Exhibit 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
CHAMPION RETAIL, INC,
a Michigan corporation,
AND
BAYSHORE ADVANTAGE LLC
a Delaware limited liability company,
and the other parties hereto
September 8, 2006

 

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

 

TABLE OF CONTENTS

         
I. PURCHASE AND SALE OF THE SHARES
    1  
 
       
1.1 Purchase and Sale
    1  
1.2 Purchase Price
    1  
1.3 Payment of Purchase Price and Other Amounts
    2  
1.4 Calculation of Final Purchase Price
    3  
 
       
II. CLOSING
    4  
 
       
2.1 Closing Date
    4  
2.2 Deliveries at the Closing
    4  
 
       
III. REPRESENTATIONS AND WARRANTIES OF SELLER
    4  
 
       
3.1 Authority and Enforceability
    4  
3.2 No Conflict
    5  
3.3 Ownership of the Shares
    5  
3.4 Organization
    5  
3.5 Qualification; Location of Business and Assets
    5  
3.6 Subsidiaries and Investments
    5  
3.7 Third-Party Consents and Approvals
    5  
3.8 Capitalization
    5  
3.9 Financial Condition and Liabilities
    6  
3.10 No Undisclosed Liabilities
    6  
3.11 Absence of Certain Changes
    6  
3.12 Accounts Receivable
    7  
3.13 Inventories
    7  
3.14 Title
    8  
3.15 Condition of Assets
    8  
3.16 Owned Real Property
    9  
3.17 Leased Real Property
    9  
3.18 Leased Personal Property
    10  
3.19 Employment Matters
    11  
3.20 Employee Benefit Plans
    12  
3.21 Material Contracts
    14  
3.22 Customers and Suppliers
    15  
3.23 Tax Returns and Taxes
    15  
3.24 Permits
    16  
3.25 Intellectual Property Rights
    16  
3.26 No Pending Proceedings
    17  
3.27 Compliance with Laws
    17  
3.28 OSHA
    17  
3.29 Environmental Matters
    17  
3.30 Insurance Coverage
    18  
3.31 Products Liability and Warranty Claims
    19  
3.32 Brokers and Finders
    19  
3.33 Related Party Transactions
    20  

-i-

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

 

         
3.34 Disclosure
    20  
 
       
IV. REPRESENTATIONS AND WARRANTIES OF BUYER
    20  
 
       
4.1 Organization
    20  
4.2 Authority and Enforceability
    20  
4.3 Third-Party Consents
    20  
4.4 No Conflict or Violation
    20  
4.5 Investment Intent
    21  
4.6 Financing
    21  
4.7 Brokers and Finders
    21  
 
       
V. PRE-CLOSING COVENANTS
    21  
 
       
5.1 Access and Investigation
    21  
5.2 Conduct of Business
    22  
5.3 Consents and Approvals
    23  
5.4 Best Efforts
    23  
5.5 Update Schedules
    23  
5.6 Exclusivity
    23  
5.7 Confidentiality
    23  
5.8 Employment Arrangements
    24  
5.9 Financing
    24  
5.10 Permits
    24  
5.11 Form of Entity Conversion
    24  
 
       
VI. ADDITIONAL COVENANTS
    24  
 
       
6.1 Assistance in Proceedings
    24  
6.2 Retention of and Access to Books and records
    24  
6.3 Further Assurances
    25  
6.4 Press Releases
    25  
6.5 Transfer Taxes
    25  
6.6 Use of Seller’s Licenses
    25  
6.7 Company Guarantee
    25  
6.8 Removal of Champion Assets
    25  
 
       
VII. CONDITIONS TO CLOSING
    25  
 
       
7.1 Conditions to Obligations of Buyer
    25  
7.2 Conditions to Obligations of Seller
    27  
 
       
VIII. INDEMNIFICATION
    27  
 
       
8.1 Indemnification By Seller
    27  
8.2 Indemnification by Buyer
    28  
8.3 Defense of Third-Party Claims
    28  
8.4 Other Claims
    30  
8.5 Survival
    30  
8.6 Indemnification Limitations
    30  
8.7 Set-Off Rights
    31  
8.8 Exclusive Remedy
    32  

-ii-

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

 

         
IX. TERMINATION
    32  
 
       
9.1 Termination
    32  
9.2 Effect of Termination
    33  
 
       
X. OTHER PROVISIONS
    33  
 
       
10.1 Appendices, Exhibits and Schedules
    33  
10.2 Amendment
    33  
10.3 No Waiver
    33  
10.4 Entire Agreement; No Third Party Beneficiaries
    33  
10.5 Governing Law
    34  
10.6 Waiver of Jury Trial
    34  
10.7 Notices
    34  
10.8 Counterparts; Headings
    35  
10.9 Expenses
    35  
10.10 Construction
    35  
10.11 Successors and Assigns
    36  
10.12 Buyer Guarantee
    36  
10.13 Seller Guarantee
    36  

APPENDIX A – DEFINITIONS
DISCLOSURE SCHEDULES

     
Schedule 1.3(a)
  Estimated Purchase Price
Schedule 3.3
  Ownership of the Shares
Schedule 3.7
  Third-Party Consents
Schedule 3.9
  Exceptions to GAAP
Schedule 3.11
  Absence of Certain Changes
Schedule 3.14
  Liens
Schedule 3.15
  Condition of Assets
Schedule 3.16
  Owned Real Property
Schedule 3.17
  Leased Real Property
Schedule 3.18
  Leased Personal Property
Schedule 3.19
  Employment Matters
Schedule 3.20
  Employee Benefit Plans
Schedule 3.21(a)
  Material Contracts
Schedule 3.21(b)
  Material Contracts — Required Consents
Schedule 3.21(c)
  Other Material Contracts
Schedule 3.22
  Customers and Suppliers
Schedule 3.23
  Tax Returns and Taxes
Schedule 3.24
  Permits
Schedule 3.25
  Intellectual Property Rights
Schedule 3.26
  Litigation
Schedule 3.27
  Compliance with Laws

-iii-

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

 

     
Schedule 3.29
  Environmental Matters
Schedule 3.30
  Insurance Coverage
Schedule 3.31
  Product Liability and Warranty Claims
Schedule 3.33
  Related Party Transactions
Schedule 5.2
  Exceptions to Conduct of Business
Schedule A-1
  General Contracts

-iv-

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

 

