Exhibit 10.1

ASSET PURCHASE AGREEMENT

among

AV HOMES, INC.

(“Parent”)

AVH ACQUISITION, LLC

(“Buyer”)

ROYAL OAK HOMES, LLC

(“Seller”)

and

Each of the Members of Seller

(“Seller Members”)

Dated as of March 13, 2014

Acquisition of the Business of Royal Oak Homes

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

ARTICLE I PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF CERTAIN LIABILITIES

     1     

1.1

   Purchased Assets      1     

1.2

   Excluded Assets      4     

1.3

   Assumed Liabilities      5     

1.4

   Excluded Liabilities      5     

1.5

   Unassignable Contracts and Permits      6     

1.6

   Taking of Necessary Action; Further Action      7   

ARTICLE II PURCHASE PRICE AND CLOSING

     8     

2.1

   Purchase Price      8     

2.2

   Equity Value      8     

2.3

   Closing Indebtedness      9     

2.4

   Earn-Out      9     

2.5

   Closing      11   

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER MEMBERS

     11     

3.1

   Organization, Standing and Power      11     

3.2

   Capitalization      12     

3.3

   Subsidiaries      12     

3.4

   Authority; No Conflict; Required Filings and Consents      13     

3.5

   Financial Statements; Indebtedness      14     

3.6

   Absence of Certain Changes      14     

3.7

   No Undisclosed Liabilities      16     

3.8

   Organizational Documents      16     

3.9

   Taxes; Unclaimed Property      16     

3.10

   Properties      17     

3.11

   Sufficiency of Assets      24     

3.12

   Intellectual Property      25     

3.13

   Software and Information Technology      26     

3.14

   Contracts      27     

3.15

   Vendors and Suppliers      29     

3.16

   Insurance      30     

3.17

   Litigation      30     

3.18

   Environmental Matters      30     

3.19

   Employee Benefit Plans      31     

3.20

   Compliance with Law      33     

3.21

   Employee and Labor Matters      34     

3.22

   Related-Party Transactions      36     

3.23

   Business Collateral      36     

3.24

   Hanover Bulk Purchase      36     

3.25

   Home Warranty Obligations      36     

3.26

   Covenants, Conditions and Restrictions      37     

3.27

   Retail Sales Contracts      37     

3.28

   Homeowners’ Associations      37     

3.29

   Coastal Construction Control Line      37   

 

 

Asset Purchase Agreement

   Page i

--------------------------------------------------------------------------------

 

3.30

   Disclosure      37     

3.31

   No Brokers; Fees      38   

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

     38     

4.1

   Organization, Standing and Power      38     

4.2

   Authority; No Conflict; Required Filings and Consents      38     

4.3

   Litigation      39     

4.4

   Financing      39     

4.5

   No Brokers; Fees      39   

ARTICLE V CONFIDENTIALITY

     40     

5.1

   Confidentiality      40   

ARTICLE VI ADDITIONAL AGREEMENTS

     40     

6.1

   Public Disclosure      40     

6.2

   Restrictive Covenants      40     

6.3

   Employee Matters      41     

6.4

   Certain Home Warranty Obligations      43     

6.5

   Hanover Bulk Purchase; Certain Excluded Properties      44     

6.6

   Substitution of Collateral      44     

6.7

   Preparation of Financial Information      44     

6.8

   Name Change      45     

6.9

   Consent of Seller Members      45   

ARTICLE VII TAX MATTERS

     45     

7.1

   Property Taxes; Transfer Taxes      45     

7.2

   Income and Franchise Taxes      46     

7.3

   Allocation of Purchase Price      46   

ARTICLE VIII CLOSING DELIVERIES

     47     

8.1

   Closing Deliveries of Seller and Seller Members      47     

8.2

   Closing Deliveries of Parent and Buyer      49   

ARTICLE IX FEES AND EXPENSES; AMENDMENT

     50     

9.1

   Fees and Expenses      50     

9.2

   Amendment      50     

9.3

   Waiver      50   

ARTICLE X INDEMNIFICATION

     50     

10.1

   Indemnification by Seller and Seller Members      50     

10.2

   Indemnification by Parent      51     

10.3

   Claims for Indemnification      51     

10.4

   Survival      53     

10.5

   Limitations and Other Terms      53     

10.6

   Allocation of Liability Among Seller Members      55     

10.7

   Set-Off; First Recourse to Earn-Out Payment      55   

ARTICLE XI MISCELLANEOUS

     56     

11.1

   Notices      56     

11.2

   Entire Agreement      57     

11.3

   No Third-Party Beneficiaries      58     

11.4

   Assignment      58     

11.5

   Severability      58     

11.6

   Counterparts, Signature and Seal      58   

 

 

Asset Purchase Agreement

   Page ii

--------------------------------------------------------------------------------

  11.7    Interpretation      59     

11.8

   Governing Law      59     

11.9

   Remedies      59     

11.10

   Submission to Jurisdiction      59     

11.11

   Seller Disclosure Letter      60     

11.12

   Waiver of Jury Trial      60     

11.13

   Further Assurances      60   

ARTICLE XII DEFINITIONS

     60      12.1    Certain Defined Terms      60     

12.2

   Additional Defined Terms      65   

SCHEDULES

        Schedule A

   Seller Members

        Schedule 1.1(b)

   Take Down Contracts

        Schedule 1.1(h)

   Assumed Real Property Leases

        Schedule 1.1(k)

   Assigned Contracts

        Schedule 1.2(i)

   Specified Excluded Assets

        Schedule 1.3(c)

   Specified Assumed Liabilities

        Schedule 2.4(a)(iv)

   Specified Projects

        Schedule 2.4(a)(v)

   Performance Objectives

        Schedule 7.3

   Allocation of Purchase Price

        Schedule 8.1(a)

   Required Consents

EXHIBITS

        Exhibit A    Hanover Agreement         Exhibit B    Form of Bill of Sale
and Assumption Agreement

SELLER DISCLOSURE LETTER

 

 

Asset Purchase Agreement

   Page iii

--------------------------------------------------------------------------------

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”) is entered into as of March 13,
2014, among AV Homes, Inc., a Delaware corporation (“Parent”), AVH Acquisition,
LLC, a Florida limited liability company and wholly owned Subsidiary of Parent
(“Buyer”), Royal Oak Homes, LLC, a Florida limited liability company (“Seller”),
and each of the members and beneficial owners of Seller, as listed on Schedule A
to this Agreement (“Seller Members”).

A. Seller is in the business of residential land acquisition, residential real
property development, homebuilding and subsequent sales of such homes (the
“Business”).

B. Buyer desires to acquire substantially all of the assets and assume certain
liabilities of Seller utilized in, related to, or arising from the Business, and
Seller desires to transfer such assets and assign such liabilities to Buyer, on
the terms and conditions set forth herein.

C. Simultaneous with the execution and delivery of this Agreement, the Key
Employees are entering into new employment agreements with Parent or one of its
Subsidiaries (the “Employment Agreements”).

D. Simultaneous with the execution and delivery of this Agreement, Parent,
Hanover Land Company, LLC, a Florida limited liability company, and certain of
its Affiliates (collectively, “Hanover”), all of which are Affiliates of Seller,
are entering into an agreement (the “Hanover Agreement”), a copy of which is
attached as Exhibit A. Among other things, the Hanover Agreement provides for
(i) the execution of new contracts between Buyer and Hanover, relating to
certain assets currently held by Hanover (including assets currently subject to
contracts between Seller and Hanover), (ii) the consummation of certain of such
contracts on the date hereof (the “Hanover Bulk Purchase”), (iii) certain
representations, warranties and covenants relating thereto, (iv) a right of
first offer in favor of Parent on all Hanover residential land projects for two
years after the date hereof, (v) non-competition arrangements with William S.
Orosz, Jr., and (vi) certain other transitional arrangements for William S.
Orosz, Jr., all on terms and conditions more particularly set forth in the
Hanover Agreement.

E. Certain capitalized terms used in this Agreement are defined in Section 12.1.

In consideration of the foregoing and the respective representations,
warranties, covenants, and agreements set forth herein, the parties, intending
to create a contract under seal, agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF

CERTAIN LIABILITIES

1.1 Purchased Assets. In reliance on the representations and warranties
contained herein, Seller hereby sells, transfers, conveys, and delivers to
Buyer, and Buyer hereby purchases and accepts from Seller, all tangible and
intangible property and assets of Seller utilized in, related to, or arising
from the Business, as the same exist on the date hereof, wherever located, and
whether or not reflected in Seller’s books and records (the “Purchased Assets”),
other than

 

 

Asset Purchase Agreement

   Page 1

--------------------------------------------------------------------------------

the Excluded Assets, which Excluded Assets shall not constitute Purchased
Assets. Without limiting the generality of the foregoing provisions of this
Section 1.1, the Purchased Assets include all of Seller’s right, title, and
interest, if any, in and to:

(a) all real estate directly or indirectly owned by Seller, without regard to
whether such real property is used solely in the operation or conduct of the
Business, including all buildings, structures, installations, fixtures, and
other improvements situated thereon and all access, easements, rights of way,
alleys, strips or gores adjoining the real estate, air, water, mineral,
riparian, development, utility, and other rights, entitlements, and
appurtenances of Seller therein or thereunto pertaining, including, all
accessions, privileges, and incentives, together with any and all fixtures
attached to or used in connection with the ownership, maintenance, or operation
of the real estate or improvements located thereon (collectively, the “Owned
Real Property”);

(b) all land acquisition agreements between Seller, as buyer, and any other
Person (other than Hanover), as seller, together with all modifications,
amendments and supplements (whether written or verbal), and including any and
all agreements granting Seller a right of first refusal or right of first offer
with respect to certain real estate, as listed on Schedule 1.1(b) (the “Take
Down Contracts”) and all other rights, powers, privileges, options, or other
benefits associated with, that pertain to, are attributable to, are appurtenant
to, apply to, or which otherwise benefit the Business or the Real Property;

(c) all earnest money deposits and other forms of security (whether or not held
in escrow), all accounts and notes receivable (including any security interests
with respect thereto), and all promotional allowances, rebates, and similar
items related to the Business or the Real Property or that otherwise constitute
a portion of the Purchased Assets;

(d) all assets owned by Seller relating to Seller’s design center and model
homes; all offering circulars, manuals, advertising and marketing materials and
brochures related to the Real Property; all form purchase and sale agreements
and documents related thereto with respect to the Real Property; and all project
monument, billboard, signage, banners, and related materials;

(e) all utility arrangements, and other agreements, instruments, certificates,
or documents including any and all rights and benefits under the Permitted
Liens, relating to the ownership, operation, use, and occupancy of the Real
Property;

(f) all homes under construction and any other inventory, together with all
merchandise, supplies, displays, promotional materials, raw materials, and
work-in-process;

(g) all of Seller’s rights to architectural and engineering plans, subject to
applicable fees for the reuse, signing and sealing of such plans, water and
sewer, electrical and building plans, and all other plans and specifications,
drawings and other similar documents relating to the Real Property, to the
extent assignable;

 

 

Asset Purchase Agreement

   Page 2

--------------------------------------------------------------------------------

(h) each Third Party Lease and Real Property Lease listed on Schedule 1.1(h)
(each, an “Assumed Real Property Lease”) and all interests of Seller therein,
including real estate fixtures, leasehold improvements, security and other
deposits, common area maintenance refunds, adjustments, and other amounts now or
hereafter payable to Seller under or in respect of such Assumed Real Property
Leases;

(i) all furniture, fixtures, and equipment related to the Business, including
construction equipment, motor vehicles, computer and telecommunications hardware
and software, and information technology systems;

(j) all Intellectual Property of Seller related to the Business (the “Purchased
Intellectual Property”);

(k) all commitments and purchase orders received and accepted by Seller in the
Ordinary Course of Business, all Retail Sales Contracts, and all other contracts
of Seller related to the Business that are listed on Schedule 1.1(k) (together
with the Assumed Real Property Leases, the Take Down Contracts and the Retail
Sales Contracts held by Retail Sales Subsidiary, the “Assigned Contracts”);

(l) all Permits related to the Real Property or the Business, to the extent
assignable (the “Assigned Permits”);

(m) all prepaid utilities, prepaid rents, prepaid development fees and deposits,
impact fees, traffic concurrency fees, water and sewer fees, Association fees,
shared cost agreement related fees, prepaid costs and expenses (the value of
which shall be taken into account in the calculation of Equity Value pursuant to
Section 2.2), advance payments and other prepayments, security deposits and
other deposits, prepaid property Taxes, and other similar assets and amounts
related to the Business or the Real Property;

(n) all customer, supplier, and service-provider lists and similar information
related to the Business, all other contact information, mailing lists, and
similar files related to the Business, and all property records, environmental,
soil, species, geological, studies and certificates, surveys, and other books,
reports, technical descriptions, databases, information, and Records related to
the Business (other than the Excluded Records); provided, however, that Seller
may retain a copy of the Records for legal and accounting archival purposes;

(o) all telephone numbers (including cellular telephone numbers), fax numbers,
e-mail addresses, postal addresses, and postal boxes related to the Business;

(p) all rights, claims, demands and causes of action against third parties and
all rights of Seller under any indemnification, representation, warranty,
covenant, contractual rights, or guarantee by any third party related to the
Business or the Real Property (including any builder, contractor, subcontractor,
manufacturer, supplier, or other transferor of any Purchased Asset or any
product or service that Seller received or relating to Home Warranty
Obligations, all related rights under any insurance policy or coverage of any
such third party, all actions pertaining to the development, construction,
design or completion of the Real Property or the common areas, streets,
utilities or other

 

 

Asset Purchase Agreement

   Page 3

--------------------------------------------------------------------------------

subdivision infrastructure), but only to the extent they are for the benefit of,
and applicable to, the Real Property or the Business;

(q) all claims, causes of action, refunds, rights of recovery, rights of setoff,
and rights of recoupment of any kind against third parties relating to the
Purchased Assets or Home Warranty Obligations, whether or not asserted before
the date hereof (including awards or proceeds in connection with insurance and
any eminent domain taking);

(r) all of the equity interests in Retail Sales Subsidiary;

(s) subject to Section 2.3, all cash, cash equivalents, securities; and

(t) all goodwill and other self-created intangibles (including supplier-based
intangibles such as favorable supplier relationships) related to the Business.

1.2 Excluded Assets. Notwithstanding Section 1.1, the Purchased Assets do not
include the following (the “Excluded Assets”):

(a) Seller’s organizational documents, qualifications to conduct business as a
foreign entity, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, general ledgers, Tax
Returns, seals, minute books, equity transfer books, and similar documents of
Seller relating to the organization, maintenance, and existence of Seller as a
limited liability company, and all payroll, personnel and employment records for
all current or former employees of Seller to the extent that their transfer is
prohibited by Applicable Law (collectively, the “Excluded Records”);

(b) bank accounts, cash accounts, investment accounts, deposit accounts, credit
cards, debit cards, and similar items of Seller (but not any cash, cash
equivalents, or securities contained in such accounts);

(c) all contracts, agreements, and arrangements that are not Assigned Contracts;

(d) all Employee Benefit Plans, all assets held in relation to Employee Benefit
Plans, and any contract, policy, or arrangement relating to Employee Benefit
Plans;

(e) Seller’s insurance policies, including premium adjustments, and prepaid
insurance premiums, along with all claims, causes of action, proceeds or other
rights under such policies, in each case other than as they relate to Home
Warranty Obligations;

(f) all rights of Seller under this Agreement or any Seller Ancillary Document;

(g) any refunds, credits or other assets or rights (including interest thereon
or claims therefor) with respect to any Taxes paid by Seller, or for which
Seller is responsible;

 

 

Asset Purchase Agreement

   Page 4

--------------------------------------------------------------------------------

(h) any claims against any Person to the extent they relate to Excluded Assets
or Excluded Liabilities; and

(i) all assets and contracts listed on Schedule 1.2(i).

1.3 Assumed Liabilities. Subject to and on the terms and conditions contained
herein, Buyer hereby assumes only the following liabilities and obligations of
Seller (the “Assumed Liabilities”):

(a) all liabilities and obligations of Seller under the Assigned Contracts, but
only to the extent that such liabilities and obligations:

(i) relate to performance to occur after the date hereof;

(ii) do not arise from or relate to a breach by Seller of any obligation of
Seller under any provision of any of the Assigned Contracts; and

(iii) do not arise from or relate to any event, circumstance, or condition
occurring or existing before the date hereof that, with notice, lapse of time,
or both, would constitute or result in either (A) a breach by Seller of any
obligations of Seller under any provision of any Assigned Contract or (B) a
breach of any of the representations and warranties set forth in Article III.

(b) all trade accounts payable incurred by Seller in the Ordinary Course of
Business and included as liabilities on the Closing Statement (the “Trade
Accounts Payable”); and

(c) the liabilities of Seller listed on Schedule 1.3(c).

1.4 Excluded Liabilities.

(a) Other than the Assumed Liabilities, neither Parent nor Buyer is assuming or
will be liable or obligated for any liability, obligation, or claim of any
nature of Seller or its Affiliates, whether matured or unmatured, liquidated or
unliquidated, fixed or contingent, known or unknown, or whether arising out of
acts or occurrences before, on, or after the date hereof (the “Excluded
Liabilities”).

(b) For the avoidance of doubt, neither Parent nor Buyer is assuming or will be
liable for, and Excluded Liabilities include:

(i) all Home Warranty Obligations relating to Retail Sales Contracts executed
prior to Closing or otherwise arising or attributable to the period prior to
Closing, except to the extent expressly provided in Section 6.4;

(ii) to the extent not Trade Accounts Payable, all obligations or liabilities
relating to the acquisition, occupancy, operation, use, or control of the Real
Property prior to the Closing, including any obligation or liability arising

 

 

Asset Purchase Agreement

   Page 5

--------------------------------------------------------------------------------

under Applicable Laws (including RESPA, the Interstate Land Sales Full
Disclosure Act of 1968 and any Environmental Law);

(iii) to the extent not Trade Accounts Payable, all obligations or liabilities
relating to the operation of the Business prior to the Closing, including
Seller’s obligation to comply with all Applicable Laws and any litigation,
action, suit, administrative proceeding, governmental investigation arising as a
result of events occurring or facts and circumstances arising or existing prior
to Closing;

(iv) all wages, salaries, commissions (except for the brokerage commissions not
yet due or payable with respect to Retail Sales Contracts closing after the
Closing, as set forth on Section 3.27 of the Seller Disclosure Letter), bonuses,
severance, or other compensation or benefits payable to Seller’s employees
relating to periods at or prior to the Closing, whether or not recorded, and any
paid time off and vacation benefits not included as liabilities in the
calculation of Equity Value or relating to employees who do not accept
employment with Parent, Buyer or their Affiliates;

(v) all Taxes arising out of Seller’s operation of the Business or its ownership
of the Purchased Assets prior to the Closing;

(vi) any liability, obligation, or claim relating to a breach or violation on or
prior to the date hereof under any Retail Sales Contract, including in
connection with the assignment of such Retail Sales Contracts to Retail Sales
Subsidiary or the indirect change in control of Retail Sales Subsidiary;

(vii) any liability, obligation or claim relating to Retail Sales Subsidiary
(other than its liabilities and obligations under the Assigned Contracts,
subject to Section 1.3(a));

(viii) all obligations of Seller under this Agreement; and

(ix) any and all obligations to joint venturers, partners or prior holder(s) of
interests in the Seller or any of its Affiliates or Subsidiaries (if any).

1.5 Unassignable Contracts and Permits. Notwithstanding anything to the contrary
stated in this Agreement, if:

(a) the assignment of any contract or Permit that would otherwise be an Assigned
Contract or Assigned Permit (as applicable) without the approval, consent, or
waiver of another party thereto would violate, conflict with, result in a breach
or termination of, or constitute a default or event of default under (or an
event that with due notice, lapse of time, or both, would constitute a default
or event of default under) the terms of such contract or Permit or any
Applicable Law, or result in the creation of any Lien on any Purchased Asset or
enable another party to terminate the contract or Permit or impose a penalty or
additional payment obligations or accelerate any obligation of Seller or Buyer
under the contract or Permit; and

 

 

Asset Purchase Agreement

   Page 6

--------------------------------------------------------------------------------

(b) all necessary approvals, consents, and waivers required by the contract or
Permit have not been obtained on or before the date hereof in order to avoid the
consequences set forth in Section 1.5(a);

(c) then Buyer shall not be obligated to assume the contract or Permit (and if
Buyer does not assume the contract or Permit, such contract or Permit shall not
be included in the Assigned Contracts, Assigned Permits or the Purchased Assets
at Closing); provided, however that Buyer may, at its sole discretion, elect, by
written notice to Seller, to assume the obligations and liabilities of Seller
under the contract or Permit (to the extent the same would constitute Assumed
Liabilities had such contract been included in the Assigned Contracts or
Assigned Permits at the Closing) (but not the contract or Permit itself), in
which event:

(i) such obligations and liabilities (but not the contract or Permit itself)
shall be included in the Assumed Liabilities, the claims, rights, and benefits
of Seller arising under the contract or resulting therefrom (but not the
contract or Permit itself) shall be included in the Assigned Contracts or
Assigned Permits and transferred to Buyer hereunder, and any payments or other
benefits received by Seller therefrom after the Closing shall immediately be
transferred by Seller to Buyer; and

(ii) after the Closing, Seller and Seller Members shall have the continuing
obligation to use their commercially reasonable efforts (at their own expense)
to obtain all necessary approvals, consents, and waivers to the assignment or
transfer of any such unassigned contracts or Permits, and each of the parties
shall promptly execute all documents necessary to complete the transfer of the
contract or Permit to Buyer if such approvals, consents, and waivers are
obtained (whereupon such contract or Permit shall be included in the Assigned
Contracts or Assigned Permits, as applicable, and deemed a Purchased Asset for
all purposes hereunder).

(d) In addition to and notwithstanding the foregoing, in the event that,
notwithstanding Seller’s good faith efforts, Seller is unable to obtain the
consent to the assignment of an Assigned Contract regarding the purchase and
sale of Real Property, Buyer and Seller agree to reasonably cooperate to
facilitate the transfer of the Real Property that is the subject of such
Assigned Contract by alternative means, including, without limitation, the
acquisition of the Real Property that is the subject of such Assigned Contract
by Seller and subsequent or simultaneous conveyance of such Real Property to
Buyer.

