________________________________________
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
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
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)
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Schedule 4.3.3 - Encumbrances (REGT)
Schedule 4.3.4 - Violations and Consents (REGT)
Schedule 4.4.3 - Violations and Consents (Purchaser)
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C> <C>
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)
</TABLE>
-iv-
<PAGE> 6
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,
<PAGE> 7
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.
2
<PAGE> 8
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.
3
<PAGE> 9
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.
4
<PAGE> 10
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
5
<PAGE> 11
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
6
<PAGE> 12
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.
7
<PAGE> 13
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
8
<PAGE> 14
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
9
<PAGE> 15
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
10
<PAGE> 16
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.
11
<PAGE> 17
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
12
<PAGE> 18
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.
13
<PAGE> 19
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.
14
<PAGE> 20
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
15
<PAGE> 21
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;
16
<PAGE> 22
(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;
17
<PAGE> 23
(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,
18
<PAGE> 24
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
19
<PAGE> 25
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
20
<PAGE> 26
(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
21
<PAGE> 27
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):
22
<PAGE> 28
(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
23
<PAGE> 29
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.
24
<PAGE> 30
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
25
<PAGE> 31
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
26
<PAGE> 32
(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.
27
<PAGE> 33
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
28
<PAGE> 34
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;
29
<PAGE> 35
(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,
30
<PAGE> 36
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
31
<PAGE> 37
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
32
<PAGE> 38
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)
33
<PAGE> 39
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
34
<PAGE> 40
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.
35
<PAGE> 41
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
36
<PAGE> 42
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
37
<PAGE> 43
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
38
<PAGE> 44
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
39
<PAGE> 45
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
40
<PAGE> 46
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
41
<PAGE> 47
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
42
<PAGE> 48
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