STOCK PURCHASE AGREEMENT
     THIS STOCK PURCHASE AGREEMENT (the “Agreement”) is made as of September 8,
2006, by and among Bayshore Advantage LLC, a Delaware limited liability company
(“Buyer”), Champion Retail, Inc., a Michigan corporation (“Seller”), and solely
for purposes of the guarantees in Section 10.12 and Section 10.13, respectively,
Encore Partners, LLC, a Nevada limited liability company, and Champion
Enterprises, Inc., a Michigan corporation. Capitalized terms not otherwise
defined herein have the meanings set forth in Appendix A attached hereto.
RECITALS
     Seller is the sole owner of all of the issued and outstanding capital stock
of San Jose Advantage Homes, Inc., a California corporation (the “Company”).
     The Company is engaged in the retail sale and service of manufactured
housing, and providing and/or arranging financing and certain insurance in
connection with such sales at its facilities located in California (the
“Business”).
     Immediately prior to Closing, Seller, in accordance with Chapter 11.5 of
the California Corporations Code, shall convert the Company from a California
corporation into a California limited liability company. The term “Shares,” for
purposes of Articles I and II of this Agreement, shall mean the issued and
outstanding capital stock of the Company until the Company shall have converted
into a California limited liability company, at which time the term “Shares,”
for purposes of Articles I and II of this Agreement, shall mean the issued and
outstanding membership interests of the Company.
     Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
all of the Shares, upon the terms and subject to the conditions of this
Agreement.
AGREEMENTS
     The parties, intending to be legally bound, agree as follows:
I. PURCHASE AND SALE OF THE SHARES
     1.1 Purchase and Sale. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Seller shall sell and transfer to Buyer, and Buyer
shall purchase and accept from Seller, all of the Shares free and clear of all
Liens, other than restrictions on transfer under applicable securities Laws.
     1.2 Purchase Price. The consideration for the Shares will be an amount (the
“Purchase Price”) equal to:
     (a) $51,959,052;
     (b) plus or minus, as the case may be, the amount by which the Closing Net
Working Capital is greater than or less than, respectively, the Target Net
Working Capital (the “Net Working Capital Adjustment”). “Closing Net Working
Capital”

1

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

 

means the amount calculated by subtracting the Assumed Liabilities as of the
Closing Date from the Current Assets of the Company as of the Closing Date.
“Target Net Working Capital” means $40,238,012.
     1.3 Payment of Purchase Price and Other Amounts.
        (a) No later than the third business day immediately preceding the
Closing Date, Seller shall deliver to Buyer a closing statement as of the
Closing Date in a manner consistent with the example shown on the attached
Schedule 1.3(a) (which closing statement as of the Closing Date shall be
attached to this Agreement as the new Schedule 1.3(a)), setting forth in detail
Seller’s good faith estimate of the Net Working Capital Adjustment and the
Purchase Price based thereon calculated in accordance with GAAP (the “Estimated
Purchase Price”). If Buyer reasonably believes the Estimated Purchase Price
delivered by Seller is unreasonable, Buyer and Seller shall cooperate in good
faith to resolve such dispute. If any disputed matter cannot be resolved, the
Estimated Purchase Price will be calculated based upon Seller’s position
concerning such disputed matter without prejudice to the right of Buyer to raise
such disputed matter again in accordance with the determination of the Final
Purchase Price pursuant to Section 1.4.
        (b) At the Closing:
     (i) Buyer shall deliver, or cause to be delivered, to Seller a cash closing
payment (the “Closing Payment”) in an amount equal to the Estimated Purchase
Price (in accordance with Section 1.3(a)) less the principal amount of the
Subordinated Note. The Closing Payment shall be made to Seller by wire transfer
of immediately available funds to an account specified by Seller;
     (ii) Buyer shall deliver, or cause to be delivered, to Seller a promissory
note payable to Seller in the principal amount of $7,530,379 in the form of
Exhibit 1.3(b) hereto (the “Subordinated Note”). The Subordinated Note shall be
subordinate in all respects to the Company’s Floor Plan Receivables Credit Line
(the “Line of Credit”) but senior to all other Liabilities of the Company
(except as otherwise required by Law). Seller shall promptly execute and deliver
to Buyer any subordination agreement reasonably required by the lender under the
Line of Credit (“Subordination Agreement”); and
     (iii) Notwithstanding anything to the contrary herein, at the Closing,
Buyer, in its sole and absolute discretion, may elect to increase the Closing
Payment by $7,280,379, in which event Buyer shall not be required to execute the
Subordinated Note or any Security Agreement or Guaranty referenced herein and
Seller shall not be required to execute the Subordination Agreement, and all
such references shall be omitted from this Agreement.
        (c) Within five (5) business days after the calculation of the Final
Purchase Price becomes final and binding on the parties pursuant to Section 1.4,
Buyer or Seller, as the case may be, shall make the following payment:

2

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

 

     (i) If the Final Purchase Price is greater than the Estimated Purchase
Price, Buyer shall pay to Seller the amount of such difference by wire transfer
of immediately available funds to the accounts specified by Seller; or
     (ii) If the Final Purchase Price is less than the Estimated Purchase Price,
Seller shall pay to Buyer the amount of such difference by wire transfer of
immediately available funds to an account specified by Buyer.
     1.4 Calculation of Final Purchase Price.
             (a) On or before the 60th calendar day following the Closing Date,
Seller shall (i) prepare, or cause to be prepared, a balance sheet of the
Company as of the close of business on the Closing Date, and a calculation of
the Closing Net Working Capital and the Purchase Price based thereon
(collectively, the “Closing Financial Information”) and (ii) deliver the Closing
Financial Information to Buyer. The Closing Financial Information shall be
determined in accordance with GAAP.
             (b) During the 30-day period following delivery of the Closing
Financial Information to Buyer, Buyer shall be permitted to review the books,
records, accounting records and accounting work papers used in the preparation
of the Closing Financial Information. The Purchase Price as calculated by Seller
shall become final and binding upon the parties on the 30th calendar day
following delivery of the Closing Financial Information, unless Buyer gives
written notice of its disagreement (the “Notice of Disagreement”) with the
calculation of the Purchase Price to Seller prior to such date. The Notice of
Disagreement shall specify in reasonable detail the nature and basis of any
disagreement so asserted.
             (c) If Buyer timely delivers to Seller the Notice of Disagreement,
then the calculation of the Purchase Price shall become final and binding upon
the parties on the earlier of (x) the date the parties resolve in writing all
differences they have with respect to the matters specified in the Notice of
Disagreement or (y) the date all disputed matters are finally resolved in
writing by the Reviewing Accountant (as defined below). If the parties fail to
resolve the issues outstanding with respect to the Notice of Disagreement and
the calculation of the Purchase Price within 30 days after Seller’s receipt of
the Notice of Disagreement, the parties shall submit the issues remaining in
dispute to a partner having relevant expertise and practicing at a nationally
recognized independent public accounting firm as shall be agreed upon by the
parties in writing (the “Reviewing Accountant”). Seller and Buyer shall jointly
instruct the Reviewing Accountant that it (A) shall act as an expert and not as
an arbitrator, (B) shall review only the matters that were properly included in
the Notice of Disagreement, (C) shall make its determination based upon the
terms and conditions set forth in this Section 1.4(c), and (D) shall render its
decision within 60 days after the referral of the dispute to the Reviewing
Accountant for a decision pursuant hereto. The determination by the Reviewing
Accountant shall be final, binding and conclusive on the parties. The fees and
expenses of the Reviewing Accountant incurred in rendering any judgment pursuant
to this Section 1.4 shall be borne one-half by Seller and one-half by Buyer. The
fees and expenses of Buyer’s advisors incurred in