1.6 Taking of Necessary Action; Further Action. From and after the date hereof,
Seller and Seller Members shall, from time to time, at the request of Parent or
Buyer and without further consideration reasonably cooperate at no material cost
to Seller or Seller Members to do, execute, acknowledge, and deliver all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney,
and assurances as may be reasonably required to confirm the conveyance and
transfer of the Purchased Assets to Buyer and otherwise give effect to the
intent of this Agreement.

 

 

Asset Purchase Agreement

   Page 7

--------------------------------------------------------------------------------

ARTICLE II

PURCHASE PRICE AND CLOSING

2.1 Purchase Price.

(a) Subject to such further credits, adjustments, and prorations as set forth
herein, the aggregate purchase price for the Purchased Assets (the “Purchase
Price”) is an amount equal to:

(i) the Estimated Equity Value plus $17 million (the “Closing Purchase Price”),
as such amount may be adjusted after Closing pursuant to Section 2.2(d); plus

(ii) the Closing Indebtedness; plus

(iii) the Earn-Out Payments.

(b) Concurrently with the execution of this Agreement, at the Closing:

(i) Buyer will pay in full, on Seller’s behalf, the Closing Indebtedness
necessary to cause the release of all Liens on the Purchased Assets, as set
forth in payoff letters reasonably acceptable to Buyer; and

(ii) Parent will or will cause Buyer to pay an amount equal to the Closing
Purchase Price to Seller by wire transfer of immediately available funds
pursuant to wire instructions provided to Parent prior to the date hereof.

2.2 Equity Value.

(a) For purposes of this Agreement, “Equity Value” means the total assets of
Seller less the total liabilities of Seller (including Indebtedness), in each
case determined in accordance with GAAP as of immediately prior to the Effective
Time.

(b) Prior to the date hereof, Seller delivered to Parent a certificate (the
“Closing Certificate”) signed by the Co-Presidents of Seller, certifying on
behalf of Seller the accuracy and completeness of an estimated unaudited
statement of Equity Value (the “Estimated Closing Statement”), and Seller
represents and warrants that such Estimated Closing Statement (i) was prepared
in accordance with GAAP (except for the absence of footnotes), (ii) sets forth
Seller’s good faith estimate of Equity Value (“Estimated Equity Value”), as
derived from the Estimated Closing Statement and (iii) specifically itemizes all
outstanding Indebtedness.

(c) Within 90 days after the date hereof, Parent will deliver to Seller an
unaudited statement (the “Closing Statement”) setting forth Parent’s
determination of Equity Value (“Closing Equity Value”). The Closing Statement
shall be prepared in accordance with GAAP (except for the absence of footnotes).
If Seller disagrees with the calculation of Closing Equity Value, Seller shall,
within 30 days after receipt of the Closing Statement, deliver a notice (an
“Objection Notice”) to Parent setting forth

 

 

Asset Purchase Agreement

   Page 8

--------------------------------------------------------------------------------

Seller’s calculation of Closing Equity Value and the reasons for Seller’s
disagreement with Parent’s calculation. If requested by Seller, Parent will
provide to Seller copies of all relevant documentation used in its calculation
within ten days of its receipt of such request from Seller. If Seller does not
deliver the Objection Notice to Parent within 30 days after receipt by Seller of
the Closing Statement, the Closing Equity Value will be conclusively presumed to
be true and correct in all respects and will be final and binding upon the
parties. Seller and Parent will use their respective commercially reasonable
efforts to resolve any disagreements as to the computation of the Closing Equity
Value, but if they do not obtain a final resolution within 30 days after
Parent’s receipt of the Objection Notice, then all amounts remaining in dispute
may be submitted to the Neutral Auditor; provided, however, to the extent agreed
upon by Seller and Parent, the 30-day period set forth in the immediately
preceding sentence may be extended. Parent and Seller will direct the Neutral
Auditor to render a determination within 45 days of its retention, and Parent
and Seller will cooperate with the Neutral Auditor during its engagement. The
Neutral Auditor will consider only those items and amounts set forth in the
Objection Notice that Parent and Seller are unable to resolve; provided that
each of Parent and Seller shall be entitled to make a presentation to the
Neutral Auditor regarding the items and amounts that they are unable to resolve
and neither Parent nor Seller will meet or communicate separately with the
Neutral Auditor. In making its determination, the Neutral Auditor shall (i) be
bound by the terms and conditions of this Agreement, including the definition of
Equity Value and (ii) not assign any value with respect to a disputed amount
that is greater than the highest value for such amount claimed by either Seller
or Parent or that is less than the lowest value for such amount claimed by
either Seller or Parent. The determination of the Neutral Auditor will be
conclusive and binding upon the parties. Parent and Seller shall each pay 50%
the fees and expenses of the Neutral Auditor.

(d) The “Final Adjustment Amount” shall be an amount equal to the Estimated
Equity Value less the finally determined Closing Equity Value. Within three
Business Days following the final determination of Closing Equity Value, (i) if
the Final Adjustment Amount is positive, Seller shall promptly pay to Parent an
amount equal to the Final Adjustment Amount, or (ii) if the Final Adjustment
Amount is negative, Parent shall promptly pay to Seller the absolute value of
the Final Adjustment Amount. The Purchase Price automatically will be adjusted
to reflect any adjustment made pursuant to this Section 2.2(d).

(e) No interest shall accrue on any amounts payable under Section 2.2(d).

2.3 Closing Indebtedness. Immediately prior to the Closing on the date hereof,
Seller has applied all of its cash and cash equivalents to pay down, to the
maximum extent possible, Seller’s Indebtedness. The amount of Seller’s
Indebtedness remaining after such payments is the “Closing Indebtedness.” In no
event will the Closing Indebtedness exceed an amount that would cause the
Closing Purchase Price to be below zero.

2.4 Earn-Out.

 

 

Asset Purchase Agreement

   Page 9

--------------------------------------------------------------------------------

(a) For purposes of this Agreement, the following terms have the meanings given
them below:

(i) “Achievement Percentage” means, for any Earn-Out Period, the quotient of
(A) EBIT for such period divided by (B) the Performance Objective for such
period.

(ii) “Earn-Out Payment” means, for any Earn-Out Period, (A) if the Achievement
Percentage for such period is at least 0.50, an amount equal to (1) the Target
Amount multiplied by (2) such Achievement Percentage; and (B) if the Achievement
Percentage is less than 0.50, zero (no Earn-Out Payment shall be made for such
period). For the avoidance of doubt, the Earn-Out Payment may exceed the Target
Amount where the Achievement Percentage is greater than 100%.

(iii) “Earn-Out Period” means each of (A) the period beginning on April 1, 2014
through and including December 31, 2014 and (B) the 2015 calendar year.

(iv) “EBIT” means aggregate earnings (excluding interest income) of the projects
set forth on Schedule 2.4(a)(iv) before deduction of interest expenses and
income Taxes, as determined in accordance with GAAP as applied by Buyer.

(v) “Performance Objective” means, for any Earn-Out Period, the EBIT amount
listed for such Earn-Out Period on Schedule 2.4(a)(v).

(vi) “Target Amount” means $1.5 million.

(b) On or before the 90th day following the end of each Earn-Out Period (an
“Earn-Out Payment Date”), Buyer shall prepare and deliver to Seller a schedule
of the Achievement Percentage for that Earn-Out Period (the “Earn-Out
Schedule”), setting forth such calculations in reasonable detail. If an Earn-Out
Payment is due hereunder in respect of the Earn-Out Period, Buyer shall pay the
Earn-Out Payment to Seller by wire transfer of immediately available funds on
the Earn-Out Payment Date (except as otherwise provided in Section 10.7(b)).

(c) Within 30 days after delivery of the Earn-Out Schedule to Seller (during
which period Buyer shall provide prompt access to such working papers and
information relating to the preparation of the Earn-Out Schedule as may be
reasonably requested by Seller), Seller may dispute all or a portion of the
Earn-Out Schedule by giving written notice (a “Notice of Disagreement”) to Buyer
setting forth in reasonable detail the basis for any such dispute. Buyer and
Seller shall promptly commence good faith negotiations with a view to resolving
all such disputes. If Seller does not provide a Notice of a Disagreement to
Buyer within such 30-day period, Seller shall be deemed to have irrevocably
accepted the Earn-Out Schedule in the form delivered by Buyer.

(d) If Buyer and Seller do not resolve the dispute described in Section 2.4(c)
(as evidenced by a written agreement between them) within 30 days following
delivery of

 

 

Asset Purchase Agreement

   Page 10

--------------------------------------------------------------------------------

the Notice of Disagreement, the dispute may be resolved in accordance with the
provisions of Section 2.2(c), mutatis mutandis. If, upon resolution of the
dispute, additional consideration is due to Seller, Buyer shall pay such amount,
without interest, to Seller by wire transfer of immediately available funds
within five Business Days after such dispute is resolved. If, upon resolution of
the dispute, it is determined that the Earn-Out Payment due is less than the
Earn-Out Payment previously paid with respect to the applicable Earn-Out Period,
Seller shall pay to Buyer within five Business Days after such dispute is
resolved, by wire transfer of immediately available funds, an amount, without
interest, equal to such difference.

(e) In accordance with Section 10.7, Buyer may set off against any Earn-Out
Payment payable under this Section 2.4 any unpaid amount owed by Seller or any
Seller Member to Buyer hereunder, including pursuant to Section 2.2 and Article
X.

(f) For the duration of the Earn-Out Periods, Parent and Buyer covenant and
agree that they shall maintain separate records for the Business and shall not
intentionally take any action for the purposes of reducing or avoiding the
Earn-Out Payment. In the event Buyer unilaterally elects to materially change
the operation of the Business after the Closing as it relates to the projects
set forth on Schedule 2.4(a)(iv) and such change materially and adversely
affects the ability of the Business to achieve the Performance Objectives, Buyer
and Seller Members shall mutually agree on any commercially reasonable
modifications to the terms of Section 2.4(a) appropriate in light of such
change, taking into account other circumstances including general market
conditions and actions of Seller Members and Key Employees. In addition, Buyer
may adjust EBIT or the Performance Objectives for material differences in
accounting in order to conform to the original basis of the presentation on
Schedule 2.4(a)(v).

2.5 Closing. The closing of the transactions contemplated hereby (the “Closing”)
shall take place on the date hereof. The Closing will be effective as of 11:59
p.m. prevailing local time on the date hereof (the “Effective Time”). The
Closing is being held at the offices of Akerman LLP in Orlando, Florida;
provided that, to the extent Parent and Seller so agree, documents may be
delivered and exchanged at the Closing by facsimile, PDF, or other electronic
means, with originally executed signature pages to be exchanged immediately
following the Closing, as appropriate.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER MEMBERS

Seller and Seller Members, jointly and severally (but subject to Section 10.6),
represent and warrant to Parent and Buyer that the statements contained in this
Article III are true and correct, except as specifically set forth herein or in
the correspondingly numbered section of the disclosure schedule delivered by
Seller to Parent and Buyer and dated as of the date of this Agreement (the
“Seller Disclosure Letter”).

3.1 Organization, Standing and Power. Seller is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State of
Florida, has all requisite limited liability company power and authority to own,
lease, and operate its properties

 

 

Asset Purchase Agreement

   Page 11

--------------------------------------------------------------------------------

and assets and to carry on its business (including, the Business) as now being
conducted. Seller is duly qualified to do business and, where applicable as a
legal concept, is in good standing as a foreign corporation in each jurisdiction
in which the character of the properties it owns, operates or leases or the
nature of its activities makes such qualification necessary, except for such
failures to be so qualified or in good standing, individually or in the
aggregate, that would not reasonably be expected to have a Seller Material
Adverse Effect. Section 3.1 of the Seller Disclosure Letter contains a complete
and accurate list of (a) the jurisdictions in which Seller is qualified to do
business as a foreign limited liability company and (b) each fictitious or
assumed name or “DBA” used by the Business.

3.2 Capitalization.

(a) Section 3.2 of the Seller Disclosure Letter list each member of Seller and
the membership interests held by each of them. Such membership interests are the
only membership or equity interests of Seller, and Seller Members are the only
record or beneficial owners of any membership or equity interest in Seller.

(b) Except as set forth in Section 3.2 of the Seller Disclosure Letter or
Section 3.3 (as applicable), (i) there are no equity securities of any class of
Seller or Retail Sales Subsidiary, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance, or
outstanding and (ii) there are no options, warrants, equity securities, calls,
rights, commitments, or agreements of any character to which Seller, Retail
Sales Subsidiary or a Seller Member is a party or by which Seller, Retail Sales
Subsidiary or a Seller Member is bound obligating Seller, Retail Sales
Subsidiary or Seller Member to issue, exchange, transfer, deliver, or sell, or
cause to be issued, exchanged, transferred, delivered, or sold, additional
shares of capital stock or other equity interests of Seller or Retail Sales
Subsidiary or any security or rights convertible into or exchangeable or
exercisable for any such shares or other equity interests, or obligating Seller,
Retail Sales Subsidiary or Seller Member to grant, extend, accelerate the
vesting of, otherwise modify or amend or enter into any such option, warrant,
equity security, call, right, commitment, or agreement. Neither Seller nor
Retail Sales Subsidiary has any outstanding unit appreciation rights, restricted
stock, restricted membership units, phantom stock, performance based equity
rights or similar equity rights or obligations. None of Seller, Retail Sales
Subsidiary, the Seller Members or any of their Affiliates is a party to or is
bound by any agreements or understandings with respect to the voting or sale or
transfer of any membership or equity interests of Seller or Retail Sales
Subsidiary.

3.3 Subsidiaries. Seller does not own or control, directly or indirectly, any
interest in any Person, including any Subsidiary other than Retail Sales
Subsidiary. Seller owns 100% of the membership interests of Retail Sales
Subsidiary. Such membership interests are the only membership or equity
interests of Retail Sales Subsidiary, and Seller is the only record or
beneficial owner of any membership or equity interest in Retail Sales
Subsidiary. Retail Sales Subsidiary has been formed solely for the purpose of
holding the Retail Sales Contracts previously entered into by Seller, has not
engaged in any other business activities and has incurred no liabilities or
obligations other than as contemplated by this Agreement.

 

 

Asset Purchase Agreement

   Page 12

--------------------------------------------------------------------------------

3.4 Authority; No Conflict; Required Filings and Consents.

(a) Each of Seller and Seller Members has the company power and authority to
execute and deliver this Agreement and each other document to be executed by it
in connection herewith (collectively, the “Seller Ancillary Documents”) and to
perform its obligations hereunder and thereunder, all of which have been duly
authorized by all requisite company action. No further company or member action
on the part of Seller, Retail Sales Subsidiary or any Seller Member is necessary
to authorize the execution, delivery and performance of this Agreement and each
Seller Ancillary Document by Seller and Retail Sales Subsidiary and the
consummation by Seller, Retail Sales Subsidiary and Seller Members of the
transactions contemplated hereby and thereby. This Agreement and each Seller
Ancillary Document has been duly executed and delivered by Seller and each
Seller Member (as applicable) and, assuming that this Agreement and each Seller
Ancillary Document is duly and validly authorized, executed, and delivered by
the other parties hereto and thereto, constitutes, or will constitute (as
applicable), a valid and binding agreement of Seller and each Seller Member (as
applicable), enforceable against each of them in accordance with its terms,
subject to any applicable bankruptcy, reorganization, insolvency, moratorium, or
other similar Applicable Laws affecting creditors’ rights generally and
principles governing the availability of equitable remedies.

(b) The execution and delivery of this Agreement by Seller and each Seller
Member do not, and the consummation by Seller, Retail Sales Subsidiary and
Seller Members of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of the
certificate of formation or limited liability company agreement of Seller or
Retail Sales Subsidiary, (ii) conflict with, or result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any material obligation or loss of any material benefit) under, require a
consent or waiver under (except as indicated on Schedule 8.1(a) or as otherwise
expressly set forth in the body of this Agreement (excluding Schedules, Exhibits
and the Seller Disclosure Letter)), require the payment of a penalty under or
result in the imposition of any mortgage, or related security interest, pledge,
lien, charge, or encumbrance (“Liens”) on Seller’s, Retail Sales Subsidiary’s or
any Seller Member’s assets under, any of the terms, conditions, or provisions of
any Assigned Contract or any other contract, agreement instrument, or obligation
to which Seller, Retail Sales Subsidiary or any Seller Member is a party or by
which Seller, Retail Sales Subsidiary, any Seller Member or any of their
respective properties or assets may be bound, or (iii) conflict with or violate
any permit, concession, franchise, license, judgment, injunction, order, decree,
statute, law, ordinance, rule, or regulation applicable to Seller, Retail Sales
Subsidiary, any Seller Member or any of their respective properties or assets.

(c) Except as set forth in Section 3.4(c) of the Seller Disclosure Letter, no
consent, approval, license, permit, order, or authorization of, or registration,
declaration, notice, or filing with, Governmental Authority is required by or
with respect to Seller, Retail Sales Subsidiary or any Seller Member in
connection with the execution and delivery of this Agreement by Seller and
Seller Members or the consummation by Seller,

 

 

Asset Purchase Agreement

   Page 13

--------------------------------------------------------------------------------

Retail Sales Subsidiary and Seller Members of the transactions contemplated by
this Agreement.

3.5 Financial Statements; Indebtedness. Attached as Section 3.5(a) of the Seller
Disclosure Letter are (a) Seller’s unaudited consolidated balance sheet as of
December 31, 2011 and the related financial statements for the year then ended,
(b) Seller’s audited consolidated balance sheet as of December 31, 2012 and the
related financial statements for the year then ended and (c) the audited
consolidated balance sheet of Seller as of December 31, 2013 (the “Seller
Balance Sheet”) and the related financial statements for the year then ended
(all of the foregoing financial statements of Seller and any notes thereto are
hereinafter collectively referred to as the “Seller Financial Statements”). The
Seller Financial Statements fairly present, in all material respects, the
financial condition of Seller at the dates therein indicated and the results of
operations of Seller for the periods therein specified in accordance with United
States generally accepted accounting principles (“GAAP”), except that the
unaudited consolidated financial statements do not contain footnotes. The
financial records of Seller, all of which Seller has made available to Parent,
are true, correct and complete and represent actual, bona fide transactions and
have been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. Section 3.5(b) of the
Seller Disclosure Letter lists all Indebtedness of Seller and specifies any
property affected by such Indebtedness. Seller is, and after giving effect to
the transactions contemplated hereby, will be Solvent. The inventory of Seller
shown on the face of the Seller Balance Sheet and Closing Statement, (a) all of
such inventory is merchantable and fit for the purpose for which it was procured
or produced, (b) all of such inventory other than written off inventory, except
to the extent of reserves shown on the face of such balance sheet, consists of a
quality and quantity usable and salable in its Ordinary Course of Business,
(c) none of such inventory is obsolete, damaged or defective, and (d) the
quantities of each item of such inventory are not excessive and are reasonable
in the present circumstances of the Business.

3.6 Absence of Certain Changes. Except as expressly contemplated by this
Agreement, or as indicated on Section 3.6 of the Seller Disclosure Letter,
between December 31, 2013 and the date of this Agreement, the Business of Seller
has been conducted in the Ordinary Course of Business and there has not
occurred:

(a) any event that has had, or is reasonably expected to have, individually or
in the aggregate, a Seller Material Adverse Effect;

(b) any acquisition (i) by merging or consolidating with, or by purchasing all
or a substantial portion of the assets or any stock of, or by any other manner,
any business or any corporation, partnership, joint venture, limited liability
company, association, or other business organization or division thereof, or
(ii) of any assets that are material, in the aggregate, to Seller, taken as a
whole;

(c) any sale, lease, license, pledge, or other disposition of any material asset
of Seller, except in the Ordinary Course of Business;

(d) any amendment to the certificate of formation or limited liability company
agreement of Seller;

 

 

Asset Purchase Agreement

   Page 14

--------------------------------------------------------------------------------

(e) any increase or enhancement of the compensation or benefits, including with
respect to any severance or change in control payment, of any Seller employee
resulting, in the aggregate, in additional material costs or expenses to Seller;

(f)(i) any declaration or payment of any dividends or other distribution in
respect of any membership or equity interest of Seller, (ii) any split,
combination, or reclassification of any of the membership interests of Seller or
issuance or authorization for the issuance of any other securities in respect
of, in lieu of, or in substitution for membership or equity interests or any of
its other securities, or (iii) any purchase, redemption, or other acquisition of
any membership or equity interests or any other of its securities or any rights,
warrants or options to acquire any such shares or other securities;

(g)(i) the incurrence of any Indebtedness or any guarantee of any Indebtedness
of another Person (other than (A) in connection with the financing of trade
receivables in the Ordinary Course of Business, (B) letters of credit or similar
arrangements issued to or for the benefit of suppliers and manufacturers in the
Ordinary Course of Business and (C) pursuant to existing credit facilities in
the Ordinary Course of Business), (ii) any issuance, sale or amendment of any
debt securities or warrants or other rights to acquire any debt securities of
Seller, any guarantee of any debt securities of another Person, any “keep well”
or other agreement to maintain any financial statement condition of another
Person or any arrangement having the economic effect of any of the foregoing,
(iii) any loans, advances, or capital contributions to, or investment in, any
other Person, other than Seller, (iv) any grant or imposition of any Lien on the
Purchased Assets other than a Permitted Lien, or (v) any hedging agreement or
other financial agreement or arrangement designed to protect Seller against
fluctuations in commodities prices or exchange rates;

(h) any expenditure or commitment in any way related to or affecting the
Business in an amount in excess of $10,000 (in any one case) or $25,000 (in the
aggregate), except in the Ordinary Course of Business;

(i) hiring or firing of any employees, independent contractors, or other
consultants, except to the extent in the Ordinary Course of Business consistent
with Seller’s employment policies;

(j) enter into any non-compete, non-solicit or any other agreement under which
Parent, Buyer or any of their Affiliates, following the Effective Time, could be
restricted from engaging in any business, operating in any market, or offering
any product or services to customers or potential customers or any class of
customers;

(k) pay, discharge or satisfy, in an amount in excess of $10,000 (in any one
case) or $25,000 (in the aggregate), any claim, liability or obligation in any
way related to or affecting the Business (absolute, accrued, asserted or
unasserted, contingent or otherwise) except in the Ordinary Course of Business;

(l) entry into or amendment of any arrangement or relationship of the type
described in Section 3.22 of this Agreement; or

 

 

Asset Purchase Agreement

   Page 15

--------------------------------------------------------------------------------

(m) termination, modification or amendment of any insurance policy or Business
Collateral outside the Ordinary Course of Business.

