(c) The Executive agrees to perform all of the duties and
responsibilities requested of him pursuant to this Agreement efficiently and to
the best of his ability. The Executive also agrees that he will not engage in
any other activities that are inconsistent with the performance of his duties
and responsibilities hereunder. The Executive agrees that all of his
activities for the Company shall be in conformity with all present and future
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
Section 1.2 Benefits. During the term of this Agreement,
the Executive shall participate in such health and major medical insurance
plans as are no less favorable to the Executive than the health and major
medical insurance plans that may be maintained during such period by the
Company for the benefit of the other employees of the Company generally.
Following the termination of the Executive's
<PAGE> 187
employment (a) by the Company other than for Cause, as hereinafter defined, or
(b) by reason of disability under Section 3.2, the Company shall continue to
provide the Executive such health and major medical insurance coverage for the
period of time ending on the fifth anniversary of the date of this Agreement.
Section 1.3 Expenses. The Company will reimburse the
Executive for reasonable business-related expenses incurred by him in
connection with the performance of his duties hereunder, subject, however, to
the Company's policies relating to business-related expenses as in effect from
time to time.
Section 1.4 Non-Contravention. The Executive represents
and warrants to the Company that neither the execution and delivery of this
Agreement nor the performance of his duties hereunder violates or will violate
the provisions of any other agreement to which he is a party or by which he is
bound.
ARTICLE II
CONFIDENTIALITY AND NONCOMPETITION
Section 2.1 Confidentiality. The Executive agrees that
he will not, at any time during or after the term of this Agreement, use or
disclose or cause to be used or disclosed any secret, confidential or
proprietary information of or concerning the Company or its affiliates, which
he may have learned in connection with his employment hereunder or his prior
employment with Rayco or its affiliates. The Executive's obligation under this
Section shall not apply to any information which is known publicly or hereafter
becomes publicly known without the fault of the Executive. The Executive
agrees not to remove from the premises of the Company, except in pursuit of the
business of the Company or except as specifically permitted in writing by the
Company, any document or other object containing or reflecting any such
confidential information. The Executive recognizes that all such documents and
objects, whether developed by him or by someone else, will be the sole and
exclusive property of the Company. Upon termination of his employment
hereunder, the Executive shall cooperate with the Company to return all such
confidential information as promptly as practicable. The provisions of this
Section shall survive any termination of this Agreement.
Section 2.2 Noncompetition. (a) During the period
commencing on the date hereof and ending on the third anniversary of the date
on which the Executive's employment by the Company terminates,
(i) the Executive shall not, on his own account,
or as an employee, consultant, independent contractor, partner, owner,
officer, director, stockholder or otherwise, engage in, be connected
with, have any interest in, or aid or assist anyone else to engage in,
be connected with, or have any interest in, any business or company
engaged in the home building business anywhere in the United States
where the Company or Kaufman and Broad
-2-
<PAGE> 188
Home Corporation or any of their respective subsidiaries is engaged in
the home building business as of the date of this Agreement and in
particular in the following states: California, Nevada, Arizona, Utah,
Colorado, New Mexico and Texas, provided that the Executive may
purchase securities in any corporation whose securities are listed or
traded on a national securities exchange or in an over-the-counter
securities market if such purchases do not result in the Executive
beneficially owning, directly or indirectly, at any time 2% or more of
the equity securities of any such corporation;
(ii) the Executive shall not, directly or
indirectly, (A) solicit or induce, or in any manner attempt to solicit
or induce, any person employed by, or as an agent of, the Company to
terminate such person's employment or agency, as the case may be, with
the Company or (B) divert, or attempt to divert, any person, concern
or entity from doing business with the Company;
(iii) if any provision contained in this Section
shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Section, but this Section shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein. It is the intention of the parties that
if any of the restrictions or covenants contained herein is held to
cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be too broad
or to any extent invalid, such provision shall not be construed to be
null, void and of no effect, but to the extent such provision would be
valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section to
provide for a covenant having the maximum enforceable geographic area,
time period and other provisions (not greater than those contained
herein) as shall be valid and enforceable under such applicable law.
The Executive acknowledges that the Company would be irreparably
harmed by any breach of this Section and that there would be no
adequate remedy at law or in damages to compensate the Company for any
such breach. Therefore, if any controversy arises concerning the
obligations under this Section, such obligations shall be specifically
enforced by an injunctive order issued by a court of competent
jurisdiction and the Executive hereby waives any requirement that a
bond be posted as a condition thereto; and
(iv) the provisions of this Section shall survive
any termination of this Agreement.
-3-
<PAGE> 189
ARTICLE III
TERMINATION
Section 3.1 Termination by the Company. The Company
shall have the right to terminate the Executive's employment at any time with
or without "Cause". For purposes of this Agreement, "CAUSE" shall mean:
(a) the breach by the Executive of any of his covenants
or obligations under this Agreement or the failure by the Executive to perform
his duties for the Company, but only if such breach or failure is not cured
within 15 days after written notice of such breach or failure is delivered to
the Executive by the Company;
(b) the commission by the Executive of a significant act
of dishonesty, deceit or breach of fiduciary duty in the performance of his
duties with the Company; or
(c) the commission by the Executive of an act or acts
constituting a crime involving moral turpitude.