3

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

 

connection with their review of the Closing Financial Information and, if
applicable, the Notice of Disagreement, shall be borne by Buyer, and the fees
and expenses of Seller’s advisors incurred in connection with its preparation of
the Closing Financial Information, and, if applicable, the Notice of
Disagreement, shall be borne by Seller. Judgment may be entered upon the
determination of the Reviewing Accountant in any court having jurisdiction over
the party against which such determination is to be enforced. The Purchase
Price, once modified and/or agreed to in accordance with this Section 1.4 shall
become the “Final Purchase Price”.
II. CLOSING
     2.1 Closing Date. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at the offices of Dykema Gossett
PLLC, Suite 300, 39577 Woodward, Bloomfield Hills, Michigan 48304, at
10:00 a.m., local time, on September 29, 2006, or at such other time or date as
may be mutually agreed upon by Seller and Buyer (such time and date being
referred to herein as the “Closing Date”). All documents delivered and actions
taken at Closing shall be deemed to have been delivered or taken simultaneously,
and no such delivery or action shall be considered effective or complete unless
or until all other such deliveries or actions are completed or waived in writing
by the Party against whom such waiver is sought to be enforced.
     2.2 Deliveries at the Closing. At the Closing:
     (a) Seller shall deliver to Buyer (A) a duly executed assignment of the
Shares, (B) the various agreements, certificates and other documents and
instruments referred to in Section 7.1, and (C) such other documents as Buyer or
its counsel may reasonably request to demonstrate satisfaction of the conditions
and compliance with the agreements set forth in this Agreement; and
     (b) Buyer shall deliver to Seller (i) the Closing Payment and Subordinated
Note as provided in Section 1.3(b), (ii) the various agreements, certificates
and other documents and instruments referred to in Section 7.2, and (iii) such
other documents as Seller or their counsel may reasonably request to demonstrate
satisfaction of the conditions and compliance with the agreements set forth in
this Agreement.
III. REPRESENTATIONS AND WARRANTIES OF SELLER
     Seller hereby represents and warrants to Buyer as follows:
     3.1 Authority and Enforceability. Seller has all necessary corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the sale of the Shares and the other
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation by Seller of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Seller executed and delivered by Seller and constitutes the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, except as such enforceability may be subject to the laws of general
application relating to bankruptcy,

4

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

 

insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
     3.2 No Conflict. Neither the execution and delivery of this Agreement nor
the consummation by Seller of any of the transactions contemplated hereby do or
will (with or without notice or lapse of time or both) (i) violate any provision
of the governing documents of Seller or the Company; (ii) violate any Law or any
Governmental Order to which Seller or the Company is subject; or (iii)
contravene or conflict with, result in any breach of, constitute a default
under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any Lien
on any of the Shares or on the assets of the Company pursuant to, any Contract
to which Seller or the Company is a party, except in the cases of clauses
(ii) and (iii) as would not reasonably be expected to have a Material Adverse
Effect.
     3.3 Ownership of the Shares. Seller is the record and beneficial owner of,
and has good and valid title to, all of the Shares, free and clear of any and
all Liens (other than those that may be imposed by applicable securities Laws or
those that will be released on or prior to the Closing Date). Except for this
Agreement, none of the Shares is subject to (i) any option, warrant, purchase
right or other Contract that requires Seller to sell, transfer or otherwise
dispose of any Shares or (ii) any voting trust, proxy or other Contract or
understanding with respect to the voting, dividend rights, preferences, sale,
acquisition or other disposition of any of the Shares. Upon delivery of the
Shares to Buyer and full payment therefore as contemplated hereby, Buyer shall
acquire good and valid title to all of the Shares, free and clear of all Liens.
     3.4 Organization. The Company is an entity duly organized, validly existing
and in good standing under the laws of the State of California. The Company has
all requisite corporate or limited liability company, as applicable, power and
authority to own, lease and operate its properties and assets and to carry on
the Business, as it is now being conducted.
     3.5 Qualification; Location of Business and Assets. The Company is duly
qualified or licensed to conduct its Business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the Business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate, have
a Material Adverse Effect.
     3.6 Subsidiaries and Investments. Except for the Other Inventory, the
Company holds no stock or other interest, either of record, beneficially or
equitably, in any firm, venture, corporation, partnership or other entity.
     3.7 Third-Party Consents and Approvals. Except for the expiration of the
applicable waiting period under the HSR Act, if applicable, and except as set
forth in Schedule 3.7, no Consent is required for the execution, delivery and
performance of this Agreement by Seller and the consummation of the transactions
contemplated hereby.
     3.8 Capitalization. All of the Shares in the Company are owned by Seller,
and are duly authorized, validly issued, fully paid and nonassessable. There are
no outstanding

5

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

 

(i) securities of the Company convertible into, or exchangeable or exercisable
for, Shares, (ii) options, warrants to purchase or subscribe, or other rights to
acquire from the Company any Shares or other equity securities or securities
convertible into or exchangeable or exercisable for Shares or other equity
securities of the Company, or rights of first refusal or first offer relating to
any Shares or other equity securities of the Company, or (iii) bonds,
debentures, notes or other Indebtedness or securities of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which members of the Company may vote.
     3.9 Financial Condition and Liabilities. Set forth in Schedule 3.9 are
correct and complete copies of (a) the unaudited balance sheet of the Company as
of December 31, 2005, and the unaudited statement of income of the Company as of
and for the period then ended, (collectively, the “Financial Statements”), and
(b) the unaudited balance sheet of the Company as of July 1, 2006 (the
“Pre-Closing Balance Sheet”), and related statement of income for the period
then ended, which are in accordance with the books and records of the Company
and have been prepared in accordance with GAAP, except (i) that no notes to such
financial statements are included, and (ii) as set forth in Schedule 3.9. Such
balance sheets fairly present in all material respects the financial condition,
assets and liabilities of the Company as of the dates indicated, and such
statements of operations fairly present in all material respects the results of
operations and cash flows of the Company for the periods indicated, subject, in
the case of interim statements, to normal year end adjustments.
     3.10 No Undisclosed Liabilities. There are no Liabilities of the Company
required to be disclosed on a balance sheet prepared in accordance with GAAP,
other than (i) Liabilities adequately reflected or reserved against on the
Pre-Closing Balance Sheet, (ii) Liabilities for costs and expenses incurred in
connection with the transactions contemplated by this Agreement,
(iii) Liabilities incurred since the date of the Pre-Closing Balance Sheet in
the Ordinary Course of Business, and (iv) as set forth in Schedule 3.9.
     3.11 Absence of Certain Changes. Except for the execution of this Agreement
or as contemplated by this Agreement, from the date of the Pre-Closing Balance
Sheet and through the date of this Agreement:
     (a) the Company has not sold, leased, transferred or assigned any material
assets, other than in the Ordinary Course of Business;
     (b) the Company has not accelerated, terminated or cancelled any Contract
(or series of related Contracts) involving annual payments of more than $100,000
to which the Company is a party or by which it is bound (other than Contracts
relating to Inventory cancelled in the Ordinary Course of Business);
     (c) the Company has not canceled, compromised, waived or released any right
or claim (or series of related rights and claims) involving more than $100,000
outside the Ordinary Course of Business;

6

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

 