3.7 No Undisclosed Liabilities. Except for liabilities (i) disclosed in the
Seller Balance Sheet, (ii) incurred in the Ordinary Course of Business since the
date of the Seller Balance Sheet and which have not had and would not reasonably
be expected to have, individually or in the aggregate, a Seller Material Adverse
Effect, (iii) arising in the Ordinary Course of Business from contractual
obligations of Seller (which do not arise out of, relate to or result from any
breach of contract by Seller) under any Assigned Contract (or a contract not
required to be disclosed in Seller Disclosure Letter to avoid a breach of
Section 3.14) or (iv) created by this Agreement, neither Seller nor Retail Sales
Subsidiary has any liabilities of any nature (whether accrued, absolute,
contingent, matured, unmatured or other) whether or not required by GAAP to be
reflected on a balance sheet of Seller.

3.8 Organizational Documents. Seller has furnished to Parent a complete and
correct copy of the articles of organization and limited liability company
agreement of Seller and of Retail Sales Subsidiary, each as amended to date,
which constitute the only organizational documents of Seller. Such Articles and
limited liability company agreement are in full force and effect and neither
Seller nor Retail Sales Subsidiary is in violation of any of the provisions
thereof.

3.9 Taxes; Unclaimed Property.

(a) Seller has filed all Tax Returns that it was required to file and has paid
all Taxes due and owing, whether or not shown as due on any Tax Return. Each Tax
Return filed by Seller is complete and accurate in all material respects. Seller
is not currently the beneficiary of any extension of time within which to file
any Tax Return.

(b) Section 3.9(b) of the Seller Disclosure Letter lists all federal, state,
local, and foreign Tax Returns filed with respect to Seller for taxable periods
ended on or after December 31, 2010 that have been audited or currently are the
subject of audit. There are no requests for rulings or determinations, or
applications requesting permission for a change in Seller’s accounting
practices, in respect of Taxes, pending with any Governmental Authority. There
are no pending or, to the Knowledge of Seller, threatened audits,
investigations, claims, proposals, or assessments that have been submitted to
Seller in writing for or relating to any Taxes of Seller.

(c) No deficiencies for Taxes of Seller have been claimed, proposed, or assessed
in writing by any Tax authority or other Governmental Authority. Seller has not
(i) waived any statute of limitations with respect to Taxes of Seller, or
(ii) agreed to any extension of time with respect to a Tax assessment or
deficiency related to any such Taxes.

(d) All Taxes that Seller is required by Applicable Law to withhold or collect,
including sales and use taxes, and amounts required to be withheld for Taxes of
employees, have been duly withheld or collected and, to the extent required,
have been

 

 

Asset Purchase Agreement

   Page 16

--------------------------------------------------------------------------------

paid over to the proper Governmental Authorities or are held in separate bank
accounts for such purpose.

(e) Seller has not engaged in a transaction that would be reportable by or with
respect to such entity pursuant to Tax Code Sections 6011, 6111, or 6112.

(f) Seller has never had a permanent establishment in any jurisdiction other
than the United States.

(g) No claim has ever been made or threatened by a Tax authority in any
jurisdiction asserting that Seller is or may be subject to Taxes imposed by that
jurisdiction but not paid by Seller, including sales and use Taxes required to
be collected by Seller and remitted to that jurisdiction and income Taxes
payable to that jurisdiction, nor is there any factual basis for any such claim.
Section 3.9(g) of the Seller Disclosure Letter lists all jurisdictions with
which Seller has or has had a nexus for sales, use and income Tax purposes for
Taxable periods beginning on or after January 1, 2010, and Seller is not
required to file any Tax Returns or collect any Taxes in any other jurisdiction.

(h) Seller has (i) filed or caused to be filed with the appropriate Governmental
Authority all reports required to be filed with respect to any material
unclaimed property and has remitted to the appropriate Governmental Authority
all material unclaimed property required to be remitted, or (ii) delivered or
paid all material unclaimed property to its original or proper recipient. No
material asset or property, or material amount of assets or properties, of
Seller or its Subsidiaries is escheatable to any Governmental Authority under
any Applicable Law, including uncashed checks to vendors, customers, or
employees, non-refunded over payments, credits, unused gift certificates or
unused prepaid accounts.

3.10 Properties.

(a) To Seller’s Knowledge, all equipment and other tangible personal property
used in the Business are in good condition and repair, normal wear and tear
excepted. Section 3.10(a) of the Seller Disclosure Letter sets forth a complete
and accurate list and a brief description of all personal property used in the
Business with an individual current value of $5,000 or greater. Seller has good
and marketable title to, or a valid leasehold interest in or a valid license
for, each material asset used by it, located on any of its premises, shown on
the Seller Balance Sheet or acquired by it after the date of the Seller Balance
Sheet or as is otherwise necessary for the conduct of the Business, free and
clear of any Liens other than any Permitted Lien, except for any asset disposed
of in the Ordinary Course of Business since the date of the Seller Balance
Sheet.

(b) To Seller’s Knowledge, all of the improvements and buildings constructed by
third parties on the Real Property were constructed in a good and workmanlike
manner, substantially comply with Applicable Laws, are structurally sound, are
in good and proper working condition and repair, normal wear and tear, normal
maintenance and normal warranty and customer services matters excepted.

 

 

Asset Purchase Agreement

   Page 17

--------------------------------------------------------------------------------

(c) Section 3.10(c) of the Seller Disclosure Letter sets forth a true and
correct list of all Owned Real Property. The Owned Real Property is not subject
to any Liens other than Permitted Liens or Liens otherwise disclosed in this
Agreement. Seller has not granted any option or right of first refusal to
purchase or lease any part of the Owned Real Property. To the extent in Seller’s
possession or control, Seller has made available to Buyer true and correct
copies of (i) all deeds, mortgages, deeds of trust, Liens, certificates of
occupancy, Environmental Reports, title insurance policies and surveys relating
to the Owned Real Property and (ii) all lease, sublease, rental, use, license,
occupancy or other agreements, possessory rights, options and rights of first
refusal, relating to or affecting any portion of the Owned Real Property,
including all amendments, modifications, assignments, supplements, renewals, and
guarantees thereof (collectively, “Third Party Leases”). All such Third Party
Leases are valid, binding and enforceable in accordance with their terms and are
in full force and effect, and constitute the entire agreement between the
parties thereto, and there are no other agreements, whether oral or written,
between such parties. To Seller’s Knowledge, Seller is not in default or
otherwise in breach under any Third Party Lease, nor has Seller received any
notice of default under any Third Party Lease, and to Seller’s Knowledge, there
are no existing defaults of any other party thereunder. The consummation of the
transactions contemplated by this Agreement will not constitute a default, or
give rise to a right of termination, cancellation or acceleration of any right
under, any Third Party Lease. Except as set forth in Schedule 8.1(a), no Third
Party Lease requires consent of the applicable tenant under such Third Party
Lease in order to transfer such Third Party Lease to Buyer in accordance with
the terms of such Third Party Lease. Each guaranty, if any, under any Third
Party Lease, is in full force and effect. All rent and other sums and charges
payable by any third party under any Third Party Lease are current.

(d) Section 3.10(d) of the Seller Disclosure Letter sets forth a true and
correct list of all of the real property leases, subleases, occupancy, rental,
use, license, or other agreements regarding real property, including all
amendments, modifications, assignments, supplements, renewals, and guarantees
thereof, which is leased or subleased by Seller, or that Seller has the right to
occupy or use now or in the future (each, whether written or verbal, being a
“Real Property Lease” and any real property leased or occupied under a
Real Property Lease being “Leased Real Property”). Seller has made available to
Buyer true and correct copies of all Real Property Leases, including all
amendments, modifications, assignments, supplements and renewals thereof. All
such Real Property Leases are valid, binding and enforceable in accordance with
their terms and are in full force and effect, and constitutes the entire
agreement between the parties thereto, and there are no other agreements,
whether oral or written, between such parties. Seller is not in default or
otherwise in breach under any Real Property Lease, nor has Seller received any
notice of default under any Real Property Lease, and to Seller’s Knowledge,
there are no existing defaults of any other party thereunder. The consummation
of the transactions contemplated by this Agreement will not constitute a
default, or give rise to a right of termination, cancellation or acceleration of
any right under, any Real Property Lease. Except as set forth in Schedule
8.1(a), no Real Property Lease requires consent of the applicable landlord under
such Real Property Lease in order to transfer such Real Property Lease to Buyer
in accordance with the terms of such Real Property Lease.

 

 

Asset Purchase Agreement

   Page 18

--------------------------------------------------------------------------------

There are no guarantees under any Real Property Lease. All rent and other sums
and charges payable by Seller as tenant under any Real Property Lease are
current.

(e) Schedule 1.1(b) sets forth a true and correct list of all Take Down
Contracts. Section 3.10(e) of the Seller Disclosure Letter sets forth a true and
correct list of all Take Down Contract Property (collectively, with the Owned
Real Property and the Leased Real Property, the “Real Property”), together with
(i) a schedule of the all of the closings of lots or portions of real property
to occur under each such Take Down Contract (as well as those that have
previously occurred), (ii) the purchase price(s) for the real property,
(iii) the deposit being held in connection therewith, and (iv) a schedule of the
status of each such real property (i.e. portion of the property that is not
platted (and if not platted, the status of the preliminary or t-plat), portion
of the property that is platted, the improvements completed to the property or
any portion thereof (i.e. raw fully undeveloped land, utilities are available at
lot lines or boundary of project, lots which have model homes or homes for sale
constructed or in process of construction, lots which are fully prepared for
construction, lots which building permits have been pulled for, etc.). Except
for the Take Down Contracts, there are no real properties that Seller is
obligated to buy, lease or sublease at some future date, with the exception of
(i) those certain projects generally identified as “Overlook” and “Eagle
Pointe”, which have been assigned to Hanover and are dealt with in the Hanover
Agreement, and (ii) certain other existing contracts between Seller and Hanover,
which have been or are concurrently being terminated in favor of new contracts
being executed at Closing directly between Hanover and Buyer pursuant to the
Hanover Agreement. Seller has made available to Buyer true and correct copies of
all Take Down Contracts, including all amendments, modifications, assignments,
supplements and renewals thereof. To Seller’s Knowledge, all such Take Down
Contracts are valid, binding and enforceable in accordance with their terms and
are in full force and effect. All such Take Down Contracts constitute the entire
agreement between the parties thereto, and there are no other agreements,
whether oral or written, between such parties. Seller is not in default or
otherwise in breach under any Take Down Contract, nor has Seller received any
notice of default under any Take Down Contract, and to Seller’s Knowledge, there
are no existing defaults of any other party thereunder. The consummation of the
transactions contemplated by this Agreement will not constitute a default, or
give rise to a right of termination, cancellation or acceleration of any right
under, any Take Down Contract. There are no guarantees under any Take Down
Contract. All deposits and other sums and charges payable by Seller under any
Take Down Contract are current.

(f) Seller owns good, marketable, and valid fee simple title or a valid
leasehold interest (or in the case of Take Down Contract Property, to Seller’s
Knowledge, will have such title upon exercise of the Take Down Contracts) to the
Real Property, free and clear of all Liens, except any Permitted Liens. Seller
has not assigned its interests under any of the Take Down Contracts, Third Party
Leases or Real Property Leases.

(g) No party to any Third Party Lease, Real Property Lease, or Take Down
Contract has exercised any termination right with respect thereto. No party to
any Third Party Lease, Real Property Lease, or Take Down Contract has repudiated
any provision thereof and there is no dispute, oral agreement or forbearance
program in effect, or threat

 

 

Asset Purchase Agreement

   Page 19

--------------------------------------------------------------------------------

of modification, suspension or cancellation, with respect to any Third Party
Lease, Real Property Lease, or Take Down Contract. Seller has not received
written or, to Seller’s Knowledge, oral notice from any insurance company that
such insurance company will require any alteration to any Real Property for
continuance of a policy insuring such property or the maintenance of any rate
with respect thereto (other than any notice of alteration that has been
completed), to the extent that such alteration is the responsibility of Seller.
Each Third Party Lease, Real Property Lease, or Take Down Contract will continue
to be valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the contemplated transactions.

(h) Seller has not received any written notice from any Governmental Authority
that any Permits with respect to the buildings, structures or improvements on
any of the Real Property may be revoked, adversely modified or not renewed.

(i) To Seller’s Knowledge, there are no tax reduction proceedings pending in
respect of the Real Property.

(j) Seller has not given any mortgagee or other third party any estoppel
certificates or similar instruments that would preclude assertion of any claim
by the tenant under any Real Property Lease or affect any of the tenant’s rights
or obligations under such Real Property Lease; and Seller has not contested
since January 1, 2010, and is not currently contesting, any operating costs,
real estate taxes or assessments or other charges payable by the tenant under
such Real Property Lease. There are no pending (or, to the Knowledge of Seller,
threatened) actions or proceedings regarding condemnation or other eminent
domain actions or proceedings affecting the Leased Real Property, or any part
thereof, or of any sale or other disposition of the Leased Real Property or any
part thereof in lieu of condemnation.

(k) To the Knowledge of Seller, (i) no landlord under any Real Property Lease
nor any tenant under any Third Party Lease (A) is in default under any of its
obligations under any mortgage encumbering any Leased Real Property or Owned
Real Property, (B) is seeking relief under any reorganization, arrangement,
consolidation, readjustment, liquidation, dissolution or similar arrangement or
proceeding under any state or federal bankruptcy or other Applicable Laws, or
(C) has agreed, pursuant to any state or federal bankruptcy or other Applicable
Laws, to the appointment of any trustee, receiver or liquidator for any of the
Leased Real Property or Owned Real Property; and (ii) no foreclosure is pending
or threatened with respect to any Leased Real Property or Owned Real Property.

(l) Seller has not entered into, and has received no notice of and has no
Knowledge, of any rights of first refusal or first offer, options to purchase
any of the Owned Real Property or other Purchased Assets (collectively, the
“Property”), or any other rights or agreements that may delay, hinder or prevent
this transaction.

(m) Except for normal trade payables for homes under construction generated in
the Ordinary Course of Business and included as liabilities in the calculation
of Equity

 

 

Asset Purchase Agreement

   Page 20

--------------------------------------------------------------------------------

Value, there has been no labor or materials of any kind furnished to or for the
benefit of the Property for which payment in full has not been made.

(n) No person or entity is entitled to possession of any of the Owned Real
Property, other than Seller and the parties to the Assumed Real Property Leases
(with respect to such Leased Real Property) and the parties to the Take Down
Contracts (with respect to such Take Down Contract Property), except as set
forth in the Take Down Contracts, and except as permitted by Permitted Liens.

(o) To the extent subject to a recorded plat, each parcel of Owned Real Property
complies with Applicable Law governing the platting and subdivision of real
property. Except as disclosed in the title insurance commitments delivered to
Buyer and Parent in connection herewith, and except for the community
development district pertaining to that certain Take Down Contract Property
identified as “Sorrento Springs,” there are no community development districts
or special taxing districts affecting, or planned to affect, any portion of the
Real Property.

(p) Seller has received no notice of and has no Knowledge of any pending or
proposed special area or other assessments, except for any such assessments
currently payable which will be prorated at Closing in accordance with
Section 7.1, affecting the Real Property or any proposed or pending public
improvements which may give rise to any such assessments affecting the Real
Property.

(q) Seller has received no notice of and has no Knowledge of any outstanding,
pending or threatened condemnation or eminent domain proceeding or transfer in
lieu thereof affecting any of the Real Property, nor has Seller agreed or
committed to dedicate any of the Real Property.

(r) The Real Property has access to and from an adjacent public or private road
or street with adequate ingress and egress available to such Real Property for
all purposes used or operated by Seller, and Seller has received no notice of,
and has no knowledge of, any pending or threatened action or dispute which would
materially impair or interfere with such access.

(s) Section 3.10(s) of the Seller Disclosure Letter lists the development status
of each parcel or portion of Owned Real Property and the Take Down Contract
Property, which includes, among other things a schedule of the future
development (i.e. if portion of the property is not platted, the status of the
preliminary or t-plat and estimated date of final plat), whether such property
is platted, whether a preliminary plat has been approved, the improvements
completed under, on or over the property or any portion thereof (i.e. raw fully
undeveloped land, utilities are available at lot lines or boundary of project,
lots which have model homes or homes for sale constructed or in the process of
construction, lots which are fully prepared for construction, lots which
building permits have been pulled for, etc.). Except for any undeveloped Owned
Real Property and the Take Down Contract Property, or as otherwise specified in
Section 3.10(s) of the Seller Disclosure Letter, the Real Property is serviced
by utilities (including telephone and communications, electricity, sanitary
sewer, storm sewer and water (fire and domestic)),

 

 

Asset Purchase Agreement

   Page 21

--------------------------------------------------------------------------------

sufficient for the current operation of the Real Property contemplated by Buyer,
and such utilities are provided to the Real Property by uninterrupted
appurtenant perpetual easements and/or public rights of way. Seller has received
no notice and has no Knowledge of any actual or threatened curtailment,
cancellation or suspension of any such utility.

(t) Except as set forth on Section 3.10(t) of the Seller Disclosure Letter, to
Seller’s Knowledge there is no ongoing mitigation for any “recognized
environmental condition,” wetlands, vegetation, species or habitat protected by
any Applicable Laws with respect to the Real Property.

(u) Seller has received no notice, and has no Knowledge, that any of the Real
Property or its use or uses are in violation of Applicable Law or any private
restriction or covenant or entitlements applicable to the Real Property,
including the Permitted Liens, and, to Seller’s Knowledge, no person or entity
has a valid legal basis to issue such a notice of non-compliance, or has
threatened to do so. To Seller’s Knowledge, there are no unrecorded easements or
encroachments affecting any portion of the Real Property.

(v) Seller has received no notice, and has no Knowledge, that any claims,
demands, action, litigation, investigation, or proceeding of any kind are
pending or threatened against Seller or any of the Real Property, with the
exception of the projects generally identified as “Overlook” and “Eagle Pointe”,
and Seller has no Knowledge of the occurrence of any facts which could give rise
to any valid legal basis for such action, litigation, investigation, or
proceeding.

(w) To the Knowledge of Seller, all improvements and fixtures located on, under,
over or within the Real Property, and all other aspects of each parcel of Real
Property (i) are structurally sound and free of any material defects and are in
good repair, (ii) comply in all material respects with Applicable Law, without,
to the best of Seller’s Knowledge, the benefit of any “grandfathering” or
similar variance for their current use or Buyer’s intended use, (iii) consist of
sufficient land, parking areas, sidewalks, driveways and other improvements to
permit the continued use of such facilities in the manner and or the purposes to
which they are presently devoted; and (iv) do not encroach on real property not
owned or leased by the Seller. All mechanical, electrical, heating, air
conditioning, drainage, sewer, water, telephone, communications, plumbing, and
other facilities or utility systems of the improvements and fixtures owned by
Seller located on the Real Property are in good operating condition. To the
extent required by Applicable Law, Seller has been issued a certificate of
occupancy, Permit or other approval or certificate as is required under
Applicable Law with respect to such improvements and fixtures; all of which
remains in full force and effect, and, to the extent required by law are
displayed at the Real Property in compliance with Applicable Law.

(x) Except for recorded instruments and Permitted Liens, to Seller’s Knowledge,
no part of the Real Property is subject to any valid building or use
restrictions that would restrict or prevent the present or contemplated use and
enjoyment of the Real Property (with respect to the Owned Real Property and the
Take Down Contract Property, for residential development). The Real Property is
properly and duly

 

 

Asset Purchase Agreement

   Page 22

--------------------------------------------------------------------------------

zoned for its current and contemplated use and is in all respects a conforming
use. To the Knowledge of Seller, no Governmental Authority having jurisdiction
over the Real Property has issued or, nor threatened to issue any notice or
order that adversely affects the use, occupancy or operation of any part of the
Real Property, or requires, as of the date hereof or a specified date in the
future, any repairs or alterations or additions or improvements thereto, or the
payment or dedication of any money, fee, exaction or property.

(y) To the Knowledge of Seller, no part of the Real Property has been affected
as a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, moratorium, requisition or
cancellation of contract, permit, violation, incentive or concession by any
domestic or foreign government or any agency thereof, riot, activities of armed
forces or acts of God or any public enemy, or any other casualty, the occurrence
of which would materially impair the value of any particular parcel of Real
Property or the manner and extent of the current or contemplated use, occupancy
and operation thereof or that would result in any Governmental Authority denying
permits necessary for the construction, use or occupancy of the Real Property
for single-family dwellings.

(z) The Real Property constitutes all interests in real property currently used
or currently held for use or which Seller has a right to acquire in connection
with the Business.

(aa) Except as set forth on Section 3.10(aa) of the Seller Disclosure Letter and
except for that certain parcel of Owned Real Property generally identified as
the “Mallard Pond development tract,” which the parties acknowledge is pending
development, all of the Owned Real Property, (and, to Seller’s Knowledge and
except as otherwise set forth in the applicable Take Down Contract, all Take
Down Contract Property will prior to the requirement to acquire same), (i) has
received final plat approval, with all infrastructure improvements described or
referenced in the final plat completed, (ii) has no preconditions to the
issuance of building permits for the construction of single-family residences on
the lots, other than payment of standard and ordinary permit and impact fees;
(iii) has no precondition to the issuance of certificates of occupancy for
single-family residences on the lots other than construction of such residence
in accordance with Applicable Law, (iv) to the Knowledge of Seller and to the
extent required, has obtained a concurrency certificate or written documentation
from the applicable Governmental Authority confirming that the property is
entitled to and has sufficient infrastructure capacity reserved for the
development thereof; and (iv) to the extent that a Housing Unit has been
constructed, or is currently under construction, has written approval by the
applicable Association as to all of the designs, models, plans and
specifications for the dwellings which are intended to be constructed on the
lots (to the extent required by the applicable CCRs).

(bb) Seller has not received written notice of any new or increases in existing
development fees, impact fees, or other fees that will be levied (or are under
consideration) in connection with the development of the Owned Real Property or
Take Down Contract Property, nor has Seller received any written notice of any
policy or

 

 

Asset Purchase Agreement

   Page 23

--------------------------------------------------------------------------------

action, nor is it aware of any such action, precluding or inhibiting
(1) issuance of building permits with respect to the Real Property; or
(2) issuance of certificates of occupancy for residences on the Owned Real
Property or Take Down Contract Property.