Section 3.2 Death, Disability. If the Executive dies
during the term of this Agreement, this Agreement shall automatically terminate
effective on the date of the Executive's death. If the Executive suffers a
disability which has prevented him from performing satisfactorily his
obligations hereunder for a period of at least 30 out of 45 consecutive days,
the Company shall have the right to terminate this Agreement effective upon the
giving of notice thereof to the Executive in accordance with Section 4.2
hereof.
Section 3.3 Effect of Termination. (a) In the event of
termination of the Executive's employment by either party for any reason, or by
reason of the Executive's death or disability, the Company shall pay to the
Executive (or his beneficiary in the event of his death) any salary or other
compensation earned but not paid to the Executive prior to the date of such
termination.
(b) In the event of termination of the Executive's
employment by the Company other than for Cause, the Company shall continue to
pay to the Executive, in addition to the amounts described in Section 3.3(a), a
salary of $5,000 per week for each remaining week during the first sixty days
of this Agreement, but will have no obligation to make any payment of salary
for any subsequent period.
-4-
<PAGE> 190
ARTICLE IV
MISCELLANEOUS
Section 4.1 Benefit of Agreement; Assignment. This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or
person which may acquire all or substantially all of the Company's assets or
business, or with or into which the Company may be consolidated or merged.
This Agreement shall also inure to the benefit of, and be enforceable by, the
Executive and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. This Agreement shall
not be assignable by the Executive.
Section 4.2 Notices. Any notice required or permitted
hereunder shall be in writing and shall be sufficiently given if personally
delivered or if sent by telegram or telex or by registered or certified mail,
postage prepaid, with return receipt requested, addressed:
(a) in the case of the Company, to Rayco, Ltd., 4800
Fredericksburg Road, San Antonio, Texas 78229 Attention: General Counsel, with
a copy to Kaufman and Broad Home Corporation, 10990 Wilshire Blvd., Los
Angeles, California 90024, Attention: General Counsel or to such other
addresses and/or to the attention of such other person as the Company shall
designate by written notice to the Executive; and
(b) in the case of the Executive, to John H. Willome at
the address appearing on the employment records of the Company, from time to
time, or to such other address as the Executive shall designate by written
notice to the Company. Any notice given hereunder shall be deemed to have been
given at the time of receipt thereof by the person to whom such notice is
given.
Section 4.3 Entire Agreement; Amendment. This Agreement
and the Executive's Deferred Compensation Death Plan Benefit contain the entire
agreement of the parties hereto with respect to the terms and conditions of the
Executive's employment during the term of this Agreement and supersedes any and
all prior agreements and understandings, whether written or oral, between the
parties hereto (including in the case of the Company any of its affiliates)
with respect to compensation due for services rendered hereunder, in particular
the Company, Satex Properties, Inc., Texas Homestead Mortgage Company and San
Antonio Title Company are hereby released from any liabilities or obligations
under the Employment Agreement dated January 31, 1995 among the Company and
John H. Willome. This Agreement may not be changed or modified except by an
instrument in writing signed by both of the parties hereto.
Section 4.4 Waiver. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as
a continuing waiver or as a consent to or waiver of any subsequent breach
hereof.
-5-
<PAGE> 191
Section 4.5 Headings. The article and section headings
herein are for convenience of reference only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section 4.6 Governing Law. This Agreement shall be
governed by, and construed and interpreted in accordance with, the internal
laws of the State of Texas without reference to the principles of conflict of
laws.
Section 4.7 Agreement to Take Actions. Each party hereto
shall execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
Section 4.8 Arbitration. Any dispute between the parties
with respect to this Agreement or any of its terms and provisions shall be
submitted to arbitration in San Antonio, Texas, in accordance with the
Commercial Rules of the American Arbitration Association then in effect, and
the arbitration determination resulting from any such submission shall be final
and binding upon the parties hereto. The arbitrator shall have the authority,
but not the obligation, to award reasonable attorney's fees to the prevailing
party in any dispute subject to this Section. Judgment upon any arbitration
award may be entered in any court of competent jurisdiction.
Section 4.9 Severability. The invalidity or
unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision or provisions of
this Agreement, which shall remain in full force and effect.
Section 4.10 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same instrument.
-6-
<PAGE> 192
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.
RAYCO, LTD.
By: /s/ MICHAEL HENN
----------------------------------
Name: Michael Henn
Title: Vice President
JOHN H. WILLOME
By: /s/ JOHN H. WILLOME
----------------------------------
Name:
Title:
-7-
<PAGE> 193
EXHIBIT E-2
TO
PURCHASE AGREEMENT
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment and Non-Competition Agreement (the
"AGREEMENT") dated as of January 26, 1996, is entered into between Rayco, Ltd.,
a Texas limited partnership (the "COMPANY"), and Jack E. Biegler (the
"EXECUTIVE").