     (d) the Company has not experienced any damage, destruction or loss (not
covered by insurance) to any of its property that would reasonably be expected
to have a Material Adverse Effect;
     (e) except as set forth in Schedule 3.11(e), the Company has not made any
change in the rate of compensation, commission, bonus or other direct or
indirect remuneration payable to or to become payable to any officer or employee
of the Company, in each case whose base compensation exceeds $125,000, outside
the Ordinary Course of Business;
     (f) the Company has not failed to make any material expenditures in
connection with the normal maintenance, repair and replacement of the material
assets used in connection with the operation of the Business in accordance with
its past custom and practice;
     (g) except as set forth in Schedule 3.11(g), the Company has not paid or
declared any dividends or other distributions to its stockholders;
     (h) except as set forth in Schedule 3.11(h), the Company has not created,
incurred, assumed or guaranteed any indebtedness for borrowed money or capital
lease obligations;
     (i) the Company has not made any investment in or loan to any Person;
     (j) no change has been made in the number of shares of the Company’s
authorized, issued or outstanding capital stock; nor has any option or similar
right been granted or made relating to the Company’s capital stock;
     (k) the Company has not materially changed any of its methods of accounting
or any other accounting practice; and
     (l) to the knowledge of Seller, the Company has not committed to do any of
the foregoing.
     3.12 Accounts Receivable. The Receivables of the Company as set forth in
the Pre-Closing Balance Sheet or arising since the date thereof have arisen
solely out of bona fide sales and deliveries of goods, performance of services
and other business transactions in the Ordinary Course of Business; are valid
receivables and are not subject to valid defenses, set-offs or counterclaims
(other than returns in the Ordinary Course of Business); are current and
collectible and, with respect to such items set forth in the Closing Net Working
Capital, as finally determined, will be collected in substantial accordance with
their terms and at their recorded amounts, subject only to the reserve for bad
debts set forth in the Closing Net Working Capital, as finally determined. The
reserve for doubtful accounts on the Pre-Closing Balance Sheet has been
determined in accordance with GAAP.
     3.13 Inventories.

7

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

 

     (a) All New Homes Inventory reflected on the Pre-Closing Balance Sheet
(i) was acquired and has been maintained in the ordinary course of business;
(ii) is merchantable; (iii) consists of items of a quality and quantity usable
and, with respect to finished goods, saleable in the ordinary course of
business; (iv) is valued at the lower of cost or market value; and (v) except as
specifically reserved on the Pre-Closing Balance Sheet, none of the New Homes
Inventory of the Company is obsolete or slow moving. The Company is not under
any liability or obligation with respect to the return of New Homes Inventory in
the possession of wholesalers, retailers or other customers.
     (b) All WIP Inventory reflected on the Pre-Closing Balance Sheet (i) was
acquired and has been maintained in the ordinary course of business; (ii) is
merchantable; (iii) consists of items of a quality and quantity usable and, with
respect to finished goods, saleable in the ordinary course of business; (iv) is
valued at the lower of cost or market value; and (v) except as specifically
reserved on the Pre-Closing Balance Sheet, none of the WIP Inventory of the
Company is obsolete or slow moving. The Company is not under any liability or
obligation with respect to the return of WIP Inventory in the possession of
wholesalers, retailers or other customers.
     (c) All Other Inventory reflected on the Pre-Closing Balance Sheet (i) was
acquired and has been maintained in the ordinary course of business; and
(ii) consists of items of a quality and quantity usable and saleable in the
ordinary course of business.
     3.14 Title. The Company has good and marketable title to all of its assets
free and clear of all Liens of any nature whatsoever, except: (i) as set forth
in Schedule 3.14, and (ii) Permitted Liens. The assets owned or leased by the
Company constitute all the assets and properties that are used or held for use
by the Company and that are necessary to conduct the Business as presently
conducted.
     3.15 Condition of Assets. Except as otherwise disclosed on Schedule 3.15,
as of the date of this Agreement, (a) all of the buildings, structures and
fixtures owned or leased by the Company are in good operating condition and
repair in all material respects, subject only to ordinary wear and tear, and are
usable in the Ordinary Course of Business; and (b) all of the Personal Property
owned or leased by the Company material to the business, operations or financial
condition of the Company is in good operating condition and repair in all
material respects, subject only to ordinary wear and maintenance, and are usable
in the Ordinary Course of Business.

8

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

 

   3.16 Owned Real Property.
     (a) Schedule 3.16(a) contains a correct legal description, street address
and tax parcel identification number of all Real Property in which the Company
has an ownership interest, other than the Leased Real Property and the Other
Inventory (“Owned Real Property”).
     (b) The Owned Real Property and Leased Real Property constitutes all of the
Real Property used, held for use or intended to be used in, or otherwise related
to, the Business. There is no condemnation, expropriation or other proceeding in
eminent domain, pending or, to the knowledge of Seller, threatened, affecting
any parcel of the Owned Real Property or any portion thereof or interest
therein. All utility services or systems for the Owned Real Property have been
installed and are operational and sufficient for the operation of the Business
as currently conducted thereon. To the knowledge of Seller, the classification
of each parcel of Owned Real Property under applicable zoning laws, ordinances
and regulations permits the use and occupancy of such parcel and the operation
of the Business as currently conducted thereon, and permits the improvements
located thereon as currently constructed, used and occupied. To the knowledge of
Seller, there are sufficient parking spaces, loading docks and other facilities
at such parcel to comply with such zoning laws, ordinances and regulations. To
the knowledge of Seller, the Owned Real Property, or any easement affecting the
Owned Real Property, does not violate any building lines or set-back lines, and
there are no encroachments onto the Owned Real Property or any portion thereof.
     (c) Except as set forth in Schedule 3.16(c), no work has been performed on
or materials supplied with respect to the Owned Real Property within any
applicable statutory period which could give rise to mechanics’ or materialmen’s
liens; all bills and claims for labor performed and materials furnished to or
for the benefit of the Owned Real Property for all periods prior to the Closing
have been, or prior to Closing, will be, paid or properly accrued on the
Pre-Closing Balance Sheet in full (or incurred in the Ordinary Course of
Business since the date of the Pre-Closing Balance Sheet), and, to the knowledge
of Seller, there are no mechanics’ or materialmen’s liens, whether or not
perfected, on or affecting any portion of the Owned Real Property.
     (d) Correct and complete copies of (i) all deeds, existing title insurance
policies and surveys of or pertaining to the Owned Real Property and (ii) all
instruments, agreements and other documents evidencing, creating or constituting
any Liens on Real Property in the Company’s possession or control as of the date
of this Agreement have been delivered to Buyer.
   3.17 Leased Real Property.
     (a) Schedule 3.17(a) sets forth a true and complete list of all Real
Property and interests in Real Property leased, subleased or occupied by the
Company, in each case as of the date of this Agreement and other than the Other
Inventory (“Leased Real

9

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

 