(cc) Except as set forth in Section 3.10(cc) of the Seller Disclosure Letter, or
unless constituting a Permitted Lien, to Seller’s Knowledge, (i) there are no
shared expense agreements, repayment agreements, reimbursement agreements, or
development payback agreements that affect all or any portion of the Real
Property, and (ii) except for that certain parcel of Owned Real Property
generally identified as “Mallard Pond development tract,” which the parties
acknowledge is pending development, all on-site and off-site improvements
necessary to obtain a building permit for a single-family residential dwelling
to be constructed on each lot and a certificate of occupancy for a completed
single-family residential dwelling constructed on each lot have been, with
respect to the Owned Real Property or the Take Down Property listed as developed
on Section 3.10(e) of the Seller Disclosure Letter, completed and accepted by
all applicable governmental authorities.

(dd) Section 3.10(dd) of the Seller Disclosure Letter lists all current
agreements (whether verbal or written) to fund deficits or otherwise pay
assessments in connection with any portion of the Real Property (other than
pursuant to CCRs included in the public record and set forth in the title
commitments), and further sets forth the Associations for which the Real
Property is subject to, and the current assessment amount, if applicable. Seller
has delivered to Buyer any and all budgets applicable to the Real Property as
well as any and all notices received by Seller from any Association regarding
payment of assessments which are currently applicable to the Real Property or
which may affect the Real Property in the future (and will deliver any
additional budgets or notices following the date of this Agreement until such
time as Buyer acquires title to the same).

(ee) Except for Permitted Liens, applicable governmental regulations, and the
Take Down Contracts, and except to the extent pertaining to that certain parcel
of Owned Real Property generally identified as “Mallard Pond development tract,”
which the parties acknowledge is pending development, there are no contracts,
agreements or other obligations, written or verbal, governing or relating to the
development, use or operation of the Owned Real Property or, to Seller’s
Knowledge, the Take Down Contract Property that would be binding upon such Real
Property or the Buyer as the owner thereof. Seller has received no written
notice, and Seller has no Knowledge, that any Governmental Authority has imposed
any requirement that would bind Buyer to pay directly or indirectly any special
fees or contributions, or incur any expenses or obligations in connection with
the development of any portion of the Real Property, except for customary
building permit, impact and inspection fees, if any.

3.11 Sufficiency of Assets. The Purchased Assets are sufficient for the
continued operation of the Business after Closing in substantially the same
manner as operated prior to Closing (apart from the lack of cash due to the use
thereof for the repayment of Indebtedness as described in Section 2.3 of this
Agreement) and constitute all of the rights, property and assets necessary to
operate the Business as currently operated. None of the Excluded Assets are
material to the Business.

 

 

Asset Purchase Agreement

   Page 24

--------------------------------------------------------------------------------

3.12 Intellectual Property.

(a) Section 3.12(a) of the Seller Disclosure Letter sets forth a true and
complete list of all of Seller’s (i) registered trademarks, service marks, trade
names and domain names and pending applications to register any trademarks,
service marks or trade names; (ii) patents and pending patent applications; or
(iii) registered copyrights and pending applications to register copyrights.
Seller either owns free and clear of all Liens (except for Permitted Liens), or
has sufficient rights to use and/or access, all patents, copyrights, trademarks,
service marks, trade names, domain names, trade secrets, websites, extranets,
software as a service and Software (collectively, “Intellectual Property”) used
to conduct the Business as currently conducted and presently proposed to be
conducted. All patents and registrations for trademarks and copyrights included
in the Intellectual Property are valid, subsisting and enforceable and will not
require any action to be taken within 30 days after the Closing to maintain or
renew such items. All pending patent applications and pending applications to
register any unregistered trademarks, service marks, trade names or copyrights
included in the Intellectual Property are pending and in good standing and will
not require any action to be taken within 30 days after the Closing to maintain
or renew such items. There are no pending or threatened actions by third parties
challenging the validity or enforceability of, or contesting Seller’s rights
with respect to, any such pending applications. Seller has not received any
notice or claim challenging the validity or enforceability of any of Seller’s
registered Intellectual Property.

(b) Section 3.12(b) of the Seller Disclosure Letter lists, as of the date
hereof, all license agreements and other contracts pursuant to which Seller has
the right to practice, use, copy or otherwise exploit any Intellectual Property
owned by third parties (“Inbound Licenses”), other than Inbound Licenses that
are standard end-user license agreements for off-the-shelf Software not in
excess of $1,000 per seat per year. Seller is not party to any license
agreements or other contracts pursuant to which any Person (other than Seller)
is authorized to exploit or has been granted other rights with respect to any
Intellectual Property owned by Seller.

(c) Seller has taken all steps that are, as a whole, not less protective and
comprehensive than the steps that would be taken by reasonably prudent business
persons operating in Seller’s industry, to protect, preserve and maintain the
secrecy and confidentiality of its confidential and proprietary information and
data.

(d) Neither Seller nor any of its products or services nor the operation of the
Business has infringed upon or otherwise violated, or is infringing upon or
otherwise violating, the Intellectual Property of any third party. Seller has
not received any communications alleging or suggesting any of the foregoing is
untrue, including any notices concerning Intellectual Property that might be
relevant to the Business (or its products or services) or any offers to license
Intellectual Property for use in connection with the Business. The exploitation
of the Intellectual Property used by Seller in the conduct of the Business as
previously and currently conducted and as presently proposed to be conducted,
does not infringe, violate or misappropriate any Intellectual Property owned by
any third party.

 

 

Asset Purchase Agreement

   Page 25

--------------------------------------------------------------------------------

(e) Seller complies with all Applicable Laws regarding the collection,
retention, use and disclosure of personally identifiable information and any
privacy policy published by it. Seller has taken measures to protect and
maintain the confidential nature of the personally identifiable information
provided to Seller by individuals and to personal information collected from
individuals against loss, theft and unauthorized access or disclosure, which
measures are, as a whole, not less protective and comprehensive than those that
would be taken by reasonably prudent business persons operating in Seller’s
industry. Seller has not received any claims, notices or complaints regarding
Seller’s information practices or the disclosure, retention, or misuse of any
personally identifiable information by the Federal Trade Commission, any similar
foreign bodies, or any other Governmental Authority.

3.13 Software and Information Technology.

(a) Seller does not own or use any proprietary, custom or internally developed
Software.

(b) To Seller’s Knowledge, no Software owned or used by Seller or the Business
contains, and Seller has taken reasonable precautions to prevent the presence
of, any malicious code, program, or other internal component (e.g., computer
virus, computer worm, computer time bomb, or similar component) that would
damage, destroy, or alter the Software or databases (including any content
therein) or other Software, firmware, or hardware used by Seller or Seller’s
customers, or that could, in any unintended manner, reveal, damage, destroy, or
alter any data or other information accessed through or processed by the
Software.

(c) Seller is not, and to Seller’s Knowledge no other party is, in breach or
default under any Assigned Contracts, license, sublicense or other contract
covering or relating to the Software and has not performed any act or omitted to
perform any act which, with notice or lapse of time or both, will become or
result in a violation, breach or default thereunder. No litigation is pending
or, to Seller’s Knowledge, has been threatened against Seller which challenges
the legality, validity, enforceability or ownership of any license, sublicense
or other contract covering or relating to any Software.

(d) Seller has sufficient rights to use all Software, information technology
equipment, databases, websites, content, e-commerce platforms, Software as a
service and associated documentation used or held for use in connection with the
operation of the Business as presently conducted (the “IT Assets”), all of which
rights are included in the Purchased Assets and will survive unchanged after the
consummation of the transactions contemplated hereby. The IT Assets are
sufficient to conduct the Business as currently conducted and presently proposed
to be conducted without material malfunction or failure. The IT Assets have not
materially malfunctioned or failed and, to the Knowledge of Seller, do not
contain any viruses, bugs, faults or other devices or effects that (i) enable or
assist any Person to access without authorization the IT Assets, or
(ii) otherwise significantly adversely affect the functionality of the IT
Assets, except as disclosed in their documentation. Seller uses commercially
reasonable efforts to secure and protect

 

 

Asset Purchase Agreement

   Page 26

--------------------------------------------------------------------------------

the IT Assets. To Seller’s Knowledge, no Person has gained unauthorized access
to any IT Assets. Seller has implemented reasonable business continuity, and
backup and disaster recovery technology, plans, procedures and facilities
consistent with industry practices.

3.14 Contracts.

(a) Section 3.14(a) of the Seller Disclosure Letter sets forth a complete and
accurate list as of the date of this Agreement of the following contracts,
agreements, commitments, arrangements or understandings of any kind, whether
written or oral, to which Seller is a party or by which Seller or any of its
assets is bound (collectively, the “Seller Material Contracts”):

(i) any Real Property Lease or Third Party Lease and any agreement (or group of
related agreements) for the lease of personal property from or to third parties
providing for lease payments in excess of $25,000 per year;

(ii) any Take Down Contract;

(iii) any agreement (or group of related agreements) for the purchase, sale or
license of products by Seller or for the furnishing or receipt of services by
the Seller or client referrals to Seller which involves a contractual value of
more than $25,000 (based on projections set forth under such agreement);

(iv) any agreement concerning the establishment or operation of a partnership,
joint venture, or limited liability company;

(v) any agreement (or group of related agreements) under which Seller has
created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) Indebtedness in excess of $5,000 (including capitalized lease
obligations or capital expenditures);

(vi) any agreement for the disposition of any significant portion of the assets
of Seller or the Business (other than sales of Housing Units in the Ordinary
Course of Business) or any agreement for the acquisition of the assets or
business of any other entity (other than purchases of inventory in the Ordinary
Course of Business);

(vii) any currently effective contract for the employment or engagement of any
executive officer, employee, or other individual on an employment, consulting,
or independent contractor basis that (A) is not terminable at will (for any
lawful reason or for no reason) without penalty, severance obligation, or other
liability or (B) provides for the payment or acceleration of payment of cash or
other compensation or payment or acceleration of any other benefits under any
compensation or benefit plan, program, or agreement, upon the consummation of
the transactions contemplated by this Agreement;

 

 

Asset Purchase Agreement

   Page 27

--------------------------------------------------------------------------------

(viii) any currently effective contract for any bonus, incentive, commission,
pension, profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, change-in-control, hospitalization, insurance,
or other material plan or arrangement for the benefit of Seller’s current or
former directors, officers, employees, or independent contractors;

(ix) any agreement that grants any exclusive marketing, distribution,
Intellectual Property, or other similar rights to any third party or otherwise
purports to prohibit or limit, in any material respect, the right of Seller or
any of its Affiliates (including, in accordance with the terms of the contracts
in effect on the date hereof, Parent or any of its Affiliates after the
Effective Time) to make, sell, market, advertise or distribute any products or
services or use, transfer, license, distribute or enforce any of Seller’s
Intellectual Property;

(x) any agreement containing exclusivity, non-compete or non-solicitation
provision or that otherwise purports to limit in any material respect either the
type of business or the geographic area in which Seller or any Affiliates of
Seller (including, in accordance with the terms of the contracts in effect on
the date hereof, Parent or any of its Affiliates after the date hereof) may
engage in business;

(xi) any agreement that grants a third party “most favored nation” status or
purports to require Seller or any of its Affiliates (including, in accordance
with the terms of the contracts in effect on the date hereof, Parent or any of
its Affiliates after the Effective Time) to offer a third party the same or
better price for a product or service if Seller or such Affiliate offers a lower
price for the same product or service to another third party;

(xii) each agreement under which Seller has advanced or loaned any other Person
outstanding amounts in the aggregate for such Person exceeding $10,000;

(xiii) each outstanding power of attorney with respect to Seller;

(xiv) each agreement that calls for performance over a period of more than three
months (other than those that are terminable at will or upon not more than 30
days’ notice by Seller without any liability or other obligation to Seller),
except for contracts for the sale of Housing Units in the Ordinary Course of
Business and that conform to Seller’s standard form contract (as provided to
Parent prior to the date hereof);

(xv) any development agreement with any Governmental Authority;

(xvi) any agreement related to the Real Property or other real estate granting
the Seller a direct or indirect right of first offer or right of first refusal
or where Seller has granted such rights to a third party;

 

 

Asset Purchase Agreement

   Page 28

--------------------------------------------------------------------------------

(xvii) any contract of surety, guarantee or indemnity;

(xviii) any contract requiring or related to any Business Collateral;

(xix) all contracts providing payment to or by any person or entity based upon
the sales, purchases or profits, other than direct payments for goods and
services;

(xx) any agreement with any contractor, subcontractor or other materialmen in
connection with any work completed that remains unpaid or that has other
obligations, covenants, indemnifications, representations or warranties which
remain effective, being completed, or to be completed related to the Real
Property; and

(xxi) any other agreement that is material to Seller or the Business and not
otherwise disclosed pursuant to this Section 3.14(a).

(b) Seller has made available to Parent a true, correct and complete copy of
each written Assigned Contract and each written Seller Material Contract
(together with any and all amendments, supplements, or modifications thereto)
and accurate descriptions of all material terms of all non-written Assigned
Contract and each non-written Seller Material Contract.

(c) Each Assigned Contract is in full force and effect with respect to Seller,
is legal, valid and binding, and to the Knowledge of Seller, with respect to
each other party thereto, except as the enforceability of such Assigned Contract
may be limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. Neither Seller nor, to Seller’s Knowledge, any other party
to any Assigned Contract is in material violation of or in material default
under any Assigned Contract, and to Seller’s Knowledge all of the covenants to
be performed by the parties thereunder as of the date hereof have been fully
performed and no claims have been made or issued for breach or indemnifications
or notice of default or termination under any Assigned Contract.

3.15 Vendors and Suppliers. Section 3.15 of the Seller Disclosure Letter
contains a complete and accurate list of the names of each of the vendors and
suppliers of the Business from whom Seller has purchased at least $50,000 of
goods or services within each of the twelve-month periods ended December 31,
2013 and December 31, 2012 and the amount of goods or services purchased from
them. None of such vendors or suppliers has expressed any intention or
indication to Seller that such supplier or vendor intends to terminate its
business relationship with Seller or to materially limit or alter its business
relationship with Seller. Seller has not received any notice from any vendor or
supplier listed on Section 3.15 of the Seller Disclosure Letter of any material
increase in the price (excluding normal price fluctuations in the Ordinary
Course of Business), quality and delivery terms and conditions on which such
supplier or vendor will continue to make delivery of its products, nor has such
a change occurred.

 

 

Asset Purchase Agreement

   Page 29

--------------------------------------------------------------------------------

3.16 Insurance. Seller has maintained and does maintain with third parties
policies of fire and casualty, liability and other forms of insurance in such
amounts, with such deductibles and retained amounts, and against such risks and
losses, as contractually required and as are customarily carried by prudent
Persons conducting businesses or owning assets similar in type and size to those
of Seller, including all legally required workers’ compensation insurance and
casualty, fire and general liability insurance and customary title insurance.
Such policies are listed on Section 3.16 of the Seller Disclosure Letter. To
Seller’s Knowledge, there is no claim pending under any insurance policy or bond
to which Seller is a party or under which any of its assets, employees, officers
or directors is or was a named insured or otherwise the beneficiary of coverage
thereunder as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid, and each of Seller and its Affiliates is
otherwise in compliance with the terms of such policies and bonds in all
material respects and all such policies are in full force and effect. No
insurance carrier has threatened in writing termination of, or premium increase
outside the Ordinary Course of Business with respect to, any such policies.

3.17 Litigation. There is no action, suit, proceeding, claim, arbitration, or
investigation pending or, to Seller’s Knowledge, threatened against Seller, its
properties, or any of its officers, directors or employees in their capacities
as officers, directors or employees of Seller, in each case by or before any
Governmental Authority. There are no judgments, orders or decrees outstanding
against Seller. Section 3.17 of the Seller Disclosure Letter lists each lawsuit,
administrative charge, action or proceeding, by or before any Governmental
Authority against Seller or to which Seller has been a party, in each case at
any time during the last three years.

3.18 Environmental Matters.

(a) Each of Seller and, to Seller’s Knowledge, the landlords under the Assumed
Real Property Leases, and the sellers under the Take Down Contracts, subject in
each case to the terms thereof, (i) have obtained all permits, licenses,
letters, and certificates, that are required under any Environmental Law;
(ii) is and, except as set forth in the Environmental Reports, has at all times
been in compliance in all material respects with all Environmental Laws
including (A) the terms and conditions relating to obtaining and maintaining all
permits, licenses, letters and certificates issued pursuant to any Environmental
Law; (B) the notice, record keeping and reporting requirements thereunder;
(C) all applicable writs, orders, judgments, injunctions, governmental
communications, decrees, information requests or demands issued pursuant to, or
arising thereunder and (D) all requirements relating to the Release of Hazardous
Substances.

(b) To Seller’s Knowledge, and except as set forth in the Environmental Reports,
(i) the Owned Real Property is not in, nor has it been under investigation for,
violation of any Environmental Law, (ii) the Real Property has not been subject
to a deposit of any Hazardous Substance; (iii) neither Seller nor any third
party has Released, used, generated, manufactured, stored, managed, utilized, or
disposed in, at, on, or under the Real Property any Hazardous Substance;
(iv) there is not now in, on, or under the Real Property any underground or
above ground storage tanks or surface impoundments, any asbestos containing
materials, or any polychlorinated biphenyls used in hydraulic oils, electrical
transformers, or other equipment; (v) no threatened or endangered species

 

 

Asset Purchase Agreement

   Page 30

--------------------------------------------------------------------------------

or protected natural habitat, flora or fauna on the Real Property nor any areas
of any lot located therein (or to be located therein) designated as wetlands or
otherwise subject to the United States Army Corps of Engineers’ Section 404
permit requirements, is in violation of Applicable Laws (or, to the extent
required in accordance with Applicable Laws, for which remediation has not been
obtained); (vi) there are no wells, drilling holes, wellheads, or underground
storage tanks located on or under the Real Property, and (vii) the Real
Property, nor any portion thereof has been used as a landfill, waste disposal
site (including construction waste), or burial site.

(c) There is no (and, to Seller’s Knowledge and except as set forth in the
Environmental Reports, there is no basis for any) Environmental Claim pending
or, to Seller’s Knowledge, threatened, anticipated, or contemplated as of the
date of this Agreement against Seller or, to Seller’s Knowledge, the landlords
under the Assumed Real Property Leases or the sellers under the Take Down
Contracts, or with respect to any of the Real Property.

(d) Neither Seller nor, to Seller’s Knowledge, the landlords under the Assumed
Real Property Leases or the sellers under the Take Down Contracts has installed,
used, generated, treated, disposed of or arranged for the disposal of any
Hazardous Substance on or about the Real Property, in a manner so as to create
any liability under any Environmental Law with respect to any of the Real
Property.

(e) Seller has delivered to Parent true, correct and complete copies of all
environmental audits, assessments, occupational health studies, reports and
investigations in the possession or control of Seller relating to the
environmental or physical condition of any of the Real Property or relating to
compliance with Environmental Law by Seller, including all written
communications (or a summary of any verbal communication) between Seller and any
Governmental Authority or third parties relating to or affecting to the Real
Property (collectively, the “Environmental Reports”), all of which are further
set forth in Section 3.18(e) of the Seller Disclosure Letter.

(f) Seller is not party to any contract that requires Seller to take any action
or incur any expenses to remedy non-compliance with any Environmental Law.

3.19 Employee Benefit Plans.

(a) Section 3.19(a) of the Seller Disclosure Letter sets forth a complete and
accurate list as of the date of this Agreement of all Employee Benefit Plans
currently maintained, contributed to, or agreed to, by Seller or any of its
ERISA Affiliates.

(b) Each Employee Benefit Plan has been maintained and administered in
accordance with ERISA, the Tax Code, and all other Applicable Laws and the
regulations thereunder and in accordance with its terms. With respect to each
Employee Benefit Plan, Seller has provided to Parent a complete and accurate
copy of (i) the plan document for such Employee Benefit Plan (where no text
exists, a written summary has been provided), (ii) each trust agreement, group
annuity contract, service agreement, and summary plan description, summary of
material modifications, if any, and amendments

 

 

Asset Purchase Agreement

   Page 31

--------------------------------------------------------------------------------

thereto relating to such Employee Benefit Plan, (iii) the most recent opinion,
advisory or opinion letter received from the IRS (as applicable), and (iv) all
rulings, opinions and correspondence issued by the IRS or other Governmental
Authority for any Employee Benefit Plan.

(c) All contributions or premiums with respect to the Employee Benefit Plans
have been timely paid or accrued consistent with Applicable Law.

(d) With respect to each Employee Benefit Plan (i) there has been no prohibited
transaction within the meaning of Section 406 of ERISA and Tax Code Section 4975
(which is not otherwise exempt); and (ii) no fiduciary within the meaning of
Section 3(21) of ERISA has breached any fiduciary duty imposed under Title I of
ERISA.

(e) Since 2006, neither Seller nor any of its ERISA Affiliates has maintained,
contributed to or been obligated to contribute to (i) an Employee Benefit Plan
that was ever subject to Section 412 of the Tax Code or Title IV of ERISA;
(ii) a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA); (iii) a
“multiple employer plan” (as defined in Section 4063 of ERISA) or (iv) a
“multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA).

(f) Except as set forth in Section 3.19(f) of the Seller Disclosure Letter,
Seller is not a party to any oral or written compensatory agreement or
understanding with any director, executive officer or other employee, or
consultant of Seller (i) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
Seller of the nature of any of the transactions contemplated by this Agreement,
(ii) providing for employment that is not subject to termination by Seller on
notice of 30 days or less, (iii) providing severance benefits after the
termination of employment of such director, executive officer, employee or
consultant, or (iv) the benefits of which shall be increased, or the vesting or
payment of the benefits of which shall be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which shall be calculated on the basis of any of the transactions
contemplated by this Agreement, except as provided in this Agreement.

(g) There have been no oral or written representations or promises to provide
retiree medical or other welfare benefits to any former employee or
beneficiaries or dependents of former employees, except as required by
Applicable Law.

(h) There is no claim, suit, action, proceeding or investigation pending, or to
the Knowledge of Seller, threatened against Seller with respect to any Employee
Benefit Plan or against any Employee Benefit Plan, except for routine claims for
benefits in the Ordinary Course of Business.

(i) Seller has not announced any plan or commitment, whether legally binding or
not, to create an additional Employee Benefit Plan or amend or modify any
existing Employee Benefit Plan except as may be required by Applicable Law.