WHEREAS, the Executive has in the past served as the [specify
title] of the Company; and
WHEREAS, the Company and the Executive wish to enter into an
employment agreement whereby the Executive will continue to provide services to
the Company in accordance with the terms and conditions stated below;
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT AND RESPONSIBILITIES
Section 1.1 Employment and Term. (a) Until [specify date
of first anniversary of closing] (the "term" of this Agreement), the Executive
will be employed by the Company and will provide such services as the Company
may reasonably request consistent with the terms of this Agreement.
(b) During the first 60 days of this Agreement, the
Executive will work 5 days per week (approximately 35 hours per week) and will
be paid $1,000 per day ($5,000 per week). During the balance of the term of
this Agreement, the Executive will be available to work up to 3 days per week
as reasonably scheduled by Company and will be paid $1,000 for each day worked.
(c) The Executive agrees to perform all of the duties and
responsibilities requested of him pursuant to this Agreement efficiently and to
the best of his ability. The Executive also agrees that he will not engage in
any other activities that are inconsistent with the performance of his duties
and responsibilities hereunder. The Executive agrees that all of his
activities for the Company shall be in conformity with all present and future
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
Section 1.2 Benefits. During the term of this Agreement,
the Executive shall participate in such health and major medical insurance
plans as are no less favorable to the Executive than the health and major
medical insurance plans that may be maintained during such period by the
Company for the benefit of the other employees of the Company generally.
Following the termination of the Executive's
<PAGE> 194
employment (a) by the Company other than for Cause, as hereinafter defined, or
(b) by reason of disability under Section 3.2, the Company shall continue to
provide the Executive such health and major medical insurance coverage for the
period of time ending on the fifth anniversary of the date of this Agreement.
Section 1.3 Expenses. The Company will reimburse the
Executive for reasonable business-related expenses incurred by him in
connection with the performance of his duties hereunder, subject, however, to
the Company's policies relating to business-related expenses as in effect from
time to time.
Section 1.4 Non-Contravention. The Executive represents
and warrants to the Company that neither the execution and delivery of this
Agreement nor the performance of his duties hereunder violates or will violate
the provisions of any other agreement to which he is a party or by which he is
bound.
ARTICLE II
CONFIDENTIALITY AND NONCOMPETITION
Section 2.1 Confidentiality. The Executive agrees that
he will not, at any time during or after the term of this Agreement, use or
disclose or cause to be used or disclosed any secret, confidential or
proprietary information of or concerning the Company or its affiliates, which
he may have learned in connection with his employment hereunder or his prior
employment with Rayco or its affiliates. The Executive's obligation under this
Section shall not apply to any information which is known publicly or hereafter
becomes publicly known without the fault of the Executive. The Executive
agrees not to remove from the premises of the Company, except in pursuit of the
business of the Company or except as specifically permitted in writing by the
Company, any document or other object containing or reflecting any such
confidential information. The Executive recognizes that all such documents and
objects, whether developed by him or by someone else, will be the sole and
exclusive property of the Company. Upon termination of his employment
hereunder, the Executive shall cooperate with the Company to return all such
confidential information as promptly as practicable. The provisions of this
Section shall survive any termination of this Agreement.
Section 2.2 Noncompetition. (a) During the period
commencing on the date hereof and ending on the third anniversary of the date
on which the Executive's employment by the Company terminates,
(i) the Executive shall not, on his own account,
or as an employee, consultant, independent contractor, partner, owner,
officer, director, stockholder or otherwise, engage in, be connected
with, have any interest in, or aid or assist anyone else to engage in,
be connected with, or have any interest in, any business or company
engaged in the home building business anywhere in the United States
where the Company or Kaufman and Broad
-2-
<PAGE> 195
Home Corporation or any of their respective subsidiaries is engaged in
the home building business as of the date of this Agreement and in
particular in the following states: California, Nevada, Arizona, Utah,
Colorado, New Mexico and Texas, provided that the Executive may
purchase securities in any corporation whose securities are listed or
traded on a national securities exchange or in an over-the-counter
securities market if such purchases do not result in the Executive
beneficially owning, directly or indirectly, at any time 2% or more of
the equity securities of any such corporation;
(ii) the Executive shall not, directly or
indirectly, (A) solicit or induce, or in any manner attempt to solicit
or induce, any person employed by, or as an agent of, the Company to
terminate such person's employment or agency, as the case may be, with
the Company or (B) divert, or attempt to divert, any person, concern
or entity from doing business with the Company;
(iii) if any provision contained in this Section
shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Section, but this Section shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein. It is the intention of the parties that
if any of the restrictions or covenants contained herein is held to
cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be too broad
or to any extent invalid, such provision shall not be construed to be
null, void and of no effect, but to the extent such provision would be
valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section to
provide for a covenant having the maximum enforceable geographic area,
time period and other provisions (not greater than those contained
herein) as shall be valid and enforceable under such applicable law.
The Executive acknowledges that the Company would be irreparably
harmed by any breach of this Section and that there would be no
adequate remedy at law or in damages to compensate the Company for any
such breach. Therefore, if any controversy arises concerning the
obligations under this Section, such obligations shall be specifically
enforced by an injunctive order issued by a court of competent
jurisdiction and the Executive hereby waives any requirement that a
bond be posted as a condition thereto; and
(iv) the provisions of this Section shall survive
any termination of this Agreement.