Property”). The Company has delivered to Buyer a true and complete copy of each
such lease, sublease or occupancy agreement, together with all amendments
thereto, with respect to any Leased Real Property (“Real Property Leases”), and
in the case of any oral Real Property Lease, a written summary of the material
terms thereof. With respect to each Real Property Lease, (i) each such Lease is
legal, valid, binding, enforceable and in full force and effect, and the Company
is in possession of such leased property and is the tenant under all such Real
Property Leases, (ii) neither the Company nor, to the knowledge of Seller, any
other party to such Lease is in breach or default under such Lease in any
material respect, and, to the knowledge of Seller, no event has occurred or
circumstance exists which, with the delivery of notice, the passage of time or
both, would constitute such a breach or default, or permit the termination,
modification or acceleration of rent under such Lease and (iii) the Company has
not subleased, licensed or otherwise granted anyone the right to use or occupy
such Leased Real Property or any portion thereof.
     (b) There is no condemnation, expropriation or other proceeding in eminent
domain, pending or, to the knowledge of Seller, threatened, affecting any parcel
of the Leased Real Property or any portion thereof or interest therein. All
utility services or systems for the Leased Real Property have been installed and
are operational and sufficient for the operation of the Business as currently
conducted thereon. To the knowledge of Seller, the classification of each parcel
of Leased Real Property under applicable zoning laws, ordinances and regulations
permits the use and occupancy of such parcel and the operation of the Business
as currently conducted thereon, and permits the improvements located thereon as
currently constructed, used and occupied. To the knowledge of Seller, there are
sufficient parking spaces, loading docks and other facilities at such parcel to
comply with such zoning laws, ordinances and regulations. To the knowledge of
Seller, the Leased Real Property, or any easement affecting the Leased Real
Property, does not violate any building lines or set-back lines, and there are
no encroachments onto the Leased Real Property or any portion thereof.
     (c) Except as set forth in Schedule 3.17(c), no work has been performed on
or materials supplied with respect to the Leased Real Property within any
applicable statutory period which could give rise to mechanics’ or materialmen’s
liens; all bills and claims for labor performed and materials furnished to or
for the benefit of the Leased Real Property for all periods prior to the Closing
have been, or prior to Closing, will be, paid or properly accrued on the
Pre-Closing Balance Sheet in full (or incurred in the Ordinary Course of
Business since the date of the Pre-Closing Balance Sheet), and, to the knowledge
of Seller, there are no mechanics’ or materialmen’s liens, whether or not
perfected, on or affecting any portion of the Leased Real Property.
     3.18 Leased Personal Property. Schedule 3.18 contains a correct and
complete list as of the date of this Agreement of all leases and other
agreements under which the Company leases any Personal Property owned by any
other person that obligates the Company to make annual lease payments in excess
of $5,000. The Company has made available to Buyer true, correct and complete
copies of all such leases and agreements. All of such leases and agreements are
valid,

10

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

 

binding, enforceable and in full force and effect, there is no material default
thereunder and, to the knowledge of Seller, no event has occurred which, with
notice or lapse of time or both, would constitute a material default or permit
termination, modification or acceleration thereunder.
   3.19 Employment Matters.
        (a) Schedule 3.19 lists the name, date of hire and/or appointment and
current annual salary, commissions, allowances or wage rates, along with any
arrangement to increase such annual salary, commissions, allowances or wage
rates, of (i) each present director and officer, regardless of the level of
their compensation, and (ii) each employee of the Company who is paid at an
annual rate in excess of $25,000 per annum, together with a job title, in each
case as of the date of this Agreement.
        (b) Except as disclosed on Schedule 3.19:
     (i) the Company is not a party to any collective bargaining agreement or
other contract or agreement with any labor organization or other representative
of any of its employees nor is any such contract or agreement presently being
negotiated;
     (ii) there is no unfair labor practice or discrimination charge or material
complaint pending or, to the knowledge of Seller, threatened against or
otherwise affecting the Company;
     (iii) there is no labor strike, slowdown, work stoppage, lockout or other
material labor controversy in effect, or, to the knowledge of Seller, threatened
against or otherwise affecting the Company, and the Company has not experienced
any such labor controversy within the past five years;
     (iv) the Company has paid in full, or accrued in its financial books and
records, to all employees of the Company, all wages, salaries, commissions,
bonuses, benefits and other compensation due to such employees or otherwise
arising under any policy, practice, agreement, plan, program, statute or other
law;
     (v) the Company is not liable for any severance pay or other payments to
any employee or former employee arising from the termination of employment, and
the Company will not have any liability under any benefit or severance policy,
practice, agreement, plan, or program which exists or arises, or may be deemed
to exist or arise, under any applicable law or otherwise, as a result of or in
connection with the transactions contemplated by this Agreement or as a result
of the termination by the Company of any Persons employed by the Company on or
prior to the Closing Date;
     (vi) The Company has not closed any plant or facility, effectuated any
layoffs of employees or implemented any early retirement or separation program

11

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

 

within the past five years, nor has the Company planned or announced any such
action or program for the future;
     (vii) Within 90 days of the date of this Agreement, the Company has not
effectuated (i) a “plant closing” as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (“WARN”) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of the Company; or (ii) a “mass layoff’ (as defined in WARN) affecting
any site of employment or facility of the Company; nor has the Company been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local law.
None of the Company’s employees has suffered an “employment loss” (as defined in
WARN) since six months prior to the date of this Agreement. Except as set forth
in Schedule 3.19, within 90 days prior to the date of this Agreement, the
Company has not reduced the number of employees at any site of employment; and
     (viii) To the knowledge of Seller, subject to circumstances beyond the
control of the Company or the Seller, the services of all key employees of the
Company will continue to be available on the same terms and at the same
locations for the continuation of the Business of the Company after consummation
of the transactions contemplated hereby.
     3.20 Employee Benefit Plans.
     (a) Schedule 3.20(a) contains a true and complete list of all written
Employee Plans and associated trusts to which the Company or any ERISA Affiliate
(as defined below) contributes or has contributed or otherwise participates or
has participated.
     (b) Except as disclosed on Schedule 3.20(b): (i) all accrued contributions
and other payments required to be made by the Company or any ERISA Affiliate to
any Employee Plan through the Closing Date have been made or reserves adequate
for such purposes as of the Closing Date have been set aside therefore and
reflected in the Closing Financial Information; (ii) neither the Company nor any
ERISA Affiliate is in default in any material respect in performing any of its
contractual obligations under any of the Employee Plans or any related trust
agreement or insurance contract, and (iii) and there are no outstanding or
unfunded liabilities of any Employee Plan covered by Title IV of the Employee
Retirement Income Security Act of 1974 (“ERISA”) that could subject Buyer to any
liability to the Pension Benefit Guaranty Corporation or any other person or
entity.
     (c) With respect to tax qualified retirement plans, the only tax qualified
retirement plan that the Company (and/or any person or entity which is or was
under common control with Seller within the meaning of ERISA Section 4001(14);
hereinafter an “ERISA Affiliate”) maintains or has maintained during the past
five years is a defined contribution profit sharing plan (with a 401(k)
feature), and the Company (and/or any ERISA Affiliate) does not now maintain,
nor has the Company (and/or any ERISA

12

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

 