 

 

Asset Purchase Agreement

   Page 32

--------------------------------------------------------------------------------

(j) Each Employee Benefit Plan that is a “nonqualified deferred compensation
plan” (as defined for purposes of Section 409A(d)(1) of the Tax Code) that is
subject to Section 409A of the Tax Code has since (i) January 1, 2005 (or such
later date as Section 409A of the Tax Code first applied to such Employee
Benefit Plan), been maintained and operated in good faith compliance with
Section 409A of the Tax Code and Notice 2005-1 and (ii) January 1, 2009 (or such
later date as Section 409A of the Tax Code first applied to such Employee
Benefit Plan), been in documentary and operational compliance with Section 409A
of the Tax Code. No Plan is subject to Section 457A of the Tax Code.

(k) All Employee Benefit Plans that are intended to be qualified under section
401(a) of the Tax Code have received opinion, advisory or determination letters
from the IRS to the effect that such Employee Benefit Plans are qualified and
the plans and trusts related thereto are exempt from federal income taxes under
sections 401(a) and 501(a), respectively, of the Tax Code, no such determination
letters have been revoked and revocation has not been threatened, and no such
Employee Benefit Plan has been amended or operated since the date of its most
recent determination letter or application therefor in any respect, and no act
or omission has occurred, that would reasonably be expected to adversely affect
its qualification or materially increase its cost to Seller.

(l) Seller has complied in all material respects with the continuation coverage
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended and any applicable state laws mandating welfare benefit continuation
coverage for employees (“COBRA”). Section 3.19(l) of the Seller Disclosure
Letter sets forth a complete list of any person who is receiving continuation
coverage under COBRA as of the date hereof, and Seller will supplement such list
to be complete and accurate as of the Effective Time.

3.20 Compliance with Law.

(a) Seller has materially complied, and is now in material compliance, with all
applicable laws, enactments, statutes, codes, treaties, rules, regulations,
ordinances, writs, decrees, certificates, licenses, permits, authorizations,
agreements, direction, requirements, judgments and orders of all Governmental
Authorities now existing or hereafter enacted, adopted, promulgated, entered, or
issued (“Applicable Laws”) and applicable at such times to the Seller or the
Real Property, including the Interstate Land Sales Full Disclosure Act of 1968,
RESPA, Environmental Laws, Chapter 720 of the Florida Statutes and the related
provisions of Florida Administrative Rules.

(b) Seller holds all material Permits that are necessary for Seller to conduct
the Business as presently conducted without any material violation of Applicable
Laws, and all such Permits held by Seller are in full force and effect. Since
January 1, 2008, Seller has not received any notice or other communication from
any Governmental Authority that alleges (i) any actual or possible violation of
Applicable Laws or any Permit or any failure to comply with any term or
requirement of any Permit, or (ii) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any Permit.

 

 

Asset Purchase Agreement

   Page 33

--------------------------------------------------------------------------------

(c) Neither Seller, nor any officer, director or employee of Seller, nor any
agent or representative of Seller, acting in such capacity, has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (ii) directly or indirectly violated or
taken any act in furtherance of violating any provision of any Applicable Laws
relating to anti-bribery or anti-corruption (collectively, the “Anti-Corruption
Laws”); or (iii) made any other payment or provided anything of value to anyone
in violation of Applicable Laws. In addition, without limiting the foregoing,
Seller: (A) has maintained its books and records in a manner that, in reasonable
detail, accurately and fairly reflects the transactions and disposition of its
assets; (B) has not established or maintained any material fund or asset that
has not been recorded in its books and records; and (C) has maintained a system
of internal accounting controls and procedures sufficient to provide reasonable
assurance of compliance with the Anti-Corruption Laws and other Applicable Laws.

3.21 Employee and Labor Matters.

(a) Section 3.21(a) of the Seller Disclosure Letter lists for each employee of
Seller, such employee’s (i) name, (ii) job title, (iii) location of employment,
(iv) annual base compensation or hourly rate of pay, (v) bonus opportunity,
(vi) status as exempt or non-exempt, (vii) status as full-time, part-time,
and/or temporary, (viii) total compensation paid for prior calendar year,
(ix) accrued and unused paid time off, and (x) a description of any other
accrued and unpaid compensation.

(b) Seller has complied in all material respects, and is now in material
compliance, with all Applicable Laws applicable to Seller relating to
employment, such as laws relating to discrimination, hours of work, the payment
of wages or overtime wages, occupational health and safety, workers’
compensation, collective bargaining, equal pay or treatment, parental or other
leave and pay, immigration control, information and data privacy and security,
and the withholding and payment of social security and other Taxes. Except as
set forth in Section 3.21(b) of the Seller Disclosure Letter, to Seller’s
Knowledge, there are no complaints, demands, lawsuits, or other proceedings
pending against Seller brought by or on behalf of any current or former
applicant for employment, employee, independent contractor, or any class of the
foregoing, relating to any such law or regulation, or alleging breach of any
express or implied contract of employment, of any law or regulation governing
employment or termination thereof, or of any other discriminatory, wrongful, or
tortuous conduct in connection with the employment relationship.

(c) Except as set forth on Section 3.21(c) of the Seller Disclosure Letter,
there are no pending or, to the Knowledge of Seller, threatened investigations,
audits, complaints, or proceedings against Seller by or before any Governmental
Authority respecting or involving any current or former applicant for
employment, any employee, independent contractor, or any class of the foregoing.

(d) Each employee has completed and Seller has retained an Immigration and
Naturalization Service Form I-9 in accordance with Applicable Laws. No current
employee is an alien who is authorized to work in the United States in
non-immigrant

 

 

Asset Purchase Agreement

   Page 34

--------------------------------------------------------------------------------

status. For each employee whose social security number (or purported social
security number) or similar information has appeared on any notification
identifying an issue, potential issue, or discrepancy with regard to the
employee’s authorization to work, such employee or Seller has resolved in
accordance with Applicable Law each discrepancy or non-compliance with
Applicable Law with respect to such social security number (or, if applicable,
such purported social security number) or other discrepancy regarding work
authorization.

(e) Seller has paid in full to all current and former Seller employees all
wages, salaries, bonuses, vacation and other paid time off, and commissions due
and payable to such Seller employees and has fully reserved in its books of
account all amounts for wages, salaries, vacation and other paid time off,
bonuses, and commissions due but not yet payable to such Seller employees.

(f) Any individual who has performed or is performing services for Seller who
has been classified as an independent contractor, as an employee of some other
entity whose services are leased to Seller, or as any other non-employee
category, has been or is correctly so classified and has not been or is not in
fact a common law employee of Seller.

(g) No Seller employee is covered by any collective bargaining agreement, and no
collective bargaining agreement is being negotiated by Seller. Seller is not the
subject of any proceeding asserting that Seller has committed an unfair labor
practice or is seeking to compel it to bargain with any labor union or labor
organization. There are no pending or, to Seller’s Knowledge, threatened labor
strikes, disputes, walkouts, work stoppages, slow-downs or lockouts involving
Seller, and there have not been any such actions during the past five years. To
Seller’s Knowledge, no union organizing campaign or activity is in progress with
respect to any employees of Seller, and no question concerning representation
exists respecting such employees.

(h) To Seller’s Knowledge, no current employee has given notice to a Seller
representative of his or her intent to terminate employment with Seller.

(i) The employment relationship between Seller and each current employee is
“employment at will.”

(j) There are no workers’ compensation claims pending against Seller, nor is
Seller, to Seller’s Knowledge, aware of any facts that would give rise to such
claim.

(k) No current employee is receiving short or long-term disability benefits or
is on a leave of absence.

(l) Seller has not engaged in any employee layoff or plant closing activities
within the last three years that triggered the application of or violated (or
would, together with the transactions contemplated by this Agreement, trigger
the application of or violate) the Worker Adjustment and Retraining Notification
Act of 1988 or any similar state or local mass layoff statute, rule or
regulation.

 

 

Asset Purchase Agreement

   Page 35

--------------------------------------------------------------------------------

(m) Seller is not a government contractor or subcontractor with any affirmative
action obligations under state or federal law.

3.22 Related-Party Transactions. Except as set forth in Section 3.22 of the
Seller Disclosure Letter, no Seller Member nor any director or officer of Seller
or any of its Affiliates (regardless of the capacity of such Person, including
as an individual or trustee) (a) has been involved in any business arrangement
or relationship (including as a party to a contract) with Seller at any time
since January 1, 2010 (other than as a director, an employee or an independent
contractor providing services to Seller); (b) owns, licenses or leases any
material asset used in the business of Seller; or (c) owns, directly or
indirectly, any interest in any Person that competes with Seller. None of such
arrangements are necessary for the continued conduct of the business of Seller
after the Closing in substantially the same manner as conducted prior to the
Closing and the termination of such arrangements.

3.23 Business Collateral. Section 3.23 of the Seller Disclosure Letter lists
each letter of credit, escrowed funds, guarantee, surety bond or other
collateral given or required to be given by or on behalf of Seller (the
“Business Collateral”). Each item of Business Collateral was entered into in the
Ordinary Course of Business and relates to the Purchased Assets. None of the
Business Collateral has been drawn against.

3.24 Hanover Bulk Purchase. Each Take Down Contract Property is either fully
developed (i.e. subject to an approved platted), in the process of development
(i.e. in the process of plat approval) or is a “paper lot” (i.e. subject only to
a preliminary plat or plan) in each case as set forth on Section 3.24 of the
Seller Disclosure Letter, and, upon exercise of the Take Down Contracts by
Buyer, will be conveyed to Buyer with good and marketable title, free of all
Liens, other than Permitted Liens. Each Take Down Contract Property is suitable
for residential development.

3.25 Home Warranty Obligations.

(a) Each Housing Unit or other product manufactured, sold, leased or delivered
by Seller is and was at all times when such actions occurred in conformance with
all applicable contractual obligations, including all applicable warranties,
whether express, implied or imposed by contract or statute (the “Home Warranty
Obligations”). The Seller Balance Sheet includes adequate reserves for Seller’s
Home Warranty Obligations. Section 3.25(a) of the Seller Disclosure Letter sets
forth a summary of Seller’s practice for computing the warranty reserve, which
is consistent with industry norms.

(b) Section 3.25(b) of the Seller Disclosure Letter contains copies of Seller’s
standard terms and conditions of sale (including applicable guarantee, warranty
and indemnity provisions), and no Housing Unit or other product manufactured,
sold, leased or delivered by Seller is subject to any guarantee, warranty or
other indemnity beyond such applicable standard terms and conditions of sale and
lease. Seller has provided a true and correct list of each customer to whom
Seller has outstanding Home Warranty Obligations.

 

 

Asset Purchase Agreement

   Page 36

--------------------------------------------------------------------------------

(c) Section 3.25(c) of the Seller Disclosure Letter sets forth a true, correct
and complete summary of Seller’s historical warranty experience.

3.26 Covenants, Conditions and Restrictions. All Housing Units sold by or
subject to a Retail Sales Contract with Seller conform with the requirements of
any applicable covenants, conditions, restrictions and declarations (the “CCRs”)
and the building plans for such Housing Units received all requisite approvals
pursuant to the CCRs; and to the extent in Seller’s possession or control, true,
correct and complete copies of any and all approvals and applications and plans
and specifications submitted in connection therewith have been delivered by
Seller to Buyer. Seller has not received any notices of, nor to Seller’s
Knowledge, is there any pending, anticipated, contemplated or threatened
violation of any CCRs.

3.27 Retail Sales Contracts. Section 3.27 of the Seller Disclosure Letter lists
as of the date hereof all of the retail sales agreements Seller has entered into
concerning the sale and delivery of Housing Units within the Real Property which
have not yet closed (the “Retail Sales Contracts”), the earnest money deposits
made pursuant thereto, the brokerage commissions due in connection therewith,
the sales price thereunder (including all upgrades, incentives, credits etc.)
and the anticipated closing date thereunder. Each of the Retail Sales Contracts
has been validly assigned to Retail Sales Subsidiary, complies with Applicable
Laws and is valid, binding and in full force and effect and is free of default.
True and complete copies of the Retail Sales Contracts have been delivered to
Buyer in electronic form. All earnest money deposits received by Seller for
Housing Units are held by Seller and have been received and held in accordance
with Applicable Laws and the terms of each applicable Retail Sales Contract. No
reservation or other deposits have been accepted. Seller’s rights in and to the
escrow account holding the foregoing deposits and the Retail Sales Contracts are
being hereby assigned to Buyer. No consent of any third party was or is required
in connection with the assignment of the Retail Sales Contracts to Retail Sales
Subsidiary or the acquisition by Buyer of Retail Sales Subsidiary.

3.28 Homeowners’ Associations. Section 3.28 of the Seller Disclosure Letter sets
forth all Associations controlled by Seller or Hanover and the officers of each
such Association. To Seller’s Knowledge, all Associations are in accordance with
Applicable Laws, and have been duly organized and are in good standing under
Applicable Laws, and, except as set forth in Section 3.28 of the Seller
Disclosure Letter, have been operated and managed in accordance with Applicable
Laws and all organizational documents applicable thereto, including the articles
of incorporation, bylaws, CCRs applicable to each Association, and declaration
applicable to each such Association. To the extent in Seller’s possession, the
minute books of all such Associations shall be made available to Buyer and shall
be delivered to Buyer on the date hereof. If requested, Seller’s officer
positions on any such Association shall be transferred to Buyer on the date
hereof and if requested Seller or its designees shall resign from such office.

3.29 Coastal Construction Control Line. No portion of the Real Property is
affected by the Coastal Construction Control Line as defined in section 161.053
of the Florida Statutes.

3.30 Disclosure. No representation or warranty by Seller in this Agreement and
no statement contained in the Seller Disclosure Letter or any certificate or
other document furnished or to be furnished to Buyer or otherwise made by Seller
or any Seller Member in connection with this Agreement contains any untrue
statement of a material fact, or omits to state a material fact

 

 

Asset Purchase Agreement

   Page 37

--------------------------------------------------------------------------------

necessary to make the statements contained therein, in light of the
circumstances in which they are made, not misleading.

3.31 No Brokers; Fees. Except for Builder Advisor Group / Tony Avila, whom shall
be compensated by Seller pursuant to a separate written agreement, none of
Seller, Seller Members or any Affiliate of Seller or any Seller Member is
obligated for the payment of any fees or expenses of any investment banker,
broker, finder or similar party in connection with the origin, negotiation or
execution of this Agreement or in connection with the transactions contemplated
by this Agreement, and neither Parent nor Buyer will incur any liability, either
directly or indirectly, to any such investment banker, broker, finder or similar
party as a result of this Agreement, the transactions contemplated by this
Agreement or any act or omission of Seller, any Seller Member or any of their
respective employees, officers, directors, stockholders, agents or affiliates.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

Parent and Buyer, jointly and severally, represent and warrant to Seller that
the statements contained in this Article IV are true and correct.

4.1 Organization, Standing and Power. Each of Parent and Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority to own, lease, and operate its properties and assets and to carry on
its business as now being conducted, and is duly qualified to do business and,
where applicable as a legal concept, is in good standing as a foreign
corporation in each jurisdiction in which the character of the properties it
owns, operates or leases or the nature of its activities makes such
qualification necessary, except for such failures to be so organized, qualified
or in good standing, individually or in the aggregate, that would not have a
Parent Material Adverse Effect.

4.2 Authority; No Conflict; Required Filings and Consents.

(a) Each of Parent and Buyer has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement by Parent and
Buyer have been duly authorized by all necessary corporate action on the part of
each of Parent and Buyer. This Agreement has been duly executed and delivered by
each of Parent and Buyer and constitutes the valid and binding obligation of
each of Parent and Buyer, enforceable against each of them in accordance with
its terms, subject to the any applicable bankruptcy, reorganization, insolvency,
moratorium, or other similar Applicable Laws affecting creditors’ rights
generally and principles governing the availability of equitable remedies.

(b) The execution and delivery of this Agreement by each of Parent and Buyer do
not, and the consummation by Parent and Buyer of the transactions contemplated
by this Agreement will not, (i) conflict with, or result in any violation or
breach of, any

 

 

Asset Purchase Agreement

   Page 38

--------------------------------------------------------------------------------

provision of the article or certificate of incorporation or bylaws of Parent or
Buyer, (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of any material benefit) under, require a consent or waiver under,
constitute a change in control under, require the payment of a penalty under or
result in the imposition of any Lien on Parent’s or Buyer’s assets under, any of
the terms, conditions or provisions of any lease, license, contract or other
agreement, instrument or obligation to which Parent or Buyer is a party or by
which any of them or any of their properties or assets may be bound, or
(iii) subject to compliance with the requirements specified in Section 4.2(c),
conflict with or violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Buyer or any of its or their respective properties or
assets, except in the case of clauses (ii) and (iii) of this Section 4.2(b) for
any such conflicts, violations, breaches, defaults, terminations, cancellations,
accelerations, losses, penalties or Liens, and for any consents or waivers not
obtained, that, individually or in the aggregate, would not have a Parent
Material Adverse Effect.

(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Authority or
any stock market or stock exchange on which shares of Parent’s common stock are
listed for trading is required by or with respect to Parent or Buyer in
connection with the execution and delivery of this Agreement by Parent or Buyer
or the consummation by Parent or Buyer of the transactions contemplated by this
Agreement, except for customary public company disclosures to the Securities and
Exchange Commission and Nasdaq.

(d) No vote of the holders of any class or series of Parent’s capital stock or
other securities is necessary for the consummation by Parent of the transactions
contemplated by this Agreement.

4.3 Litigation. As of the date of this Agreement, there is no lawsuit or other
legal proceeding pending or, to the knowledge of Parent or Buyer, threatened,
against Parent or Buyer challenging the transactions contemplated by this
Agreement.

4.4 Financing. Parent and Buyer have access to sufficient funds to perform all
of their respective obligations under this Agreement and to consummate the
transactions contemplated by this Agreement.

4.5 No Brokers; Fees. Except for Michael P. Kahn & Associates, whom shall be
compensated by Parent and/or Buyer pursuant to a separate written agreement,
none of Parent, Buyer or any Affiliate of Parent or Buyer is obligated for the
payment of any fees or expenses of any investment banker, broker, finder or
similar party in connection with the origin, negotiation or execution of this
Agreement or in connection with the transactions contemplated by this Agreement,
and neither Seller nor Seller Members will incur any liability, either directly
or indirectly, to any such investment banker, broker, finder or similar party as
a result of this Agreement, the transactions contemplated by this Agreement or
any act or omission of Parent, Buyer or any of their respective employees,
officers, directors, stockholders, agents or affiliates.

 

 

Asset Purchase Agreement

   Page 39

--------------------------------------------------------------------------------

ARTICLE V

CONFIDENTIALITY

5.1 Confidentiality.

(a) The parties acknowledge that Parent and Seller have previously executed a
confidentiality agreement, dated as of September 2013 (the “Confidentiality
Agreement”), which Confidentiality Agreement is hereby terminated.

(b) From and after the date hereof, Seller and each Seller Member shall maintain
in confidence, and each shall cause its agents, representatives and Affiliates
to maintain in confidence, and none of them shall use to the detriment or
competitive disadvantage of Parent, Buyer or their Affiliates, any information
obtained in confidence from Parent, Buyer or their Affiliates in connection with
this Agreement or any of the transactions contemplated hereby and the
confidential, proprietary or other non-public information of Seller. The
foregoing covenants shall not apply (i) with respect to information that is
already known to a party or to others not bound by a duty of confidentiality or
such information that becomes publicly available through no fault of such party;
(ii) to the extent necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the transactions
contemplated by this Agreement; and (iii) to the extent required under
Applicable Law, including reporting the transactions contemplated by this
Agreement on Tax Returns and disclosure requirements under the federal
securities laws and the rules and regulations issued thereunder. If the
transactions contemplated by this Agreement are not consummated, each party
shall return or destroy as much of confidential information received from the
other as the other party may reasonably request.

ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 Public Disclosure. Seller acknowledges that Parent intends to issue a press
release and make public filings that include this Agreement and a summary of its
terms. Parent will consult with Seller before issuing its initial press release.
Neither Seller nor the Seller Members shall make any press release or other
public statement regarding this Agreement without the prior consent of Parent.

6.2 Restrictive Covenants.

(a) To further ensure that Buyer receives the expected benefits of acquiring the
Business, Seller and Seller Members agree that (subject to the other terms of
this Section 6.2), throughout the period that begins at the Closing and ends on
the second anniversary of the date hereof (the “Restricted Period”), neither
Seller or Seller Members will, directly or indirectly, except in the course of a
Seller Member’s employment with Parent or one of Parent’s Affiliates:

(i) engage in the Business in the markets in which Parent, Buyer, Seller or
their Affiliates operate as of the date hereof (the “Restricted Area”);

 

 

Asset Purchase Agreement

   Page 40

--------------------------------------------------------------------------------

(ii) own, operate, solicit, be a partner, stockholder, co-venturer or otherwise
invest in, lend money to, consult with, manage or render services to, act as
agent for, license any Intellectual Property to, or acquire or hold any interest
in, any Person that engages in the Business in the Restricted Area; or

(iii) employ, solicit for employment or otherwise attempt to employ any employee
or independent contractor of Parent, Buyer or their Affiliates (including any
current employee or independent contractor of Seller who is hired by any of
them) or otherwise interfere with or disrupt any such employment relationship
(contractual or other) of Parent, Buyer or their Affiliates;

provided, however, the foregoing limitations shall not restrict: (A) owning or
acquiring 5% or less of the outstanding voting securities of a public company,
(B) personal investments in real estate, so long as such investments do not
involve single family residential homes for resale, (C) performing services for
any charitable, religious or community organizations, (D) subject to written
approval from Parent’s President and Chief Executive Officer (CEO) (these
positions being held by one person), serving on the board of directors of any
entity that is not a competitor of the Company, (E) with respect to clauses
(i) and (ii) only, a Seller Member continuing to serve as an officer, director,
manager, or beneficial owner of Hanover Land Company, LLC, Hanover Capital
Partners, LLC, SAM of Heathrow, LLC or their Affiliates other than Seller to the
extent, but only to the extent, such activities of such Seller Member and the
activities of such entities are consistent in nature, scope and magnitude with
their activities prior to the date of this Agreement.