-3-
<PAGE> 196
ARTICLE III
TERMINATION
Section 3.1 Termination by the Company. The Company
shall have the right to terminate the Executive's employment at any time with
or without "Cause". For purposes of this Agreement, "CAUSE" shall mean:
(a) the breach by the Executive of any of his covenants
or obligations under this Agreement or the failure by the Executive to perform
his duties for the Company, but only if such breach or failure is not cured
within 15 days after written notice of such breach or failure is delivered to
the Executive by the Company;
(b) the commission by the Executive of a significant act
of dishonesty, deceit or breach of fiduciary duty in the performance of his
duties with the Company; or
(c) the commission by the Executive of an act or acts
constituting a crime involving moral turpitude.
Section 3.2 Death, Disability. If the Executive dies
during the term of this Agreement, this Agreement shall automatically terminate
effective on the date of the Executive's death. If the Executive suffers a
disability which has prevented him from performing satisfactorily his
obligations hereunder for a period of at least 30 out of 45 consecutive days,
the Company shall have the right to terminate this Agreement effective upon the
giving of notice thereof to the Executive in accordance with Section 4.2
hereof.
Section 3.3 Effect of Termination. (a) In the event of
termination of the Executive's employment by either party for any reason, or by
reason of the Executive's death or disability, the Company shall pay to the
Executive (or his beneficiary in the event of his death) any salary or other
compensation earned but not paid to the Executive prior to the date of such
termination.
(b) In the event of termination of the Executive's
employment by the Company other than for Cause, the Company shall continue to
pay to the Executive, in addition to the amounts described in Section 3.3(a), a
salary of $5,000 per week for each remaining week during the first sixty days
of this Agreement, but will have no obligation to make any payment of salary
for any subsequent period.
-4-
<PAGE> 197
ARTICLE IV
MISCELLANEOUS
Section 4.1 Benefit of Agreement; Assignment. This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or
person which may acquire all or substantially all of the Company's assets or
business, or with or into which the Company may be consolidated or merged.
This Agreement shall also inure to the benefit of, and be enforceable by, the
Executive and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. This Agreement shall
not be assignable by the Executive.
Section 4.2 Notices. Any notice required or permitted
hereunder shall be in writing and shall be sufficiently given if personally
delivered or if sent by telegram or telex or by registered or certified mail,
postage prepaid, with return receipt requested, addressed:
(a) in the case of the Company, to Rayco, Ltd., 4800
Fredericksburg Road, San Antonio, Texas 78229 Attention: General Counsel, with
a copy to Kaufman and Broad Home Corporation, 10990 Wilshire Blvd., Los
Angeles, California 90024, Attention: General Counsel or to such other
addresses and/or to the attention of such other person as the Company shall
designate by written notice to the Executive; and
(b) in the case of the Executive, to Jack E. Biegler at
the address appearing on the employment records of the Company, from time to
time, or to such other address as the Executive shall designate by written
notice to the Company. Any notice given hereunder shall be deemed to have been
given at the time of receipt thereof by the person to whom such notice is
given.
Section 4.3 Entire Agreement; Amendment. This Agreement
and the Executive's Deferred Compensation Death Plan Benefit contain the entire
agreement of the parties hereto with respect to the terms and conditions of the
Executive's employment during the term of this Agreement and supersedes any and
all prior agreements and understandings, whether written or oral, between the
parties hereto (including in the case of the Company any of its affiliates)
with respect to compensation due for services rendered hereunder, in particular
the Company, Satex Properties, Inc., Texas Homestead Mortgage Company and San
Antonio Title Company are hereby released from any liabilities or obligations
under the Employment Agreement dated January 31, 1995 among the Company and
Jack E. Biegler. This Agreement may not be changed or modified except by an
instrument in writing signed by both of the parties hereto.
Section 4.4 Waiver. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as
a continuing waiver or as a consent to or waiver of any subsequent breach
hereof.
-5-
<PAGE> 198
Section 4.5 Headings. The article and section headings
herein are for convenience of reference only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section 4.6 Governing Law. This Agreement shall be
governed by, and construed and interpreted in accordance with, the internal
laws of the State of Texas without reference to the principles of conflict of
laws.
Section 4.7 Agreement to Take Actions. Each party hereto
shall execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
Section 4.8 Arbitration. Any dispute between the parties
with respect to this Agreement or any of its terms and provisions shall be
submitted to arbitration in San Antonio, Texas, in accordance with the
Commercial Rules of the American Arbitration Association then in effect, and
the arbitration determination resulting from any such submission shall be final
and binding upon the parties hereto. The arbitrator shall have the authority,
but not the obligation, to award reasonable attorney's fees to the prevailing
party in any dispute subject to this Section. Judgment upon any arbitration
award may be entered in any court of competent jurisdiction.
Section 4.9 Severability. The invalidity or
unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision or provisions of
this Agreement, which shall remain in full force and effect.
Section 4.10 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same instrument.
-6-
<PAGE> 199
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.
RAYCO, LTD.