Affiliate) maintained at any time during the past five years, any tax qualified
defined contribution money purchase pension plan, any tax qualified defined
benefit pension plan, nor has the Company (and/or any ERISA Affiliate)
maintained or contributed to any multiemployer pension plan (as defined in ERISA
Section 3(37)).
     (d) Except as set forth in Schedule 3.20(d) with respect to each of the
Employee Plans:
     (i) each Employee Plan has been established, maintained, funded and
administered in all material respects in accordance with its governing
documents, and all applicable provisions of ERISA, the Code, COBRA, HIPAA, FMLA,
WHCRA or other applicable Law, and all regulations or rules promulgated
thereunder;
     (ii) there is no litigation, disputed claim (other than routine claims for
benefits), governmental proceeding, audit, inquiry or investigation pending or,
to the knowledge of Seller, threatened with respect to any such Employee Plan,
its related assets or trusts, or any fiduciary, administrator or sponsor of such
Employee Plan;
     (iii) the Company has made available to Buyer true and complete copies of
the following: each current Employee Plan document, any amendments thereto, and
the related summary plan description or summary annual reports, if any; each
trust or custodial agreement and each deposit administration, group annuity,
insurance or other funding agreement associated with each such Employee Plan;
for the last three Employee Plan years, the financial information or reports
(including any FASB required reports, if applicable), relating to each such
Employee Plan; all Internal Revenue Service and other governmental agency
rulings relating thereto, and all applications for such rulings; all
notifications to employees of their rights under ERISA Section 601 et seq., and
Code Section 4980B; all filing and reports (including the Annual Report
Form 5500 series, if applicable) filed with any governmental agency at any time
during the three year period ending on the Closing Date, along with all
schedules and reports filed therewith; and all notices that were given by the
Internal Revenue Service, the Pension Benefit Guaranty Corporation and the
Department of Labor within the last three (3) years.
     (e) Except as set forth in Schedule 3.20(e), with respect to each Employee
Plan which is an “employee pension benefit plan” (as defined in ERISA
Section 3(2)):
     (i) each such Employee Plan that is intended to qualify as a tax qualified
retirement plan under Code Section 401(a) has received a favorable determination
letter(s) from the Internal Revenue Service (copies of which have been delivered
to Buyer) as to qualification of such Employee Plan covering the period from its
adoption through the Closing Date; all amendments required to maintain such
qualification have been timely adopted; nothing has occurred, whether by action
or failure to act, which has resulted in or could cause the loss of

13

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

 

such qualification (whether or not eligible for review under the Internal
Revenue Service’s Closing Agreement Program, Voluntary Compliance Resolution
program or any similar governmental agency program);
     (f) Any trust maintained in connection with an Employee Plan (and from its
establishment) has been exempt from federal income taxation under Code
Section 501 and has not, at any time, had any “unrelated business taxable
income” (as defined under the Code Section 512) and, to the knowledge of Seller,
nothing has occurred with respect to the operation of any such Employee Plan
that could cause the loss of such qualification of exemption or the imposition
of any liability, penalty or tax under Law.
     (g) Except as disclosed in Schedule 3.20(g), no written statement nor, to
the knowledge of Seller, oral statement, has been made by the Seller or the
Company to any Person with respect to any Employee Plan that was not in
accordance with such Employee Plan and that could have a material adverse
economic consequence to the Company or Buyer.
     (h) Except as disclosed in Schedule 3.20(h), no retiree or other
post-employment benefits are payable, either now or in the future, pursuant to
any “Welfare Plan,” as defined in ERISA Section 3(1), nor will any obligation to
provide such benefits be incurred prior to the Closing Date, other than as
required by COBRA or applicable state continuation coverage Laws.
     (i) Except as disclosed in Schedule 3.20, no Employee Plan is subject to
Code Section 409A.
     3.21 Material Contracts.
     (a) Schedule 3.21 (a) contains an accurate and complete list of all
Contracts (other than those described in Schedule 3.17 or Schedule 3.18, which
are incorporated by reference into Schedule 3.21(a)), including all amendments
thereto, to which the Company is a party, except for those Contracts which
satisfy all of the following criteria (the “Material Contracts”): (i) which were
entered into in the Ordinary Course of Business, (ii) under which the
obligations of the Company have been or shall be fully discharged within one
year from the date such obligation was entered into, and (iii) which either
involve a single home sale to a customer or individually involve an obligation
or liability on the part of the Company in any amount less than Twenty-Five
Thousand Dollars ($25,000). The Company has made available to Buyer accurate and
complete copies of all Material Contracts.
     (b) All of the Material Contracts are valid and binding obligations of the
Company and, except as set forth in Schedule 3.21(b), do not require the consent
of any other party thereto to the sale of the Shares to Buyer hereunder to
continue to be valid and binding. Except as set forth in Schedule 3.21(b),
(i) none of the payments required to be made by the Company under any of the
Material Contracts has been prepaid more than thirty (30) days prior to the due
date of such payment thereunder, and (ii) to the knowledge of Seller, there is
not any existing default, or event which,

14

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

 

with notice or lapse of time, or both, would constitute a default under any of
the Material Contracts.
       (c) Except as set forth in Schedule 3.21(c), the Company is not a party
to any of the following:
     (i) any indenture, mortgage, note, guaranty, letter of credit, installment
obligation, agreement, or other instrument relating to the borrowing of money or
the guaranteeing of any obligation for the borrowing of money;
     (ii) any Contract that would limit the ability of the Company (or any
manager or officer thereof) to compete in any line of business or with any
Person or in any geographic area, or otherwise to conduct the Business as
presently conducted, or to use or disclose any information in the possession of
the Company;
     (iii) any license agreement, including any agreement with respect to any
manufacturing rights granted to or by the Company; or
     (iv) any joint venture or similar agreement.
     3.22 Customers and Suppliers. Except as set forth in Schedule 3.22, Seller
has no knowledge of any intention of a “Significant Customer” (as defined below)
of the Company or a “Significant Supplier” (as defined below) to terminate its
business relationship with the Company or to limit or alter its business
relationship with the Company in any material respect. The term “Significant
Customer” means any of the ten (10) largest customers, by dollar volume, of the
Company during the 2005 calendar year, and the term “Significant Supplier” means
any of the ten (10) largest suppliers, by dollar volume, of the Company during
the 2005 calendar year. Schedule 3.22 contains a true and correct list of the
Significant Customers and Significant Suppliers of the Company and the dollar
volume of business with each Significant Customer and Significant Supplier
during calendar year 2005.
     3.23 Tax Returns and Taxes. The Company has (i) timely filed all Tax
Returns which are required to be filed by the Company; and (ii) paid all Taxes
due by or assessed against the Company (whether or not shown on any Tax
Returns). All Tax Returns properly reflect the liabilities of the Company for
Taxes for the periods, properties or events covered thereby. Except as set forth
in Schedule 3.23, no extensions of time in which to file any Tax Returns have
been executed or filed with any taxing authority. The Company has not received
any notice of assessment of additional Taxes and has not executed or filed with
any taxing authority any agreement waiving or extending the period of assessment
of any Taxes. There are no claims, examinations, Proceedings or proposed
deficiencies for Taxes pending or, to the knowledge of Seller, threatened
against the Company. The Company has withheld and paid over to the appropriate
taxing authority all Taxes required to have been withheld and paid in connection
with any amounts paid or owing to any employee, independent contractor, creditor
or other third party. Except as set forth in Schedule 3.23, the accruals for
Taxes contained in the Pre-Closing Balance Sheet are adequate to cover all
liabilities for Taxes of the Company for all periods ending on or before the
date of the Pre-Closing Balance Sheet, and include adequate provisions