(b) Seller specifically acknowledges and agrees that (i) this Section 6.2 and
similar provisions set forth in the Employment Agreements, the Hanover Agreement
and any other Seller Ancillary Document are reasonable and necessary to ensure
that Parent and Buyer receive the expected benefits of acquiring the Business;
(ii) Parent and Buyer have refused to enter into this Agreement in the absence
of such provisions; and (iii) breach of such provisions will harm Parent and
Buyer to such an extent that monetary damages alone would be an inadequate
remedy and Parent and Buyer would not have an adequate remedy at law. Therefore,
in the event of a breach by Seller of this Section 6.2, (A) Parent and Buyer (in
addition to all other remedies Parent and Buyer may have) will be entitled to
seek an injunction and other equitable relief restraining Seller from committing
or continuing such breach and to enforce specifically this Agreement and its
terms and (B) for Seller the duration of the Restricted Period will be extended
beyond its then-scheduled termination date for a period equal to the duration of
such breach.

6.3 Employee Matters.

(a) Seller shall afford Parent, Buyer or their Affiliates (including Avatar
Properties, Inc.) a reasonable opportunity to interview Seller’s employees for
employment by Parent, Buyer or their Affiliates. Parent, Buyer or their
Affiliates will offer employment to all such persons (subject to satisfactory
completion of background checks, immigration status verification and other
customary employment prerequisites),

 

 

Asset Purchase Agreement

   Page 41

--------------------------------------------------------------------------------

on terms and conditions established by Parent, Buyer or their Affiliates, to be
effective on such date as selected by Parent, Buyer or their Affiliates in their
discretion. Seller will furnish to Parent, Buyer or their Affiliates complete
and accurate personnel files of all persons presently employed by Seller in the
Business. Seller will use its commercially reasonable efforts to assist Parent,
Buyer or their Affiliates in ensuring that all employees accept such offers on
the terms and conditions offered by Parent, Buyer or their Affiliates. Such
efforts by Seller shall include immediately informing Parent if Seller learns
that any such employee is contemplating declining Parent, Buyer or their
Affiliates’ employment offer and encouraging any such employee to accept Parent,
Buyer or their Affiliates’ employment offer, as applicable. Parent, Buyer or
their Affiliates may not refrain from offering employment to any person for any
reason.

(b) Concurrently with the execution of this Agreement, Seller shall terminate
the employment of all persons who are employed by Seller in the conduct of the
Business who have received an offer of employment by Parent, Buyer or one of
their Affiliates.

(c) Seller shall be responsible for all liabilities and obligations relating to
or arising out of the employment, engagement, remuneration, or cessation of
employment with Seller of any employee of the Business hired by Parent, Buyer or
their Affiliates (and the dependents of such individuals) with respect to all
periods prior to and including each such employee’s last day of employment with
Seller, except for accrued paid time off and vacation for those employees who
accept employment with Parent, Buyer or their Affiliates that is included as a
liability in the calculation of Equity Value. Seller shall pay each employee of
the Business hired by Parent, Buyer or their Affiliates (including any such
employee hired by Parent, Buyer or their Affiliates after the Closing) all
accrued wages, salary, commission (except for the brokerage commissions not yet
due or payable with respect to Retail Sales Contracts closing after the Closing,
set forth on Section 3.27 of the Seller Disclosure Letter), bonus, and other
employee compensation and benefits (excluding accrued vacation for those
employees who accept employment with Parent, Buyer or their Affiliates that is
included as liabilities in the calculation of Equity Value) related to
employment with Seller for all periods through the date of termination of each
such employee’s employment with Seller in a timely fashion and not later than
the date such payment is required by law or the provisions of any benefit plan
or contract under which such compensation is or becomes duly payable. In
addition, for each such employee Seller shall pay or provide for all other
employee benefits maintained by Seller for all periods prior to the termination
of each such employee’s employment with Seller, all in accordance with
Applicable Law. However, Parent, Buyer or their Affiliates agrees to make
available the required COBRA continuation coverage to the applicable “M&A
qualified beneficiaries” (as defined in Treas. Reg. § 1.4980B-9) through their
group health plans after the date hereof to the extent required by Applicable
Law.

(d) Parent, Buyer or their Affiliates shall cause employee benefits to be made
available to each employee of the Business who accepts employment by Parent,
Buyer or their Affiliates and eligible to participate in accordance with the
terms of Parent, Buyer or their Affiliates’ employee benefit plans, as
applicable. Service with Seller prior to the date hereof will generally be
recognized as if it had been service with Parent, Buyer or their Affiliates, as
applicable, for purposes of determining eligibility for Parent, Buyer or

 

 

Asset Purchase Agreement

   Page 42

--------------------------------------------------------------------------------

their Affiliates’ insured medical, dental, life insurance, and other insured
welfare benefit plans, and for purposes of determining eligibility and the
amount of vacation under Parent, Buyer or their Affiliates’ vacation policies
(in each case subject to Applicable Laws and the terms of such plans and
policies), but will not be recognized for any other purposes under these plans
or for any purposes under any of Parent, Buyer or their Affiliates’ other
benefit plans, programs, policies, or arrangements, except that all employees
who accept employment with the Parent, Buyer or their Affiliates will receive
credit for all sick and vacation accruals as of the employee’s last day of
employment with Seller to the extent such accruals are reflected as liabilities
and included in the calculation of Equity Value.

(e) Seller shall be responsible for payment of all wages, salary, commission,
bonus, and other employee compensation and benefits for all periods, before, on,
and after the date hereof, with respect to employees of Seller who are not hired
by Parent, Buyer or their Affiliates. To the extent required by Applicable Law,
Parent, Buyer or their Affiliates will make available the required COBRA
continuation coverage to the applicable “M&A qualified beneficiaries” (as
defined in Treas. Reg. § 1.4980B-9) through their group health plans after the
date hereof.

(f) Seller shall fully reserve on the Estimated Closing Statement all amounts
for vacation and other paid time off, and commissions due but not yet payable to
such Seller employees.

6.4 Certain Home Warranty Obligations.

(a) Until the second anniversary of the date hereof, Buyer will provide warranty
administration service, subject to Section 6.4(b), with respect to Seller’s Home
Warranty Obligations to customers who closed on purchases of Housing Units from
Seller on or prior to the date hereof.

(b) The costs of satisfying any Home Warranty Obligations in excess of $150,000,
in the aggregate, after applying all proceeds available pursuant to (i) any
applicable insurance policy purchased by Seller and assigned to Buyer, (ii) any
warranties provided by third party contracts, suppliers, and subcontractors, and
(iii) the warranty reserve existing on the balance sheet of Seller as of the
date hereof, shall be satisfied by an offset against any earned but unpaid
Earn-Out Payment, and then by Seller. In no event will Parent, Buyer or any of
their Affiliates have any responsibility or liability for the Home Warranty
Obligations in excess of $150,000.

(c) Buyer will receive no compensation for the provision of warranty
administration service pursuant to this Section 6.4, but will be entitled to
reimbursement of any out-of-pocket, third-party costs and expenses incurred by
it in connection with such services (e.g., costs of litigating insurance
coverage). In addition, Parent, Buyer or their Affiliates shall be entitled to
their usual and customary compensation for the provision for any repair or
service work in satisfaction of the Home Warranty Obligations.

 

 

Asset Purchase Agreement

   Page 43

--------------------------------------------------------------------------------

(d) Seller and Seller Members will cooperate with Buyer in connection with the
efficient delivery of warranty administration services, including making
available all Records with respect to the Home Warranty Obligations and any
potential defects.

(e) Buyer shall perform the warranty administration services in a manner and at
a level of service generally consistent with the provision of such services by
Seller in connection with the conduct of the Business immediately prior to the
date hereof. If, consistent with the foregoing sentence, Buyer determines to
provide services in excess of what it believes is legally required with respect
to the Home Warranty Obligations and at such time no Seller Member remains
involved in the oversight or provision of such warranty administration services,
Buyer will provide notice from time to time of the costs of such excess services
to be deducted from an Earn-Out Payment or borne by Seller pursuant to
Section 6.4(b). Buyer makes no representations and warranties of any kind,
implied or expressed, with respect to the warranty administration services,
including no warranties of merchantability or fitness for a particular purpose,
which are specifically disclaimed.

(f) The services to be provided by Buyer pursuant to this Section 6.4 are those
of an independent contractor and nothing contained herein shall be construed as
creating a partnership, joint venture, agency, trust or other association of any
kind, each party being individually responsible only for its obligations as set
forth in this Agreement. Nothing herein shall be deemed to constitute an
employment relationship between Seller and the employees of Buyer engaged in
providing the warranty administration services.

(g) Between the date hereof and the Closing, Seller shall continue to increase
its Home Warranty Obligations reserve in the Ordinary Course of Business for new
sales and shall reduce such reserve only by actual warranty payments made.

6.5 Hanover Bulk Purchase; Certain Excluded Properties. Seller and Seller
Members shall take all actions necessary to effect the Hanover Bulk Purchase and
the other transactions contemplated by the Hanover Agreement in accordance with
the terms thereof, including terminating each land purchase contract between
Seller and Hanover relating to the property subject to the Hanover Bulk
Purchase. In addition, prior to Closing, Seller shall have taken any necessary
further action to confirm the prior assignment of the land purchase contracts
relating to Overlook and Eagle Pointe, as well as the claims, causes of action
and other rights relating to such contracts, to Hanover so that Hanover may
continue to seek enforcement of such contracts after the Closing in accordance
with the Hanover Agreement.

6.6 Substitution of Collateral. For and at the Closing, or promptly thereafter,
Buyer will use its commercially reasonable efforts to secure the unconditional
release and, as appropriate, return to Seller any Business Collateral, in each
case to the extent pertaining to any of the Acquired Assets or Assumed
Liabilities, but not meaning any such collateral that is an Acquired Asset).

6.7 Preparation of Financial Information. Seller and Seller Members agree to
assist Parent, Buyer and their Affiliates upon request with any financial
statements regarding the Business, audits of the Business, any private debt or
equity financings and any public securities

 

 

Asset Purchase Agreement

   Page 44

--------------------------------------------------------------------------------

filings or compliance, including providing access to books and records,
auditor’s work papers and other documents relating to the Business pre-Closing,
providing access to personnel, providing consents or waivers of conflicts to
allow auditors to work with Parent, Buyer or their Affiliates and providing
similar cooperation. Buyer agrees to reimburse Seller and its Affiliates for
their out-of-pocket costs and expenses incurred in connection with their
obligations under this Section 6.7.

6.8 Name Change. Within fifteen Business Days after the Closing, Seller will
(a) amend its articles of organization, and take all other actions necessary, to
change its name and all names under which it does business to a name that does
not include the words “Royal Oak” and that does not otherwise imply any
affiliation with Parent, Buyer or any of their respective Affiliates, and
(b) give to Buyer a true, correct and complete copy of the filings with the
applicable Governmental Authorities showing that such name changes occurred.
Neither Seller nor any Seller Member (except in a Seller Member’s capacity as an
employee of an Affiliate of Parent) will use a name after the date hereof that
includes the word “Royal Oak” or that otherwise implies any affiliation with
Parent, Buyer or any of their respective Affiliates, including on letterhead or
other correspondence, employee business cards, accounts or signage.

6.9 Consent of Seller Members. By execution of this Agreement, each Seller
Member hereby consents and agrees to the entry by Seller and Seller Members into
this Agreement and the Seller Ancillary Documents and the consummation of the
transactions contemplated hereby and thereby, which are hereby “Approved by the
Class A Members” as defined in the Amended and Restated Operating Agreement of
Seller. Each Seller Member further waives any other come-along and tag-along
rights, all rights of co-sale and redemption, all rights of first refusal,
purchase rights and options to purchase, all consent or notice rights and other
similar rights arising under the Amended and Restated Operating Agreement of
Seller or otherwise in connection with Agreement and the Seller Ancillary
Documents and consummation of the transactions contemplated hereby and thereby.

ARTICLE VII

TAX MATTERS

7.1 Property Taxes; Transfer Taxes.

(a) In the case of real property Taxes, personal property Taxes, and special
assessments relating to the Purchased Assets, Seller shall pay, on or prior to
the date hereof, all such taxes and installments of special assessments payable
with respect to any year prior to the year of Closing. Taxes for the year of
Closing shall be pro-rated. Real estate taxes and personal property taxes for
the year of Closing shall be prorated on the following basis: (i) If a tax bill
for the year of Closing is available, then proration shall be based upon the
current bill; (ii) If the assessment for the year is available, but not the
actual tax bill, then proration shall be based upon the assessment; (iii) If
neither the assessment for the year nor the tax bill is available, then
proration shall be based upon the prior year’s tax bill. If Tax statements for
any Purchased Assets are sent directly to Seller by a Tax authority or other
Governmental Authority after the date hereof, Seller shall cause such statements
to be forwarded promptly to Buyer. Certified municipal non ad valorem liens and
pending municipal liens for which work has been substantially

 

 

Asset Purchase Agreement

   Page 45

--------------------------------------------------------------------------------

completed as of the Closing shall be paid by the Seller and any other pending
liens shall be assumed by the Buyer, provided that if any such non ad valorem
assessment liens relate to special taxing districts for municipal services that
are payable in installments, then the Seller shall only be responsible for the
installment currently payable which shall be prorated in the same manner as
taxes. At the Closing, the foregoing items shall be prorated and adjusted as
indicated. If subsequent to the Closing Taxes for the year of Closing are
determined to be higher or lower than as prorated, a reproration and adjustment
will be made at the request of Buyer or Seller upon presentation of actual tax
bills, and any payment required as a result of the reproration shall be made
within 10 Business Days following demand therefor. This provision shall survive
the Closing.

(b) Each of Buyer and Seller shall pay one-half of all transfer, documentary,
conveyancing, or similar Taxes or expenses and all recording fees that may be
imposed as a result of the sale and transfer of the Real Property under this
Agreement (collectively, “Real Estate Transfer Taxes”). Buyer and Seller shall
jointly agree on the valuation of the Real Property to the extent that
valuations are needed for purposes of determining the amount of Real Estate
Transfer Taxes. If a party disagrees with respect to a proposed valuation, the
parties shall negotiate in good faith to resolve the issue. If they cannot
resolve the issue within 30 days, it shall be resolved by an accounting or
appraisal firm chosen by and mutually acceptable to both parties. If payment of
a Real Estate Transfer Tax is due prior to any such resolution, payment shall be
made based on Buyer’s valuation and, upon resolution, Buyer shall make such
corrective filings with the appropriate Taxing Authority and shall pay any
additional, and shall be entitled to any refund of, any Real Estate Transfer Tax
resulting from such corrective filings. Seller shall be responsible for any Real
Estate Transfer Taxes relating to intercompany transfers of land between Hanover
and Seller, which shall be accrued prior to Closing and reflected as a liability
in the calculation of Equity Value.

(c) Seller shall pay all sales, use, value-added, business, goods and services,
transfer, documentary, conveyancing or similar Taxes or expenses and all
recording fees that may be imposed as a result of the sale and transfer of the
Business or the Assets to Buyer under this Agreement, other than the Real Estate
Transfer Taxes. Seller will prepare, subject to Parent’s reasonable approval
(which approval will not be unreasonably withheld or delayed), and timely file
all Tax Returns required to be filed in respect of such Taxes, provided that
Parent may elect to prepare and file any such Tax Returns that are the primary
responsibility of Buyer under Applicable Laws. Parent’s preparation of any such
Tax Returns will be subject to Seller’s reasonable approval, which approval will
not be unreasonably withheld or delayed. Seller and Parent will reasonably
cooperate with each other to share information reasonably necessary for the
preparation of those Tax Returns and any Tax clearance certificates that either
Seller or Parent may request.

7.2 Income and Franchise Taxes. Nothing in this Agreement makes a party liable
for the income or franchise Taxes of the other party.

7.3 Allocation of Purchase Price. As promptly as practicable, but in no event
later than 30 days following the date hereof, Parent will prepare and deliver to
Seller a statement allocating the Purchase Price and the Assumed Liabilities
among the Purchased Assets (the

 

 

Asset Purchase Agreement

   Page 46

--------------------------------------------------------------------------------

“Allocation Statement”). The Allocation Statement will be consistent with the
provisions of Section 1060 of the Tax Code and the Treasury Regulations
thereunder and, subject to the foregoing, will be substantially in the form
attached hereto as Schedule 7.3 (the “Allocation Principles”). The Allocation
Principles are intended by the parties, acting in good faith, to comply with the
provisions of Section 1060 of the Tax Code and the Treasury Regulations
thereunder, based on the preliminary amounts of the Purchase Price, Assumed
Liabilities and the Purchased Assets estimated as of the date hereof, and
subject to fact that the Allocation Principles reflect ranges of value as of the
date hereof, rather than specific amounts. Within 30 days after Seller’s receipt
of the Allocation Statement, Seller shall indicate its concurrence therewith, or
propose to Parent any changes to the Allocation Statement. Seller’s failure to
notify Parent of any objection to the Allocation Statement within 30 days after
receipt thereof shall constitute Seller’s concurrence therewith. Seller and
Parent shall negotiate in good faith to resolve any disputes regarding the
Allocation Statement. If Seller and Parent are unable to resolve any disputes
regarding the Allocation Statement within 30 days of Parent’s receipt of such
changes, then the dispute shall be submitted to the Neutral Auditor for
resolution as soon as practicable, but in any event within 30 days. The Neutral
Auditor shall act as an expert and not as an arbitrator to determine, based
solely on the written submissions of the parties and not by independent
investigation, only the specific items under dispute by the parties. The Neutral
Auditor shall deliver to Seller and Parent, as promptly as practicable, but in
any case no later than 30 days, a determination of the allocation. Parent, on
the one hand, and Seller, on the other hand, shall share equally all fees and
expenses of any the Neutral Auditor hired pursuant to this Section 7.3.

Except to the extent required by Applicable Law or a Governmental Authority,
including pursuant to a “determination” within the meaning of Section 1313(a) of
the Tax Code, Parent and Seller agree to timely report the transaction
contemplated herein for federal income tax purposes on all information returns
and supplements thereto required to be filed with the Internal Revenue Service
by the parties under Section 1060 of the Tax Code and the Treasury Regulations
thereunder in a manner consistent with the Allocation Statement, as so
finalized. In furtherance of the foregoing, and without limitation, the parties
agree to jointly prepare an IRS Form 8594 consistent with the above allocation
procedures and the Allocation Statement, as so finalized, and further agree to
file such IRS Form with their respective tax returns for the tax year which
includes the date hereof. No party shall file any tax return or take a position
with any taxing authority that is inconsistent with the Allocation Statement, as
so finalized (except to the extent required by Applicable Law or a Governmental
Authority, including pursuant to a “determination” within the meaning of
Section 1313(a) of the Tax Code).

ARTICLE VIII

CLOSING DELIVERIES

8.1 Closing Deliveries of Seller and Seller Members. Concurrently with the
execution of this Agreement, Seller and Seller Members shall deliver to Parent
and Buyer each of the items contemplated to be so delivered by this Agreement,
including each of the following items:

(a) the consents to the consummation of the transactions contemplated by this
Agreement as listed on Schedule 8.1(a), duly executed by the relevant
counterparties.

 

 

Asset Purchase Agreement

   Page 47

--------------------------------------------------------------------------------

(b) the Employment Agreements, duly executed by each Key Employees;

(c) the Hanover Agreement, duly executed by each party thereto other than Parent
and Buyer;

(d) evidence of the termination or subordination of all UCC-1 filings, security
agreements, or other Liens on the Purchased Assets (other than Permitted Liens);

(e) a bill of sale and assignment and assumption agreement, substantially in the
form of Exhibit B (the “Bill of Sale and Assumption Agreement”), duly executed
by Seller;

(f) a domain name assignment, duly executed by Seller;

(g) a special warranty deed conveying to Buyer the Owned Real Property, subject
only to Permitted Liens;

(h) a bill of sale, with respect to all of Seller’s right, title and interest in
and to any improvements and equipment and similar property related to the Owned
Real Property;

(i) a general assignment of water, sewer, transportation, school and all other
impact fee credits or reservations of Seller or associated with the Owned Real
Property;

(j) if any and solely to the extent transferable, a general assignment of all
developer or declarant rights of Seller with respect to the Owned Real Property
(and assignments of any Permitted Liens as are requested by Buyer);

(k) a general assignment of all Permits and other rights, benefits and
intangible property owned by Seller related to all or any portion of the Owned
Real Property;

(l) an affidavit of Seller regarding matters affecting title to the Real
Property and/or as may be reasonably required by the title company which shall
include among other things, language sufficient to delete the so-called
“standard exceptions” from the title insurance policy described in
Section 8.1(m) (including the survey exception);

(m) if requested by Buyer, letters of resignation from any directors or officers
designated by Seller with respect to any Associations;

(n) an assignment from Seller to Hanover of the purchase agreements for the
Overlook and Eagle Point properties;

(o) a termination of the Purchase and Sale Agreement between Seller and Hanover
for the property to be acquired directly by Buyer (i.e. located within the
subdivisions known as Barrington Estates, Hammock Trails and Avalon Reserve)
pursuant to the Hanover Agreement;

 

 

Asset Purchase Agreement

   Page 48

--------------------------------------------------------------------------------

(p) a closing statement;

(q) a general assignment assigning to Buyer all of Seller’s right, title and
interest in the Take Down Contracts, together with, subject to Section 1.5(d)
hereof, the written consent of any entity having a right to consent to such
assignment. Buyer may elect by notice to Seller to require Seller to provide a
separate assignment for each or any of the Take Down Contracts;

(r) any appropriate required federal income Tax reporting form,

(s) all documents and instruments which may be required of Seller under
Applicable Law, including any revenue or tax certificates or statements,

(t) assignments of each Assumed Real Property Lease or Third Party Lease, in
form and substance reasonably satisfactory to Parent, duly executed by Seller
and, if required in order to complete the assignment, by the landlord or tenant
of each such Assumed Real Property Lease or Third Party Lease, together with a
customary estoppel certificate executed by each landlord, in a form an substance
reasonably satisfactory to Parent;

(u) an estoppel certificate from each Association, in form and substance
reasonably satisfactory to Buyer, executed by each Association;

(v) a written request for a subordination, non-disturbance and attornment
agreement, in form and substance reasonably satisfactory to Parent, to be
delivered by each mortgagee holding a Lien on the Assumed Real Property Lease
relating to Seller’s office;

(w) all documents, if any, necessary to transfer to Buyer each Permit related to
the Business, executed by Seller and any required Governmental Authority or
third party;

(x) a non-foreign affidavit, executed by Seller, in form and substance required
under the Treasury Regulations issued pursuant to section 1445 of the Tax Code
and otherwise reasonably satisfactory to Parent and Buyer, accurately stating
that Seller is not a “foreign person” within the meaning of Section 1445 of the
Tax Code;

(y) payoff letters with respect to all Indebtedness; and

(z) all other documents as Parent or the title company may reasonably request to
facilitate the consummation of the transactions contemplated by this Agreement,
including customary closing certificates and curative instruments or documents
necessary to satisfy the requirements and delete the standard exceptions set
forth in the title commitments and the delivery of estoppel letters related to
the Permitted Liens affecting title to the Owned Real Property.