Kaufman and Broad
of San Antonio, Inc.,
a Texas corporation
General Partner
By: /s/ MICHAEL HENN
-------------------
Name: Michael Henn
Title: Vice President
JACK E. BIEGLER
---------------
Jack E. Biegler
-7-
<PAGE> 200
EXHIBIT E-3
TO
PURCHASE AGREEMENT
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment and Non-Competition Agreement (the
"AGREEMENT") dated as of January 22, 1996, is entered into between Rayco, Ltd.,
a Texas limited partnership (the "COMPANY"), and Jack Robinson (the
"EXECUTIVE").
WHEREAS, the Executive has in the past served as the [specify
title] of the Company; and
WHEREAS, the Company and the Executive wish to enter into an
employment agreement whereby the Executive will continue to provide services to
the Company in accordance with the terms and conditions stated below;
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT AND RESPONSIBILITIES
Section 1.1 Employment and Term. (a) Until [specify date
of first anniversary of closing] (the "term" of this Agreement), the Executive
will be employed by the Company and will provide such services as the Company
may reasonably request consistent with the terms of this Agreement.
(b) During the first 90 days of this Agreement, the
Executive will work 5 days per week (approximately 35 hours per week) and will
be paid $1,000 per day ($5,000 per week). During the balance of the term of
this Agreement, the Executive will work 3 days per week and will be paid $1,000
per day ($3,000 per week).
(c) The Executive agrees to perform all of the duties and
responsibilities requested of him pursuant to this Agreement efficiently and to
the best of his ability. The Executive also agrees that he will not engage in
any other activities that are inconsistent with the performance of his duties
and responsibilities hereunder. The Executive agrees that all of his
activities for the Company shall be in conformity with all present and future
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
Section 1.2 Benefits. During the term of this Agreement,
the Executive shall participate in such health and major medical insurance
plans as are no less favorable to the Executive than the health and major
medical insurance plans that may be maintained during such period by the
Company for the benefit of the other employees of the Company generally.
Following the termination of the Executive's
<PAGE> 201
employment (a) by the Company other than for Cause, as hereinafter defined, or
(b) by reason of disability under Section 3.2, the Company shall continue to
provide the Executive such health and major medical insurance coverage for the
period of time ending on the fifth anniversary of the date of this Agreement.
Section 1.3 Expenses. The Company will reimburse the
Executive for reasonable business-related expenses incurred by him in
connection with the performance of his duties hereunder, subject, however, to
the Company's policies relating to business-related expenses as in effect from
time to time.
Section 1.4 Non-Contravention. The Executive represents
and warrants to the Company that neither the execution and delivery of this
Agreement nor the performance of his duties hereunder violates or will violate
the provisions of any other agreement to which he is a party or by which he is
bound.
ARTICLE II
CONFIDENTIALITY AND NONCOMPETITION
Section 2.1 Confidentiality. The Executive agrees that
he will not, at any time during or after the term of this Agreement, use or
disclose or cause to be used or disclosed any secret, confidential or
proprietary information of or concerning the Company or its affiliates, which
he may have learned in connection with his employment hereunder or his prior
employment with Rayco or its affiliates. The Executive's obligation under this
Section shall not apply to any information which is known publicly or hereafter
becomes publicly known without the fault of the Executive. The Executive
agrees not to remove from the premises of the Company, except in pursuit of the
business of the Company or except as specifically permitted in writing by the
Company, any document or other object containing or reflecting any such
confidential information. The Executive recognizes that all such documents and
objects, whether developed by him or by someone else, will be the sole and
exclusive property of the Company. Upon termination of his employment
hereunder, the Executive shall cooperate with the Company to return all such
confidential information as promptly as practicable. The provisions of this
Section shall survive any termination of this Agreement.
Section 2.2 Noncompetition. (a) During the period
commencing on the date hereof and ending on the third anniversary of the date
on which the Executive's employment by the Company terminates,
(i) the Executive shall not, on his own account,
or as an employee, consultant, independent contractor, partner, owner,
officer, director, stockholder or otherwise, engage in, be connected
with, have any interest in, or aid or assist anyone else to engage in,
be connected with, or have any interest in, any business or company
engaged in the home building business anywhere in the United States
where the Company or Kaufman and Broad
-2-
<PAGE> 202
Home Corporation or any of their respective subsidiaries is engaged in
the home building business as of the date of this Agreement and in
particular in the following states: California, Nevada, Arizona, Utah,
Colorado, New Mexico and Texas, provided that the Executive may
purchase securities in any corporation whose securities are listed or
traded on a national securities exchange or in an over-the-counter
securities market if such purchases do not result in the Executive
beneficially owning, directly or indirectly, at any time 2% or more of
the equity securities of any such corporation;
(ii) the Executive shall not, directly or
indirectly, (A) solicit or induce, or in any manner attempt to solicit
or induce, any person employed by, or as an agent of, the Company to
terminate such person's employment or agency, as the case may be, with
the Company or (B) divert, or attempt to divert, any person, concern
or entity from doing business with the Company;
(iii) if any provision contained in this Section
shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Section, but this Section shall be
construed as if such invalid, illegal or unenforceable provision had
never been contained herein. It is the intention of the parties that
if any of the restrictions or covenants contained herein is held to
cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be too broad
or to any extent invalid, such provision shall not be construed to be
null, void and of no effect, but to the extent such provision would be
valid or enforceable under applicable law, a court of competent
jurisdiction shall construe and interpret or reform this Section to
provide for a covenant having the maximum enforceable geographic area,
time period and other provisions (not greater than those contained
herein) as shall be valid and enforceable under such applicable law.