15

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

 

for all deferred Taxes. Except as set forth in Schedule 3.23, all Taxes for
periods beginning after the date of the Pre-Closing Balance Sheet, have been
paid or are adequately reserved against on the books of the Company. Except as
set forth in Schedule 3.23, the Company has not been audited by the Internal
Revenue Service or any other Governmental Authority within the past five years.
The Company has not made any payments, is not obligated to make any payments,
and is not a party to any agreement that under certain circumstances could
require it to make any payments, that are not deductible under Section 280G of
the Code. The Company does not have any liability for Taxes of any Person other
than itself (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a transferee or
successor, (iii) by Contract or (iv) otherwise.
     3.24 Permits. Schedule 3.24 contains a complete and accurate list of all
Permits (other than Environmental Permits) used by the Company in the operation
or conduct of the Business or that relate to the Company’s assets as of the date
of this Agreement. To the knowledge of Seller, except as set forth on
Schedule 3.24, the Company’s Permits constitute all Permits that are necessary
for the lawful operation or conduct of the Business as presently conducted and
are required for the lawful use, lease, occupancy and ownership of the assets of
the Company. To the knowledge of Seller and except as set forth in
Schedule 3.24, the Company is in compliance with each of the Permits, and no
event has occurred which constitutes or, after notice or lapse of time or both,
would constitute a breach or default under any of the Permits or would permit
revocation or termination of any of the Permits.
     3.25 Intellectual Property Rights.
     (a) Except for non-transferable software licenses, the Intellectual
Property Rights are all of the intellectual property rights used by, required in
or necessary for the operation of the Business as currently conducted. Seller is
the owner or licensee of all right, title and interest in and to each of the
Intellectual Property Rights, free and clear of all Liens, and has the right to
use without payment to a third party all of the Intellectual Property Rights,
except as indicated in Schedule 3.25.
     (b) Schedule 3.25 contains (i) a complete and accurate list and summary
description of all Patents, Marks, Copyrights and Net Names, and (ii) sets forth
all registrations and applications (and the status thereof) that have been
submitted to any Governmental Authority with respect to such Patents, Marks,
Copyrights and Net Names (“Registered Intellectual Property”). All necessary
registration, maintenance and renewal fees currently due in connection with any
Registered Intellectual Property have been made and all necessary documents,
recordations and certifications in connection with such Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purpose of maintaining such Registered Intellectual Property.
     (c) Except as indicated in Schedule 3.25, the Company does not have, and
does not pay or receive any royalties on, any licenses and other agreements
relating to the Intellectual Property Rights.

16

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

 

     (d) None of the Intellectual Property Rights has been or is the subject of
any pending (or, to the knowledge of Seller, threatened) litigation or claim of
infringement, or outstanding judgment, arbitration award, agreement or
stipulation restricting in any manner the use, transfer or licensing thereof by
the Company, or which may affect the validity, use or enforceability of the
Intellectual Property Rights.
     (e) To the knowledge of Seller, the operation of the Business as it has
been and currently is conducted has not, does not and will not infringe or
misappropriate in any manner the intellectual property of any third party. To
the knowledge of Seller, the Company has not received any written notice
contesting its right to use any of the Intellectual Property Rights. To the
knowledge of Seller, no Person has or is infringing or misappropriating any
Intellectual Property Rights.
     (f) All Net Names have been registered in the name of the Company and are
in compliance with all applicable law.
     3.26 No Pending Proceedings. Except as set forth in Schedule 3.26, there is
no Proceeding pending or, to the knowledge of Seller, threatened against or
affecting the Company or any of its properties or assets, at law or in equity,
nor does Seller have any knowledge of any reasonably likely basis for any such
Proceeding, the result of which could materially adversely affect the Company,
its assets or the transactions contemplated hereby. There are presently no
outstanding Governmental Orders of any Governmental Authority or any arbitrator
against or affecting the Company or any of its properties or assets.
     3.27 Compliance with Laws. Except as set forth in Schedule 3.27, the
Business of the Company has been conducted in compliance with all applicable
Laws in all material respects. No notice, citation, summons or order has been
assessed and no investigation or review is pending or, to the knowledge of
Seller, threatened by any Governmental Authority with respect to any alleged
violation by the Company of any Law. To the knowledge of Seller, no event has
occurred or circumstance exists that (with or without notice or lapse of time),
could reasonably be expected to constitute or result in a violation by the
Company of, or a failure on the part of the Company to comply with, any Law.
     3.28 OSHA. To the knowledge of the Seller, all of the facilities of the
Company are maintained and operated in compliance with OSHA and any similar
state statute and the rules and regulations promulgated thereunder.
     3.29 Environmental Matters. Except as set forth in Schedule 3.29:
     (a) The Company is not in violation of or noncompliant with any
Environmental Laws or Environmental Permits in any material respect.
     (b) The Company has not been in violation of or noncompliant with any
Environmental Laws or Environmental Permits in any material respect.

17

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

 

     (c) The Company is not aware of any facts or conditions that could lead to
an allegation of violation or noncompliance with any Environmental Laws or
Environmental Permits in any material respect.
     (d) The Company possesses, and has previously possessed, all Environmental
Permits that are required for the operations of the Company, each is valid and
in good standing, and the Company has not been advised by any Governmental
Authority of any actual or potential change in the status or terms and
conditions of any Environmental Permit. All applications for renewal, extension,
reissuance or modification of Environmental Permits, or related submissions to
any Governmental Authority, have been made in a complete and timely manner and
the Company has no reason to believe that such application(s) will be denied, in
whole or in part. Schedule 3.29 contains (i) a description of all Environmental
Permits currently held by the Company in connection with the operation of its
Business, properties and assets, and identifies the, nature, duration and
renewal dates of and the issuing governmental entity with respect to each
Environmental Permit, and (ii) a complete list of all solid waste dumps,
landfills and/or disposal locations and facilities and hazardous waste disposal,
treatment, and storage facilities which are presently or were used by the
Company and, to the knowledge of Seller, any predecessor entity at any time in
the operation of its Business for disposal of Hazardous Substances.
     (e) The operation of the Company’s Business does not, and did not, involve
the generation, usage, Release, transportation, treatment, storage or disposal
of any Hazardous Substance; no underground storage tanks or surface impoundments
are located at, on or under any Owned Real Property, Leased Real Property or any
real property owned or leased in the past.
     (f) To the knowledge of Seller, there has been no Release of any Hazardous
Substance by the Company at, on or under any property or facility currently or
formerly owned, operated or leased by the Company during the time of Seller’s
ownership that has formed or could reasonably be expected to form the basis of
any Environmental Claim against the Company.
     (g) There are no Environmental Claims pending or, to the knowledge of
Seller, threatened against the Company. The Company has not retained or assumed,
either contractually or by operation of law, any liabilities or obligations that
have formed or could reasonably be expected to form the basis of any
Environmental Claim against the Company.
     (h) The Company has made available to Buyer true and complete copies and
results of any reports, studies, analyses, tests or monitoring possessed or
initiated by the Company pertaining to any Hazardous Substance in, on or under
any property owned, leased or used by the Company in the operation of the
Business, or concerning compliance by the Company or the Business with
Environmental Laws.
   3.30 Insurance Coverage. Except as set forth in Schedule 3.30, to the
knowledge of Seller, the Company presently maintains, and has at all times prior
to the date hereof maintained,