8.2 Closing Deliveries of Parent and Buyer. Concurrently with the execution of
this Agreement, Parent and Buyer shall deliver to Seller each of the items
contemplated to be so delivered by this Agreement, including each of the
following items:

 

 

Asset Purchase Agreement

   Page 49

--------------------------------------------------------------------------------

(a) payment of the Closing Purchase Price from Parent or Buyer as specified in
Section 2.1(b)(ii);

(b) payment, on Seller’s behalf, the Closing Indebtedness as specified in
Section 2.1(b)(i); and

(c) to the extent applicable, counterparts to each of the documents listed in
Section 8.1.

ARTICLE IX

FEES AND EXPENSES; AMENDMENT

9.1 Fees and Expenses. Except as set forth in Section 7.1, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees and expenses. For the
avoidance of doubt, (a) any transaction commission due to Builder Advisor Group
/ Tony Avila will be borne be paid by Seller or Seller Members and not Parent or
Buyer and (b) any fees and expenses payable to Michael P. Kahn as Parent’s
consultant will be paid by Parent or Buyer and not Seller or Seller Members.

9.2 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of Parent, Buyer, Seller and Seller Members.

9.3 Waiver. Any agreement on the part of a party hereto to the waiver of any
provision of this Agreement shall be valid only if set forth in a written
instrument signed on behalf of such party. Such waiver shall not be deemed to
apply to any time for performance, inaccuracy in any representation or warranty,
or noncompliance with any agreement or condition, as the case may be, other than
that which is specified in the extension or waiver. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.

 

ARTICLE X

INDEMNIFICATION

10.1 Indemnification by Seller and Seller Members. Subject to the terms and
conditions of this Article X, from and after the date hereof, Seller and Seller
Members, jointly and severally (but subject to Section 10.6), shall indemnify
Parent and Buyer in respect of, and hold Parent and Buyer harmless against, any
and all liabilities, damages, losses, claims, demands, fines, fees, interest,
penalties, assessments, costs, and expenses, including reasonable attorneys’
fees and expenses (collectively, “Damages”) incurred or suffered by Parent,
Buyer, or any Affiliate of Parent or Buyer (including Retail Sales Subsidiary)
resulting from, related to, or arising out of:

(a) any breach of a representation or warranty of Seller contained in this
Agreement or in any certificate delivered pursuant hereto;

(b) any failure by Seller to perform any covenant or agreement contained in this
Agreement;

 

 

Asset Purchase Agreement

   Page 50

--------------------------------------------------------------------------------

(c) any Excluded Liability; or

(d) any liability or obligation of Seller that is not an Assumed Liability
(including as a result of any failure of the parties in connection with the
transactions contemplated hereby to comply fully with any applicable
bulk-transfer laws).

10.2 Indemnification by Parent. Subject to the terms and conditions of this
Article X, from and after the date hereof, Parent shall indemnify Seller and
Seller Members in respect of, and hold Seller and Seller Members harmless
against, any and all Damages incurred or suffered by Seller, Seller Member or
any Affiliate of Seller or Seller Members resulting from, related to, or arising
out of:

(a) any breach of a representation or warranty of Parent or Buyer contained in
this Agreement or in any certificate delivered pursuant hereto;

(b) any failure by Parent or Buyer to perform any covenant or agreement
contained in this Agreement; or

(c) any Assumed Liability.

10.3 Claims for Indemnification.

(a) Procedure for Claims. A Person entitled to indemnification under this
Article X (an “Indemnified Party”) wishing to assert a claim for indemnification
under this Article X (including a claim to which the Threshold would apply) (a
“Claim”) shall deliver to the Person from whom indemnification is sought (the
“Indemnifying Party”) a written notice (a “Claim Notice”) that (i) states in
reasonable detail the facts constituting the basis for the Claim and the Damages
claimed, (ii) states the amount (the “Claim Amount”) of any Damages claimed by
the Indemnified Party, to the extent then known, (iii) states that the
Indemnified Party is entitled to indemnification under this Article X and set
forth a reasonable explanation of the basis therefor, and (iv) includes a demand
for payment in the amount of such Damages. Within 30 days after delivery of a
Claim Notice, the Indemnifying Party shall deliver to the Indemnified Party a
written response in which the Indemnifying Party shall (A) agree that the
Indemnified Party is entitled to receive all of the Claim Amount, (B) agree that
the Indemnified Party is entitled to receive part, but not all, of the Claim
Amount (the “Agreed Amount”), or (C) contest that the Indemnified Party is
entitled to receive any of the Claim Amount. If the Indemnifying Party in such
response contests the payment of all or part of the Claim Amount, the
Indemnifying Party and the Indemnified Party shall use good faith efforts to
resolve such dispute. If such dispute is not resolved within 60 days following
the delivery by the Indemnifying Party of such response (the “Resolution
Period”), the Indemnifying Party and the Indemnified Party shall each have the
right to submit such dispute to a court of competent jurisdiction in accordance
with the provisions of Section 11.10.

(b) Third-Party Claims. All claims for indemnification made under this Agreement
resulting from, related to, or arising out of a third-party claim shall be
subject to the following additional procedures and provisions. An Indemnified
Party shall give

 

 

Asset Purchase Agreement

   Page 51

--------------------------------------------------------------------------------

prompt written notification to the Indemnifying Party of the commencement of any
action, suit, or proceeding relating to a third-party claim for which
indemnification may be sought or, if earlier, upon the assertion of any such
claim or demand by a third party. Such notification shall (i) state in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such third-party claim, (ii) state the sections of
this Agreement with respect to which indemnification is being claimed for any
such Damages and that the Indemnified Party is entitled to Indemnification under
this Article X, and (iii) state the amount of the Damage being claimed. Within
30 days after delivery of such notification, the Indemnifying Party may, upon
written notice thereof to the Indemnified Party, assume control of the defense
of such action, suit, proceeding, or claim with counsel reasonably satisfactory
to the Indemnified Party; provided that the Indemnifying Party may not assume
control of the defense of any action, suit, proceeding, or claim that seeks
non-monetary relief or criminal penalties without the written consent of the
Indemnified Party. If the Indemnifying Party does not assume control of such
defense, the Indemnified Party shall control such defense. The party not
controlling such defense may participate therein at its own expense; provided
that if the Indemnifying Party assumes control of such defense and the
Indemnified Party reasonably concludes, based on advice from counsel, that the
Indemnifying Party and the Indemnified Party have conflicting interests with
respect to such action, suit, proceeding, or claim, the reasonable fees and
expenses of counsel to the Indemnified Party solely in connection therewith
shall be considered Damages for purposes of this Agreement; provided, however,
that in no event shall the Indemnifying Party be responsible for the fees and
expenses of more than one additional counsel for all Indemnified Parties. The
party controlling such defense shall (A) keep the other party advised of the
status of such action, suit, proceeding, or claim and the defense thereof,
(B) provide the other party with reasonable access to all relevant information
and documentation relating to the claim and the prosecution or defense thereof,
and (C) consider recommendations made by the other party with respect thereto.
The Indemnified Party shall not agree to any settlement of such action, suit,
proceeding or claim without the prior written consent of the Indemnifying Party.
The Indemnifying Party shall not agree to any settlement of such action, suit,
proceeding or claim that does not include a complete release of the Indemnified
Party from all liability with respect thereto or that imposes any liability or
obligation on the Indemnified Party without the prior written consent of the
Indemnified Party.

(c) Treatment of Indemnity Payments. All indemnity payments made under this
Agreement shall be treated by the parties as an adjustment to the Purchase Price
for Tax purposes, unless otherwise required by Applicable Law.

 

 

Asset Purchase Agreement

   Page 52

--------------------------------------------------------------------------------

10.4 Survival.

(a) The representations and warranties of Seller, Seller Members, Parent, and
Buyer set forth in this Agreement (other than Fundamental Representations) shall
survive the Closing and the consummation of the transactions contemplated hereby
and continue until the third anniversary of the date hereof (the “Survival
Date”), at which time they shall expire.

(b) Notwithstanding anything to the contrary in this Agreement, all Fundamental
Representations shall survive until the date that is 60 days following the
expiration of the applicable statute of limitations with respect to the
underlying subject matter thereof (e.g., claims under Section 3.9 relating to
federal income Taxes will survive until the expiration of the statute of
limitations applicable under the Tax Code, claims under Section 3.19 relating to
ERISA will survive until the expiration of the statute of limitations applicable
to claims under ERISA, etc.); provided, however, that the three-year statute of
limitations applicable under Delaware law for claims relating to contracts not
under seal (and not the longer twenty-year statute of limitations applicable to
contracts under seal) shall apply (and the parties agree that the limitations
period shall be reduced to such three-year period) in the absence of an
applicable statute of limitations with respect to the underlying subject matter
thereof for any such claim. For purposes of clarification, the parties
acknowledge and agree that this Agreement is being entered into as a contract
under seal solely for the purpose, with regard to the Fundamental
Representations only, of not running afoul of the Delaware rule of law that a
statute of limitations period may not be extended by contract, and it is not the
parties’ intent to extend the statute of limitations period for any claim to
twenty years, but only for so long as would otherwise be the case under any
specified statute of limitations period applicable to the underlying subject
matter thereof (e.g., three years for Taxes under Tax Code Section 6501(a), six
years for Taxes under Tax Code Section 6501(e), etc.), and if there is no
specified statute of limitations period applicable to the underlying subject
matter, then the three-year statute of limitations applicable under Delaware law
for claims relating to contracts not under seal shall be deemed to apply to such
claims. Furthermore, in the event there is a specified statute of limitations
period applicable to the underlying subject matter of any claim relating to a
Fundamental Representation, Buyer and Parent hereby agree that they shall not
agree to extend any such applicable statute of limitations period without the
prior written consent of Seller.

(c) Except to the extent expressly waived by a party, the covenants and other
agreements of each party set forth in this Agreement will remain in full force
and effect in accordance with their terms.

(d) If an indemnification claim under Section 10.1 or 10.2, as the case may be,
is properly asserted under Section 10.3 prior to the Survival Date or other
applicable survival date, then the related representation and warranty, covenant
or agreement shall survive until, but only for the purpose of, the resolution of
such claim.

10.5 Limitations and Other Terms.

 

 

Asset Purchase Agreement

   Page 53

--------------------------------------------------------------------------------

(a) Notwithstanding anything to the contrary herein, (i) the aggregate liability
of Seller and Seller Members for Damages under Section 10.1(a) shall not exceed
$2.0 million (the “Cap”), and (ii) Seller and Seller Members shall not be liable
under Section 10.1(a) unless and until the aggregate Damages for all Claims
under such section equal or exceed an amount equal to $400,000 in the aggregate
(the “Threshold”), at which time Seller and Seller Members shall be liable for
all such Damages (including those equal to or less than the Threshold);
provided, however, that the limitations Threshold shall not apply to a claim
arising out of a breach of a Fundamental Representation or any representation
that was fraudulently made.

(b) Notwithstanding anything to the contrary herein, (i) the aggregate liability
of Parent for Damages under Section 10.2(a) shall not exceed the Cap, and
(ii) Parent shall not be liable under Section 10.2(a) unless and until the
aggregate Damages for all claims under such section equal or exceed Threshold,
at which time Parent shall be liable for all such Damages (including those equal
to or less than the Threshold; provided, however, that the limitations set forth
in this Section 10.5(b) shall not apply to a claim arising out of a breach of a
Fundamental Representation or any representation that was fraudulently made.

(c) The representations and warranties of each of the Seller, Seller Members and
Buyer in this Agreement (other than Section 3.6(a)) and in any certificate
delivered pursuant hereto shall be deemed not to include any Materiality
Qualifiers solely for the purposes of calculating the amount of Damages to which
a party is entitled pursuant to Section 10.1(a) or 10.2(b) (but such Materiality
Qualifier shall be taken into account in determining whether there has been a
breach of any representation or warranty in this Agreement).

(d) No right or obligation under this Article X will be waived or otherwise
affected by any knowledge (of any form or type) of Parent or Buyer or by any
investigation, due diligence, or verification by or on behalf of Parent or
Buyer. All representations, warranties, covenants, and agreements herein will be
deemed material and relied upon by each party, and none will be waived by any
failure to pursue any action or by consummation of the transactions contemplated
herein.

(e) Payments by an Indemnifying Party pursuant to this Article X in respect of
any Damages shall be reduced by an amount equal to any Tax benefit actually
realized as a result of such Damages by the Indemnified Party, determined in the
reasonable discretion of such Indemnified Party.

(f) In no event shall any Indemnifying Party be liable to any Indemnified Party
for any punitive damages except arising out of a third-party claim.

(g) Each Indemnified Party will use its commercially reasonable efforts to
mitigate any Damages for which such Indemnified Party is or may become entitled
to be indemnified hereunder.

 

 

Asset Purchase Agreement

   Page 54

--------------------------------------------------------------------------------

(h) Any liability for indemnification hereunder shall be determined without
duplication of recovery by reason of the state of facts giving rise to such
liability constituting a breach of more than one representation, warranty,
covenant or agreement.

(i) Except with respect to claims for equitable relief and except with respect
to claims of fraud, the rights of the Indemnified Parties under this Article X
shall be the sole and exclusive remedies of the Indemnified Parties and their
respective Affiliates from and after the Effective Time.

10.6 Allocation of Liability Among Seller Members.

(a) Allocation of Liability Among Seller Members. Seller shall be liable for the
full amount of any indemnification obligations under this Article X. The
individual liability of any Seller Member for any Claim under this Article X
shall be limited to such Seller Member’s Pro Rata Portion thereof, unless such
Claim arises from (i) a breach of a representation or warranty relating
specifically to such Seller Member or (ii) a failure by such Seller Member to
perform any covenant or agreement relating specifically to him (an “Individual
Claim”).

(b) Contribution. If any Seller Member pays (or becomes obligated to pay) any
indemnification under this Article X (other than an Individual Claim) and such
payment is not paid (or is not allocated to be paid) by all Seller Members in
proportion to each Seller Member’s Pro Rata Portion thereof, then each Seller
that paid (or was allocated) less than such Seller Member’s Pro Rata Portion
promptly will contribute immediately available funds to each Seller Member that
paid (or was allocated) more than its Pro Rata Portion such that, after making
such contribution payments, each Seller Member will have paid its Pro Rata
Portion of such indemnification. This Section 10.6(b) contains covenants and
agreements by and among Seller Members only. Buyer will have no right or
liability under or in connection with this Section 10.6(b).

10.7 Set-Off; First Recourse to Earn-Out Payment.

(a) Parent and Buyer will have the right to set off and retain any unpaid amount
owed by Seller or any Seller Member to Buyer hereunder, including pursuant to
Section 2.2, Section 6.4 and Article X, against any amount payable by Parent or
Buyer to Seller or such Seller Member, including the Earn-Out Payment (but not
against any amount payable under the Employment Agreements). The exercise of or
failure to exercise such right of set off will not constitute an election of
remedies or limit in any manner the enforcement of any other remedy that may be
available to Parent or Buyer.

(b) If and to the extent any Earn-Out Payment has been earned and is payable by
Buyer pursuant to Section 2.4 at the time of the final determination of any
monetary claim for indemnification under Article X, such claim shall be
satisfied first by a dollar-for-dollar offset against the Earn-Out Payment
before recovery of such claim may be sought against any other assets of Seller
or the Seller Members. As a consequence of the foregoing, upon delivery of a
Claim Notice by Parent or Buyer to Seller, Buyer’s obligations to pay any
Earn-Out Payment shall be suspended to the extent (but only to the

 

 

Asset Purchase Agreement

   Page 55

--------------------------------------------------------------------------------

extent) of the amount specified in such Claim Notice until the matter set forth
in the Claim Notice is fully resolved. No interest will accrue on the Earn-Out
Payment during this period.

ARTICLE XI

MISCELLANEOUS

11.1 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed duly delivered (i) four Business Days after being sent by
registered or certified mail, return receipt requested, postage prepaid,
(ii) one Business Day after being sent for next Business Day delivery, fees
prepaid, via a reputable nationwide overnight courier service, (iii) on the date
of confirmation of receipt (or, the first Business Day following such receipt if
the date of such receipt is not a Business Day) of transmission by electronic
mail or facsimile, or (iv) the date such notice is actually received by the
party for whom it is intended (or, the first Business Day following such receipt
if the date of such receipt is not a Business Day) in the case of any other
means of transmission (including personal delivery, messenger service or
ordinary mail), in each case to the intended recipient as set forth below:

 

  (a)

if to Parent or Buyer:

AV Homes, Inc.

8601 N. Scottsdale Road, Suite 225

Scottsdale, Arizona 85253

Attn: Roger A. Cregg

Facsimile: (480) 948-0701

Email: R.Cregg@AVHomesInc.com

with a copy to (which shall not constitute notice):

AV Homes, Inc.

8601 N. Scottsdale Road, Suite 225

Scottsdale, Arizona 85253

Attn: Dave M. Gomez

Facsimile: (480) 948-0701

Email: D.Gomez@AVHomesInc.com

with a further copy to (which shall not constitute notice):

Faegre Baker Daniels LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, Minnesota 55402

Attn: Michael A. Stanchfield

Facsimile: 612-766-1600

Email: Mike.Stanchfield@FaegreBD.com

 

 

Asset Purchase Agreement

   Page 56

--------------------------------------------------------------------------------

with a further copy to (which shall not constitute notice):

Akerman, LLP

1 SE 3rd Avenue

25th Floor

Miami, Florida 33131

Attn: Brenda J. Goerks, Esq.

Facsimile: (305) 374-5095

Email: brenda.goerks@akerman.com

 

  (b)

if to Seller or any Seller Member:

Royal Oak Homes, LLC

2420 South Lakemont Avenue, Suite 450

Orlando, Florida 32814

Attn: William S. Orosz, Jr.

Stephen W. Orosz

J. Matthew Orosz

Facsimile: 407-206-9333

Email: worosz@hcpland.com

sorosz@royaloakhomesfl.com

morosz@royaloakhomesfl.com

with a copy to:

Lowndes, Drosdick, Doster, Kantor & Reed, P.A.

215 North Eola Drive

Orlando, Florida 32801

Attn: Andrew J. Orosz, Esq.

Facsimile: 407-843-4444

Email: andrew.orosz@lowndes-law.com

with a copy to:

Gray Robinson, P.A.

301 E. Pine Street

Orlando, Florida 32801

Attn: Jack McMullen, Esq.

Facsimile: 407-244-5690

Email: jack.mcmullen@gray-robinson.com

Any party to this Agreement may change the address to which notices and other
communications hereunder are to be delivered by giving the other parties to this
Agreement notice in the manner herein set forth.

11.2 Entire Agreement. This Agreement (including the Schedules and Exhibits
hereto and the documents and instruments referred to herein that are to be
delivered at the Closing)

 

 

Asset Purchase Agreement

   Page 57

--------------------------------------------------------------------------------

constitutes the entire agreement among the parties to this Agreement and
supersedes any prior understandings, agreements or representations by or among
the parties hereto, or any of them, written or oral, with respect to the subject
matter hereof; provided that the Confidentiality Agreement shall remain in
effect in accordance with its terms.

11.3 No Third-Party Beneficiaries. Except as provided in Article X, this
Agreement is not intended, and shall not be deemed, to confer any rights or
remedies upon any Person other than the parties hereto and their respective
successors and permitted assigns or to otherwise create any third-party
beneficiary hereto.

11.4 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned or delegated, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, and any such assignment without such
prior written consent shall be null and void; provided, however, Buyer may
assign all of its rights, interests and obligations to Parent or any direct or
indirect wholly owned subsidiary of Parent without any such consent. Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns.

11.5 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties hereto agree that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified. In the event such court does
not exercise the power granted to it in the prior sentence, the parties hereto
agree to replace such invalid or unenforceable term or provision with a valid
and enforceable term or provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid or unenforceable term.

11.6 Counterparts, Signature and Seal. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart. The exchange of copies of this Agreement and the
signature pages by facsimile transmission or other electronic means shall
constitute effective execution and delivery of this Agreement as to the parties
and may be used in lieu of the original Agreement for all purposes. Signatures
of the parties transmitted by facsimile or other electronic means shall be
deemed to be their original signatures for all purposes. This Agreement is a
contract under seal, with all the consequences thereof under Delaware law
(provided, however, that the parties hereto agree that, notwithstanding the
application of the longer limitations period applicable under Delaware law for
sealed contracts, the parties hereby agree to reduce the applicable limitations
period for all claims arising out of or relating to this Agreement as set forth

 

 

Asset Purchase Agreement

   Page 58

--------------------------------------------------------------------------------

in Section 10.4.), and the word “SEAL” next to each party’s signature has the
same effect as if such party’s seal were manually affixed hereto.

11.7 Interpretation. When reference is made in this Agreement to an Article or a
Section, such reference shall be to an Article or Section of this Agreement,
unless otherwise indicated. The table of contents, table of defined terms and
headings contained in this Agreement are for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement. The
language used in this Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party. Whenever the context may
require, any pronouns used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns and pronouns
shall include the plural, and vice versa. Any reference to any federal, state,
local or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Whenever the words “include,” “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without
limitation.” The word “or” shall not be exclusive. No summary of this Agreement
prepared by any party shall affect the meaning or interpretation of this
Agreement.

11.8 Governing Law. This Agreement and any controversy related to, arising
directly or indirectly out of, caused by, or resulting from this shall be
governed by and construed in accordance with the internal laws of the State of
Delaware (except with respect to the remedy of specific performance, as to which
the internal laws of the State of Florida shall govern) without giving effect to
any choice or conflict of law provision or rule (whether of the State of
Delaware, the State of Florida or any other jurisdiction) that would cause the
application of laws of any other jurisdictions.

11.9 Remedies. Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.

11.10 Submission to Jurisdiction. Each of the parties to this Agreement
(a) consents to submit itself to the personal jurisdiction of any state or
federal court sitting in the State of Florida in any action or proceeding
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that all claims in respect of such
action or proceeding may be heard and determined in any such court, (c) agrees
that it shall not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, and (d) agrees not to bring any
action or proceeding arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement in any other court. Each of the
parties hereto waives any defense of inconvenient forum to the maintenance of
any action

 

 

Asset Purchase Agreement

   Page 59

--------------------------------------------------------------------------------

or proceeding so brought and waives any bond, surety or other security that
might be required of any other party with respect thereto. Any party hereto may
make service on another party by sending or delivering a copy of the process to
the party to be served at the address and in the manner provided for the giving
of notices in Section 11.1. Nothing in this Section 11.10, however, shall affect
the right of any party to serve legal process in any other manner permitted by
Applicable Law.