The Executive acknowledges that the Company would be irreparably
harmed by any breach of this Section and that there would be no
adequate remedy at law or in damages to compensate the Company for any
such breach. Therefore, if any controversy arises concerning the
obligations under this Section, such obligations shall be specifically
enforced by an injunctive order issued by a court of competent
jurisdiction and the Executive hereby waives any requirement that a
bond be posted as a condition thereto; and
(iv) the provisions of this Section shall survive
any termination of this Agreement.
-3-
<PAGE> 203
ARTICLE III
TERMINATION
Section 3.1 Termination by the Company. The Company
shall have the right to terminate the Executive's employment at any time with
or without "Cause". For purposes of this Agreement, "CAUSE" shall mean:
(a) the breach by the Executive of any of his covenants
or obligations under this Agreement or the failure by the Executive to perform
his duties for the Company, but only if such breach or failure is not cured
within 15 days after written notice of such breach or failure is delivered to
the Executive by the Company;
(b) the commission by the Executive of a significant act
of dishonesty, deceit or breach of fiduciary duty in the performance of his
duties with the Company; or
(c) the commission by the Executive of an act or acts
constituting a crime involving moral turpitude.
Section 3.2 Death, Disability. If the Executive dies
during the term of this Agreement, this Agreement shall automatically terminate
effective on the date of the Executive's death. If the Executive suffers a
disability which has prevented him from performing satisfactorily his
obligations hereunder for a period of at least 30 out of 45 consecutive days,
the Company shall have the right to terminate this Agreement effective upon the
giving of notice thereof to the Executive in accordance with Section 4.2
hereof.
Section 3.3 Effect of Termination. (a) In the event of
termination of the Executive's employment by either party for any reason, or by
reason of the Executive's death or disability, the Company shall pay to the
Executive (or his beneficiary in the event of his death) any salary or other
compensation earned but not paid to the Executive prior to the date of such
termination.
(b) In the event of termination of the Executive's
employment by the Company other than for Cause, the Company shall continue to
pay to the Executive, in addition to the amounts described in Section 3.3(a), a
salary of $5,000 per week for each remaining week during the first 90 days of
this Agreement and $3,000 per week for such subsequent week during the term of
the Agreement.
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ARTICLE IV
MISCELLANEOUS
Section 4.1 Benefit of Agreement; Assignment. This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or
person which may acquire all or substantially all of the Company's assets or
business, or with or into which the Company may be consolidated or merged.
This Agreement shall also inure to the benefit of, and be enforceable by, the
Executive and his personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. This Agreement shall
not be assignable by the Executive.
Section 4.2 Notices. Any notice required or permitted
hereunder shall be in writing and shall be sufficiently given if personally
delivered or if sent by telegram or telex or by registered or certified mail,
postage prepaid, with return receipt requested, addressed:
(a) in the case of the Company, to Rayco, Ltd., 4800
Fredericksburg Road, San Antonio, Texas 78229, Attention: General Counsel, with
a copy to Kaufman and Broad Home Corporation, 10990 Wilshire Blvd., Los
Angeles, California 90024, Attention: General Counsel or to such other
addresses and/or to the attention of such other person as the Company shall
designate by written notice to the Executive; and
(b) in the case of the Executive, to Jack Robinson at the
address appearing on the employment records of the Company, from time to time,
or to such other address as the Executive shall designate by written notice to
the Company. Any notice given hereunder shall be deemed to have been given at
the time of receipt thereof by the person to whom such notice is given.
Section 4.3 Entire Agreement; Amendment. This Agreement
and the Executive's Deferred Compensation Death Plan Benefit contain the entire
agreement of the parties hereto with respect to the terms and conditions of the
Executive's employment during the term of this Agreement and supersedes any and
all prior agreements and understandings, whether written or oral, between the
parties hereto (including in the case of the Company any of its affiliates)
with respect to compensation due for services rendered hereunder, in particular
the Company, Satex Properties, Inc., Texas Homestead Mortgage Company and San
Antonio Title Company are hereby released from any liabilities or obligations
under the Employment Agreement dated January 31, 1995 among the Company and
Jack Robinson. This Agreement may not be changed or modified except by an
instrument in writing signed by both of the parties hereto.
Section 4.4 Waiver. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be construed as
a continuing waiver or as a consent to or waiver of any subsequent breach
hereof.
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Section 4.5 Headings. The article and section headings
herein are for convenience of reference only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section 4.6 Governing Law. This Agreement shall be
governed by, and construed and interpreted in accordance with, the internal
laws of the State of Texas without reference to the principles of conflict of
laws.
Section 4.7 Agreement to Take Actions. Each party hereto
shall execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
Section 4.8 Arbitration. Any dispute between the parties
with respect to this Agreement or any of its terms and provisions shall be
submitted to arbitration in San Antonio, Texas, in accordance with the
Commercial Rules of the American Arbitration Association then in effect, and
the arbitration determination resulting from any such submission shall be final
and binding upon the parties hereto. The arbitrator shall have the authority,
but not the obligation, to award reasonable attorney's fees to the prevailing
party in any dispute subject to this Section. Judgment upon any arbitration
award may be entered in any court of competent jurisdiction.
Section 4.9 Severability. The invalidity or
unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision or provisions of
this Agreement, which shall remain in full force and effect.
Section 4.10 Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.
RAYCO, LTD.
Kaufman and Broad
of San Antonio, Inc.,
a Texas corporation,
General Partner
By: /s/ MICHAEL HENN
----------------------------------
Name: Michael Henn
Title: Vice President
JACK ROBINSON
/s/ JACK ROBINSON
----------------------------------
Jack Robinson
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AMENDMENT NO. 1 TO PURCHASE AGREEMENT
This AMENDMENT (the "Amendment") dated as of February 9, 1996,
among Ray Ellison Industries, Inc., a Delaware corporation ("Industries"),
Rayco Management, L.L.C., a Texas limited liability company (the "LLC"), and
the Ray Ellison Grandchildren Trust ("REGT") (Industries, the LLC and REGT
being referred to herein collectively as the "Sellers"); John H. Willome, Jack
E. Biegler and Jack Robinson (collectively, the "Executive Officers"); and
Kaufman and Broad Home Corporation, a Delaware corporation (the "Purchaser"),
W I T N E S S E T H:
WHEREAS, Industries, LLC, REGT, the Executive Officers and the
Purchaser wish to amend the Purchase Agreement (the "Agreement") dated as of
January 22, 1996 among Industries, LLC, REGT, the Executive Officers and the
Purchaser;
NOW, THEREFORE, in consideration of the premises and of the
respective agreements contained herein, the parties hereto hereby agree to
amend the Agreement as follows:
SECTION 1. Amendment of Article 1. Article 1 of the Agreement
is amended by:
(i) adding immediately after the paragraph starting with
the words "1995 Earnings Release" the following paragraph:
"Acquired Entity: means any Company and RLDI."
(ii) replacing in the paragraph starting with the words "Due
Diligence Period" the date "February 5, 1996" with the date "February
6, 1996";
(iii) adding immediately after the paragraph starting with the
words "Executive Officers" the following paragraph:
"Extended Title Due Diligence Period: in relation to
any Outstanding Title Policy Property means the period of time
beginning at 8:00 a.m. C.S.T. on the date of this Agreement
and ending at 11:59 p.m. C.S.T. on the date of the second full
business day after the Purchaser has received from the Sellers
copies of the title policies or title reports relating to such
property."
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(iv) adding immediately after the paragraph starting with
the words "Material Adverse Change" the following paragraph:
"Meadowbrook Properties: means those properties
listed and described in Exhibit F to this Agreement."
(v) adding immediately after the paragraph starting with
the words "Non-Remediation Properties" the following paragraph:
"Outstanding Title Policy Properties: means the
following properties (i) the properties located in Rayco's
home developments known as "Big Country", "Creekside",
"Crestridge", "Eckert Crossing", "Heritage Meadows", "Heritage
Park", "Huntington (De Zavala)", "Long's Creek", "The
Settlement", "Northampton", and "Sunrise", (ii) the Companies'
main office building at 4800 Fredericksburg Road, San Antonio,
Texas, (iii) Rayco's lumber yard located in San Antonio, Texas
and (iv) the Companies' realty offices located at 3393
Thousand Oaks, 225 N.E. Loop 410 and 7510 Culebra, in San
Antonio, Texas."
(vi) adding immediately after the paragraph starting with the
words "Redemption Agreement" the following paragraph:
"Required Board Approval Date: means the date that is
the earlier of the date of this Amendment and February 12,
1996."
(vii) adding immediately after the new paragraph starting with
the words "Required Board Approval Date" the following paragraph:
"RLDI: means Rayco Land Development, Inc."
SECTION 2. Amendment of Article 3. Article 3 of the
Agreement is amended by replacing the date "February 29, 1996" in the first
sentence of Article 3 with the date "March 1, 1996" and deleting the last
clause of the last sentence of Article 3 starting with the "; however".
SECTION 3. Amendment of Article 4. Article 4 of the
Agreement is amended by:
(i) inserting in Section 4.1.5(ii) and 4.2.5(ii) immediately
after the words "relating to" the words
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"the Real Estate Settlement Procedures Act ("RESPA") or";
(ii) restating Section 4.1.21 to read in its entirety as
follows:
"4.1.21 Subsidiaries. None of the Corporations has
any equity interest in any other Person nor any equitable or
legal ownership in any other corporation, partnership, joint
venture or business enterprise or in any material asset not
shown on the Financial Statements."
(iii) restating Section 4.2.21 to read in its entirety as
follows:
"4.2.21 Subsidiaries. Rayco has no equity interest
in any other Person nor any equitable or legal ownership in
any other corporation, partnership, joint venture or business
enterprise or in any material asset not shown on the Financial
Statements, except that Rayco owns all of the outstanding
equity securities of RLDI."