11.11 Seller Disclosure Letter. Seller Disclosure Letter shall be arranged in
Sections corresponding to the numbered Sections contained in Article III, and
the disclosure in any Section shall qualify (a) the corresponding Section in
Article III, and (b) the other Sections in Article III, to the extent that it is
apparent from a reading of such disclosure that it also qualifies or applies to
such other Sections. The inclusion of any information in Seller Disclosure
Letter shall not be deemed to be an admission or acknowledgment, in and of
itself, that such information is required by the terms hereof to be disclosed,
is material, has resulted in or would result in a Seller Material Adverse
Effect, or is outside the Ordinary Course of Business.

11.12 Waiver of Jury Trial. Each of Parent, Buyer, Seller and Seller Members
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Parent, Buyer, Seller and Seller
Members in the negotiation, administration, performance and enforcement hereof.

11.13 Further Assurances. Each of the parties hereto agree that they shall sign
such additional and supplemental documents as may be necessary to implement the
transactions contemplated pursuant to this Agreement when requested to do so by
any party to this Agreement.

ARTICLE XII

DEFINITIONS

12.1 Certain Defined Terms. As used in this Agreement, the following terms have
the following meanings:

(a) “Affiliate” means with respect to any party, any Person who is an
“affiliate” of that party within the meaning of Rule 405 promulgated under the
Securities Act of 1933.

(b) “Association” means all property owners and condominium owners associations
applicable to the Owned Real Property.

(c) “Business Day” means any day other than (i) a Saturday or Sunday or (ii) a
day on which banking institutions located in Scottsdale, Arizona or Orlando,
Florida are permitted or required by law, executive order, or governmental
decree to remain closed.

(d) “Employee Benefit Plan” means any “employee pension benefit plan” (as
defined in Section 3(2) of ERISA), any “employee welfare benefit plan” (as
defined in Section 3(1) of ERISA), and any other written or oral plan, agreement
or arrangement involving direct or indirect compensation (but excluding the
payment of regular salary

 

 

Asset Purchase Agreement

   Page 60

--------------------------------------------------------------------------------

and wages), including insurance coverage, severance, retention incentives,
flexible spending accounts, medical, dental, vision, prescription drug,
transportation, disability, paid time off, vacation, holiday, sick leave,
educational assistance, adoption assistance, or fringe benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other equity based award, or other forms of incentive
compensation or post-retirement compensation and all unexpired severance
agreements, for the benefit of, or relating to, any current or former employee,
director or officer (or dependent) of Seller or its ERISA Affiliates.

(e) “Environmental Claim” means any written claim, judgment, penalty, fine,
demand, suit, action, proceeding, order, warning letter, investigation or notice
by any Person alleging any pending, anticipated, threatened, or potential
liability (including potential liability for investigatory costs, risk
assessment costs, cleanup costs, removal costs, remedial costs, operation and
maintenance costs, governmental response costs, natural resource damages, or
penalties) arising out of, based on, or resulting from (i) noncompliance or
alleged noncompliance with any Environmental Law or permit, license, certificate
or letter, (ii) injury or damage (or alleged injury or damage) arising from
exposure to Hazardous Substances, or (iii) the presence, Release or threatened
Release into the environment, of any Hazardous Substance at or from any
location, whether or not owned, leased, operated or otherwise used by Seller.

(f) “Environmental Law” means (i) the Resource Conservation and Recovery Act, as
amended, restated or supplanted, and any rules or regulations promulgated,
adopted or incorporated thereunder, (ii) the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, restated or supplanted,
and any rules or regulations promulgated, adopted or incorporated thereunder,
(iii) the Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Water
Act, the Clean Air Act, the Safe Drinking Water Act, the Endangered Species Act,
the Federal Insecticide, Fungicide and Rodenticide Act, as amended, and (iv) any
local, state or federal law, statute, ordinance, rule, code regulation, order,
decree, tort, common law, license, order or judgment pertaining to
(A) environmental regulation of the air, water, groundwater, land, natural
resources and/or pertaining to the production, storage, transport, use, control,
development, disposal, contamination, remediation, handling, treatment, release
or threatened release, or clean-up of Hazardous Substances, (B) the protection,
investigation or restoration of the environment, human health and safety, or
natural resources, or (C) noise or odor, flora, fauna, wetlands, or threatened
or endangered species or their habitat, protection.

(g) “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.

(h) “ERISA Affiliate” means any entity which is a member of (i) a controlled
group of corporations (as defined in Section 414(b) of the Tax Code), (ii) a
group of trades or businesses under common control (as defined in Section 414(c)
of the Tax Code), or (iii) an affiliated service group (as defined under
Section 414(m) of the Tax

 

 

Asset Purchase Agreement

   Page 61

--------------------------------------------------------------------------------

Code or the regulations under Section 414(o) of the Tax Code), any of which
includes Seller.

(i) “Fundamental Representations” means (i) with respect to Seller, those
representations and warranties set forth in Sections 3.3 (Subsidiaries), 3.4(a)
(Authority), 3.9 (Taxes), 3.10(a) (but only with respect to title to assets),
3.10(c) (but only with respect to title to Owned Real Property), 3.18
(Environmental Matters), 3.19 (Employee Benefit Plans), and 3.31 (No Brokers);
and (ii) with respect to Parent and Buyer, those representations and warranties
set forth in Sections 4.2(a) (Authority) and 4.5 (No Brokers; Fees).

(j) “Governmental Authority” means any United States or international, federal,
state, county, municipal, local government or political subdivision, any court,
arbitrator or arbitral tribunal, any governmental, quasi-governmental,
administrative or regulatory commission, entity, authority, commission, board,
bureau, agency or instrumentality and any self-regulatory body.

(k) “Hazardous Substance” means: (i) any substance that is regulated or which
falls within the definition of a “hazardous substance,” “hazardous waste,”
“hazardous material”, “toxic materials” or “toxic substances” pursuant to any
Environmental Law, or (ii) any flammable or explosive materials, any petroleum
product or by-product, oil, poisons, refuse, trash, garbage and wastes, crude
oil, natural gas or synthetic gas usable for fuel, fumes, gases, corrosive and
radioactive materials, pollutants or contaminates, hazardous wastes or
substances or toxic wastes or substances, asbestos-containing material,
polychlorinated biphenyls, radioactive materials or radon.

(l) “Housing Unit” means (i) a residential dwelling constructed, currently in
process of construction, or to be constructed on a lot, together with the
associated lot, or (ii) any condominium unit.

(m) “Indebtedness” means any obligation or other liability under or for any of
the following: (a) indebtedness for borrowed money (including if guaranteed or
for which a Person is otherwise liable or responsible, an obligation to assume
indebtedness), including any accrued but unpaid interest, unamortized debt
issuance costs, early repayment penalties, break fees; (b) obligation evidenced
by a note, bond, debenture or similar instrument (including a standby letter of
credit); (c) surety bond; (d) swap or hedging Contract; (e) capital lease;
(f) banker acceptance; (g) purchase money mortgage, indenture, deed of trust or
other purchase money lien or conditional sale or other title retention
agreement; (h) indebtedness secured by any mortgage, indenture or deed of trust
upon any asset; (i) interest, fee or other expense regarding any of the
foregoing, (j) outstanding checks, or (k) all intercompany payables owed by
Seller to Hanover.

(n) “IRS” means the Internal Revenue Service.

(o) “Key Employees” means (i) John Matthew Orosz, (ii) Steve Orosz, (iii) Colby
Franks, and (iv) Thomas Benjamin Snyder.

(p) “Knowledge of Seller” or “Seller’s Knowledge” means, with respect to

 

 

Asset Purchase Agreement

   Page 62

--------------------------------------------------------------------------------

any fact or matter in question, (i) the actual knowledge of any Seller Member or
Key Employee and (ii) the knowledge that each of the foregoing individuals would
reasonably be expected to have after reasonable investigation.

(q) “Materiality Qualifier” means a qualification to a representation or
warranty by use of “material,” “materially,” “in all material respects,” or
other variations of the word “material” or by a reference regarding the
occurrence or non occurrence or possible occurrence or non occurrence of a
Seller Material Adverse Effect or Parent Material Adverse Effect, as applicable.

(r) “Neutral Auditor” means KPMG, Deloitte or an alternative financial expert
from a nationally recognized independent public accounting firm jointly selected
by Parent and Seller; provided that the Neutral Auditor will not be an
accounting firm used by either Seller or Buyer (or any of either’s Affiliates)
within the preceding three years for audit or valuation purposes.

(s) “Ordinary Course of Business” means the ordinary course of conduct of the
business of Seller, which is consistent in nature, scope and magnitude with past
practices of Seller (including with respect to quantity and frequency) and is
taken in the ordinary course of the normal, day-to-day operations.

(t) “Parent Material Adverse Effect” means any material adverse effect on the
ability of Parent or Buyer to consummate the transactions contemplated by this
Agreement.

(u) “Permits” means all permits, licenses, variances, ordinances, entitlements,
allocations, filings, notices and approvals from, with or to any Governmental
Authority or any third party, including zoning approval, certificate of
occupancy, parking licenses, plan approval, signage licenses, drainage and
detention rights, development rights or other similar rights, including any
prepaid impact fees, impact fee credits, or similar development credits;
building licenses or permits, homeowners’ association approvals, and all
utilities commitments and capacities and other similar documents.

(v) “Permitted Lien” means as applicable, (i) any Lien for current Taxes not yet
due and payable or that are being contested in good faith by appropriate
proceedings (and for which Seller, not Buyer, will be responsible); (ii) any
Lien for deposits or pledges made in connection with, or to secure payment of,
workers’ compensation, unemployment insurance, or similar programs mandated by
Applicable Law; (iii) any Lien, whether statutory or common law, that is not yet
due and payable and was incurred in the Ordinary Course of Business, in favor of
carriers, warehousemen, mechanics, and materialmen, to secure claims for labor,
materials, or supplies, and other like liens (including notices of commencement
identified as such Liens and pertaining to the Owned Real Property); (iv) such
Liens, covenants, conditions, easements and exceptions to title as Parent or
Buyer may expressly agree to in writing, (v) such Liens, covenants, conditions,
easements and exceptions expressly set forth as exceptions on Schedule B-II of
the applicable written proforma title commitments delivered to Parent or Buyer
prior to or on the date hereof by the Title Company in form accepted by Buyer
for issuance of

 

 

Asset Purchase Agreement

   Page 63

--------------------------------------------------------------------------------

the applicable Title Policy, (vi) matters that would be disclosed by an accurate
survey of the Real Property, (vii) the Retail Sales Contracts, (viii) the
Assumed Real Property Leases, and (ix) local zoning ordinances and regulations
applicable to the Real Property.

(w) “Person” means any individual, partnership, corporation, limited liability
company, association, joint stock company, trustee or trust, joint venture,
unincorporated organization or any other business entity or association or any
Government Authority.

(x) “Pro Rata Portion” means, with respect to any Seller Member, his
proportionate interest in Seller as of the date hereof, as set forth on Schedule
A.

(y) “Records” means books, records, manuals or other materials or similar
information (including customer records, personnel or payroll records,
accounting or Tax records, purchase or sale records, price lists,
correspondence).

(z) “Release” means any release, spill, emission, leaking, pumping, pouring,
dumping, emitting, emptying, escaping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment,
including the uncontrolled presence or the movement of Hazardous Substances
through the ambient air, soil, subsurface water, groundwater, wetlands, lands or
subsurface strata, directly or indirectly into the environment.

(aa) “RESPA” means the Real Estate Settlement Procedures Act of 1974, 12 U.S.C.
section 2605 et seq.

(bb) “Retail Sales Subsidiary” means Royal Oak Homebuilding, LLC, a Florida
limited liability company and wholly-owned subsidiary of Seller.

(cc) “Seller Material Adverse Effect” means any material adverse change, event,
circumstance, occurrence, fact or development with respect to, or material
adverse effect on (i) the business, condition (financial or otherwise), assets,
properties, liabilities, operations, or results of operations of Seller or
(ii) the ability of Seller or any Seller Member to consummate the transactions
contemplated by this Agreement; provided, however, that notwithstanding the
foregoing, Seller Material Adverse Effect shall not include any change, event,
development, effect, occurrence, fact or circumstance resulting from, arising
out of, or related to (A) changes or conditions in, or generally affecting, any
industry in which Seller participates or from generally prevailing conditions in
global economies, provided that such conditions do not have a materially
disproportionate effect or impact on Seller, (B) the taking of any action
required to comply with the terms of this Agreement, or (C) the taking of any
action approved or consented to in writing by Parent or Buyer.

(dd) “Software” means all computer software and subsequent and earlier versions
thereof, including source code, object, executable or binary code, objects,
comments, screens, user interfaces, report formats, templates, menus, buttons
and icons and all files, data (whether embodied in firmware, software or
otherwise), materials, manuals, design notes and other items and documentation
related thereto or associated therewith.

 

 

Asset Purchase Agreement

   Page 64

--------------------------------------------------------------------------------

(ee) “Solvent” means, with respect to any Person, that, as of the applicable
date of determination, (i) the fair saleable value of the assets of such Person,
as of such date, exceeds the sum of (A) all obligations of such Person
(including contingent and other liabilities), as of such date, plus (B) the
amount that will be required to pay the probable obligations of such Person on
its existing debts (including contingent and other liabilities) as such debts
become absolute and matured, (ii) such Person will not have, as of such date, an
unreasonably small amount of capital for the operation of the businesses in
which it is engaged or proposed to be engaged following such date and (iii) such
Person does not intend to incur or believe that it will incur obligations beyond
its ability to pay as such obligations mature.

(ff) “Subsidiary” means any corporation, partnership, trust, limited liability
company or other non-corporate business enterprise in which such party (or
another Subsidiary of such party) holds stock or other ownership interests
representing (i) more that 50% of the voting power of all outstanding stock or
ownership interests of such entity or (ii) the right to receive more than 50% of
the net assets of such entity available for distribution to the holders of
outstanding stock or ownership interests upon a liquidation or dissolution of
such entity.

(gg) “Take Down Contract Property” means all real estate and other property that
is the subject of the Take Down Contracts, including all buildings, structures,
installations, fixtures, and other improvements situated thereon and all
easements, rights of way, development orders, and other rights, entitlements,
and appurtenances therein or thereunto pertaining.

(hh) “Tax” or “Taxes” means all federal, territorial, state, provincial, local
or foreign government taxes, levies, assessments, duties, imposts or other like
assessments (including estimated taxes), including income, profits, gross
receipts, transfer, excise, property, sales, use, value-added, ad valorem,
excise, capital, wage, employment, payroll, withholding, Social Security,
Medicare, severance, occupation, import, custom, duties, stamp, documentary,
mortgage, alternative, escheat, unclaimed property, add-on minimum,
environmental, franchise or other governmental taxes, imposed by any
Governmental Authority responsible for the imposition of any such tax, including
any interest, penalties or fines applicable or related thereto.

(ii) “Tax Code” means the Internal Revenue Code of 1986, as amended.

(jj) “Tax Return” means collectively: (i) all reports, declarations, filings,
questionnaires, estimates, returns, information statements and similar documents
relating to, or required to be filed in respect of any Taxes, including any
amendments thereof; and (ii) any statements, returns, reports, or similar
documents required to be filed pursuant to Part III of Subchapter A of Chapter
61 of the Tax Code or pursuant to any similar income, excise or other Tax
provision of federal, territorial, state, provincial, local or foreign Law,
including any amendments thereof.

12.2 Additional Defined Terms. The following terms shall have the meanings set
forth in the sections of this Agreement indicated below:

 

 

Asset Purchase Agreement

   Page 65

--------------------------------------------------------------------------------

 

 

Defined Term

  

Section

       

Defined Term

  

Section

“Achievement Percentage”

  

2.4(a)(i)

     

“Excluded Assets”

  

1.2

“Agreed Amount”

  

10.3(a)

     

“Excluded Liabilities”

  

1.4(a)

“Agreement”

  

Recitals

     

“Excluded Records”

  

1.2(a)

“Allocation Principles”

  

7.3

     

“Final Adjustment Amount”

  

2.2(d)

“Allocation Statement”

  

7.3

     

“GAAP”

  

3.5

“Anti-Corruption Laws”

  

3.20(c)

     

“Hanover”

  

Recitals

“Applicable Laws”

  

3.20(a)

     

“Hanover Agreement”

  

Recitals

“Assigned Contracts”

  

1.1(k)

     

“Hanover Bulk Purchase”

  

Recitals

“Assigned Permits”

  

1.1(l)

     

“Home Warranty Obligations”

  

3.25(a)

“Assumed Liabilities”

  

1.3

     

“Inbound Licenses”

  

3.12(b)

“Assumed Real Property Lease”

  

1.1(h)

     

“Indemnified Party”

  

10.3(a)

“Bill of Sale and Assumption Agreement”

  

8.1(e)

     

“Indemnifying Party”

  

10.3(a)

“Business”

  

Recitals

     

“Individual Claim”

  

10.6(a)

“Business Collateral”

  

3.23

     

“Intellectual Property”

  

3.12(a)

“Buyer”

  

Recitals

     

“IT Assets”

  

3.13(d)

“Cap”

  

10.5(a)

     

“Leased Real Property”

  

3.10(d)

“CCRs”

  

3.26

     

“Liens”

  

3.4(b)

“Claim Amount”

  

10.3(a)

     

“Notice of Disagreement”

  

2.4(c)

“Claim Notice”

  

10.3(a)

     

“Objection Notice”

  

2.2(c)

“Claim”

  

10.3(a)

     

“Owned Real Property”

  

1.1(a)

“Closing”

  

2.5

     

“Parent”

  

Recitals

“Closing Purchase Price”

  

2.1(a)(i)

     

“Performance Objective”

  

2.4(a)(v)

“Closing Certificate”

  

2.2(b)

     

“Property”

  

3.10(l)

“Closing Equity Value”

  

2.2(c)

     

“Purchase Price”

  

2.1(a)

“Closing Indebtedness”

  

2.3

     

“Purchased Assets”

  

1.1

“Closing Statement”

  

2.2(c)

     

“Purchased Intellectual Property”

  

1.1(j)

“COBRA”

  

3.19(l)

     

“Real Estate Transfer Taxes”

  

7.1(b)

“Confidentiality Agreement”

  

5.1(a)

     

“Real Property”

  

3.10(e)

“Damages”

  

10.1

     

“Real Property Lease”

  

3.10(d)

“Earn-Out Payment”

  

2.4(a)(ii)

     

“Resolution Period”

  

10.3(a)

“Earn-Out Payment Date”

  

2.4(b)

     

“Restricted Area”

  

6.2(a)(i)

“Earn-Out Period”

  

2.4(a)(iii)

     

“Restricted Period”

  

6.2(a)

“Earn-Out Schedule”

  

2.4(b)

     

“Retail Sales Contracts”

  

3.27

“EBIT”

  

2.4(a)(iv)

     

“Seller Ancillary Document”

  

3.4(a)

“Effective Time”

  

2.5

     

“Seller Balance Sheet”

  

3.5

“Employment Agreements”

  

Recitals

     

“Seller Disclosure Letter”

  

Art. III

“Environmental Reports”

  

3.18(e)

     

“Seller Financial Statements”

  

3.5

“Equity Value”

  

2.2(a)

     

“Seller Material Contracts”

  

3.14(a)

“Estimated Closing Statement”

  

2.2(b)

     

“Seller Members”

  

Recitals

“Estimated Equity Value”

  

2.2(b)

     

“Seller”

  

Recitals

        

“Survival Date”

  

10.4(a)

 

 

Asset Purchase Agreement

   Page 66

--------------------------------------------------------------------------------

Defined Term

  

Section

       

Defined Term

  

Section

“Take Down Contracts”

  

1.1(b)

     

“Threshold”

   10.5(a)

“Target Amount”

  

2.4(a)(vi)

     

“Trade Accounts Payable”

   1.3(b)

“Third Party Lease”

  

3.10(c)

                                

[Remainder of Page Intentionally Left Blank.]

 

 

Asset Purchase Agreement

   Page 67

--------------------------------------------------------------------------------

The parties have caused this Asset Purchase Agreement to be signed and sealed as
of the date first written above.

 

PARENT: AV HOMES, INC. (SEAL)

By:

 

/s/ Roger A. Cregg

 

Name: Roger A. Cregg

 

Title: President & Chief Executive Officer

BUYER: AVH ACQUISITION, LLC (SEAL)

By: Avatar Properties Inc., its sole member

By:

 

/s/ Roger A. Cregg

 

Name: Roger A. Cregg

 

Title: Chairman of the Board and Director

 

 

Asset Purchase Agreement

   Signature Page

--------------------------------------------------------------------------------

The parties have caused Asset Purchase Agreement to be signed and sealed as of
the date first written above.

 

SELLER: ROYAL OAK HOMES, LLC (SEAL)

By:

 

/s/ John Matthew Orosz

 

Name: John Matthew Orosz

 

Title: Co-President

By:

 

/s/ Stephen W. Orosz

 

Name: Stephen W. Orosz

 

Title: Co-President

 

 

Asset Purchase Agreement

   Signature Page

--------------------------------------------------------------------------------

The parties have caused Asset Purchase Agreement to be signed and sealed as of
the date first written above.

 

SELLING MEMBERS: SAM OF HEATHROW, LLC (SEAL) By:  

/s/ William S. Orosz, Jr.

Name: William S. Orosz, Jr. Its: Manager

/s/ William Colby Franks

William Colby Franks (SEAL)

/s/ Andrew J. Orosz

Andrew J. Orosz (SEAL)

/s/ John Matthew Orosz

John Matthew Orosz (SEAL)

/s/ Jody L. Orosz

Jody L. Orosz, as trustee of the Jody L. Orosz

Family Trust dated February 18, 2004 (SEAL)

/s/ Stephen W. Orosz

Stephen W. Orosz (SEAL)

/s/ William S. Orosz, Jr.

William S. Orosz, Jr., as trustee of the

William S. Orosz, Jr. Family Trust dated February 18, 2004 (SEAL)

 

 

Asset Purchase Agreement

   Signature Page