(v) amending Section 4.2.4, Section 4.2.5, Section 4.2.7
(except for Section 4.2.7 (viii)), Sections 4.2.9 through 4.2.18,
Section 4.2.20, Section 4.2.21 (except that the last clause of the
section starting with the word "except" shall be omitted in the case
of RLDI), and Sections 4.2.22 through 4.2.28, so that all
representations and warranties regarding or relating to Rayco are made
regarding and relating to both Rayco and RLDI;
(vi) inserting a new Section 4.2.29 thereto to read as follows:
"4.2.29 RLDI. RLDI is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Texas, and has all requisite corporate powers and
authority to own and lease the properties and assets it
currently owns and leases and to carry on its business as such
business is currently conducted. The character of the
properties and assets now owned or leased by RLDI and the
nature of the business now conducted by RLDI does not require
it to be licensed or qualified to do business as a foreign
corporation in any jurisdiction. RLDI is a wholly-owned
subsidiary of Rayco. There are no outstanding subscriptions,
options, convertible or
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exchangeable securities, warrants, calls or other obligations
of any kind issued or granted by, or binding upon, RLDI to
purchase or otherwise acquire any security of, equity interest
in or other ownership interest in RLDI. There are no
intercompany balances between the Sellers and their Affiliates
on the one hand and RLDI on the other hand."
(vi) inserting a new Section 4.2.30 to read as follows:
"4.2.30 Charitable Contributions. All charitable
contributions pledged, committed or promised by the LLC to the
San Antonio Area Foundation relating to the 1995 fiscal year
of Rayco, including, but not limited to, those contributions
described in a letter dated January 15, 1995 from the LLC to
the Chairman of the San Antonio Area Foundation, will have
been paid by the LLC prior to the Closing Date."
(vii) inserting a new Section 4.2.31 to read as follows:
"4.2.31 RLDI Taxes. The income, assets and
operations of RLDI have been correctly reflected in all
required material Tax returns for all required Pre-Closing Tax
Periods. RLDI has (or will have by the due date for such
return) caused timely to be filed with the appropriate
federal, state, local and other governmental authorities all
material returns, information returns or statements, and
reports with respect to Taxes required to be filed on or
before the Closing by, or with respect to, RLDI for any
Pre-Closing Tax Period and has (or will have by the Closing)
caused to be paid or deposited or made adequate provision (in
accordance with generally accepted accounting principles) for
the payment of all Taxes due. There is no material Tax
related claim, audit, action, suit, proceeding or
investigation now pending or threatened against, with respect
to or that could directly impact RLDI, (ii) RLDI is not
subject to any agreement or consent pursuant to Section 341(f)
of the Code, (iii) there are no material liens for Taxes upon
the assets of RLDI except liens for current Taxes not yet due,
(iv) RLDI has not been a member of a consolidated or combined
group other than one in which Ellison, Inc. was the common
parent and (v)
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RLDI is not under any contractual obligation to pay the Taxes
of another Person."
SECTION 4. Amendment of Article 5. Article 5 of the Agreement
is amended by:
(i) inserting in Section 5.1.1 immediately after the words
"covenants that Rayco" in the fifth clause of the first sentence the
words "and RLDI" and immediately after the words "permit any Company"
in the last sentence the words "or RLDI";
(ii) inserting in Sections 5.1.2 and 5.1.3 immediately after
the words "shall cause Rayco" the words "and RLDI";
(iii) inserting in Section 5.1.3 immediately after the words
"shall cause Rayco" the words "and RLDI" and immediately after the
words "Industries, the LLC, Rayco" the clause ", RLDI";
(iv) inserting in Section 5.1.9 immediately after the words
"and the Companies" the words "and RLDI";
(v) inserting in Section 5.1.10 immediately after the words
"Industries, LLC, REGT" the phrase ", RLDI";
(vi) inserting in Section 5.1.11 immediately after the words
"of any Corporation" the words "and RLDI";
(vii) inserting in Section 5.1.13 immediately after the words
"merger of any of the Companies" the words "or RLDI";
(viii) replacing in Section 5.2.3 the words "Prior to the end
of the Due Diligence Period" with the words "Prior to February 9,
1996";
(ix) inserting a new Section 5.1.16 to read as follows:
"5.1.16. Charitable Contributions. The LLC
acknowledges and agrees (i) that the LLC shall be solely
responsible for any obligations to the San Antonio Area
Foundation relating to the portion of the 1996 fiscal year of
Rayco that is prior to the Closing Date and (ii) to hold the
Acquired Entities and the Purchaser harmless and to indemnify
them against any obligations of the Sellers, the Purchasers or
any of the Acquired Entities to San Antonio Area Foundation
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established prior to the Closing Date and continuing
thereafter."
(x) replacing throughout Section 5.3 the word "Company" with
the words "Acquired Entity".
SECTION 5. Amendment of Section 6.1.7. Section 6.1.7 of the
Agreement is amended by adding immediately after the words "of each
Corporation" the words "and RLDI".
SECTION 6. Amendment of Article 7. Section 7.2 and 7.5 of
the Agreement is amended by replacing throughout each such Section the words
"Company" and "Companies" with the words "Acquired Entity" and "Acquired
Entities", respectively.
SE