18

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

 

liability, casualty, property loss and other insurance coverages upon its
properties and with respect to the conduct of its Business in such amounts, of
such kinds and with such insurance carriers as are generally deemed appropriate
and sufficient for companies of a similar size engaged in similar types of
business and operations. Schedule 3.30 sets forth a complete and correct list of
all insurance policies maintained by the Company and indicates for each policy
the insurance company, type of coverage, annual premium and whether the terms of
such policy provide for retrospective premium adjustments. Each of such policies
are valid, outstanding and enforceable and there is no default with respect to
any provision contained in any such policy, nor has there been any failure to
give any notice or present any claim under any such policy in a timely fashion
or in the manner or detail required by the policy. The Company has paid all
premiums due, and has otherwise performed all of its obligations, under each
policy of insurance to which it is a party or that provides coverage to the
Company. No notice of cancellation or non-renewal with respect to, or
disallowance of any claim under, any such policy has been received by the
Company. The Company has not been refused any insurance, nor has its coverage
been limited by any insurance carrier to which it has applied for insurance or
with which it has carried insurance during the last five years. Schedule 3.30
contains loss runs for the last three years setting forth all property, general,
professional and products liability and workers compensation claim activity
against the Business, including the date and place of the occurrence, claimant’s
name, reserves, amounts paid, a brief description of the incident and whether
the claim is open or closed.
   3.31 Products Liability and Warranty Claims. Except as set forth in
Schedule 3.31:
     (a) The Company has not made any written warranties with respect to the
quality or absence of defects of its products or services which are in force as
of the date of this Agreement;
     (b) there are no liabilities of or claims against the Company and, to the
knowledge of Seller, no liabilities or claims are threatened against the
Company, with respect to any product liability (or similar claim) of the Company
or product warranty (or similar claim) of the Company that relates to any
product manufactured, shipped or sold by the Company;
     (c) to the knowledge of Seller, there is no alleged or actual defect or
hazard in the manufacture, design, materials or workmanship, or alleged or
actual failure to warn of any of the foregoing, in any product (or component
thereof) which has been manufactured, shipped or sold by the Company; and
     (d) there has not been any occurrence involving any product recall, rework
or retrofit relating to any product which has been manufactured, shipped or sold
by the Company.
   3.32 Brokers and Finders. Neither the Company nor any of its Affiliates is a
party to any Contract under which Seller, any of its Affiliates or the Company
could be obligated to pay any brokerage, finder’s or other fee or commission in
connection with the transactions contemplated by this Agreement.

19

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

 

     3.33 Related Party Transactions. Schedule 3.33 sets forth a complete list
of (i) any material intercompany business arrangement or support between the
Company and Seller, Champion Enterprises, Inc. or any of its subsidiaries, and
(ii) any material business arrangement between the Company and Glenn Gilliam,
Art Chatoff, Pam Svendsen or any family member or Affiliate of such Persons.
     3.34 Disclosure. No representation or warranty of Seller contained in this
Agreement and in any schedule hereto, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which such statements are made, not misleading.
IV. REPRESENTATIONS AND WARRANTIES OF BUYER
     Buyer hereby represents and warrants to Seller as follows:
     4.1 Organization. Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of its
organization. Buyer has all requisite limited liability company power and
authority to own, lease and operate its properties and assets and to carry out
its business as and where now being conducted.
     4.2 Authority and Enforceability. Buyer has all necessary limited liability
company power and authority to execute and deliver this Agreement and to perform
its obligations hereunder and to consummate the purchase of the Shares and the
other transactions contemplated hereby. The execution, delivery and performance
of this Agreement and the consummation by Buyer of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other proceedings on the part of Buyer is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as such enforceability may be 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
     4.3 Third-Party Consents. No Consent is required for the execution,
delivery and performance of this Agreement by Buyer and the consummation of the
transactions contemplated hereby.
     4.4 No Conflict or Violation. Neither the execution and delivery of this
Agreement nor the consummation by Buyer of any of the transactions contemplated
hereby do or will (with or without notice or lapse of time or both)
(i) contravene, conflict with or result in a violation of any provision of the
certificate of formation or operating agreement of Buyer; (ii) contravene or
conflict with or result in a violation of any Law or any Governmental Order to
which Buyer is subject; or (iii) contravene or conflict with, result in any
breach of, constitute a default under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Lien on any of the assets of Buyer pursuant to,
any Contract to which Buyer is a party, except in the cases of clauses (ii) and
(iii) as would not reasonably be expected to have a Material Adverse Effect

20

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

 

     4.5 Investment Intent. Buyer is acquiring the Shares for its own account
for investment and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. Buyer understands that the Shares have not
been registered under the Securities Act or any state securities laws and are
being transferred to Buyer, in part, in reliance on the foregoing
representation.
     4.6 Financing. Buyer has (i) funds and financing commitments sufficient to
consummate the transactions contemplated by this Agreement and will have such
funds at the Closing, (ii) a commitment from Textron to obtain on or prior to
the Closing Date, a Floor Plan Receivables Credit Line facility and has
delivered to Seller a copy of all financing documents related to such facility,
and (iii) provided to Seller a description of its capital structure and proposed
financing in connection with the transaction contemplated by this Agreement.
     4.7 Brokers and Finders. Neither Buyer nor any of its Affiliates is a party
to any Contract under which Seller, any of its Affiliates or the Company could
be obligated to pay any brokerage, finder’s or other fee or commission in
connection with the transactions contemplated by this Agreement.
V. PRE-CLOSING COVENANTS
     5.1 Access and Investigation. Between the date of this Agreement and the
Closing Date, and upon reasonable notice, Seller will, and shall cause the
Company and its Representatives to (i) afford Buyer and its Representatives and
prospective lenders and their Representatives (collectively, “Buyer Group”)
access, during regular business hours, to the Company’s personnel, properties,
Contracts, Permits, books and records and other documents and data, such rights
of access to be exercised in a manner that does not unreasonably interfere with
the operations of the Company; (ii) furnish Buyer Group with copies of all such
Contracts, Permits, books and records and other existing documents and data as
Buyer may reasonably request; (iii) furnish Buyer Group with such additional
financial, operating and other relevant data and information (to the extent such
data and information already exists) as Buyer may reasonably request;
(iv) afford Buyer reasonable access to the Significant Suppliers and Significant
Customers of the Company in a manner as shall be mutually agreeable between
Buyer and Seller, and (v) otherwise cooperate and assist, to the extent
reasonably requested by Buyer, with Buyer’s investigation of the properties,
assets and financial condition related to the Company. In addition, Buyer shall,
with the prior consent of Seller, have the right to have the Real Property and
Personal Property inspected by Buyer Group, at Buyer’s sole cost and expense,
for purposes of determining the physical condition and legal characteristics of
the Real Property and Personal Property. Buyer Group shall, with the prior
consent of Seller, have access to the Real Property and facilities thereon for
the purpose of conducting appropriate environmental tests, inspections or
investigations, including Phase I environmental investigations, all at Buyer’s
expense. Nothing contained in this Section 5.1 shall affect the survival of the
representations, warranties, covenants, agreements and indemnities of Seller
hereunder or the conditions to the obligations of Buyer to close as set forth in
Section 7.1 hereof.

21

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

 

     5.2 Conduct of Business.
     (a) Except as otherwise contemplated by this Agreement, during the period
from the date of this Agreement and continuing until the Closing Date, Seller
will, and shall cause the Company to, operate only in the Ordinary Course of
Business and use its best efforts to:
     (i) preserve the Business intact and conserve the goodwill related thereto;
     (ii) except as set forth in Schedule 5.2(a), preserve intact the present
business organization of the Company, keep available the services of officers,
key employees and agents; and
     (iii) preserve present relationships with suppliers, customers, lenders and
others having business dealings with them.
     (b) In connection with the foregoing, and without limiting the generality
of this Section 5.2, the Seller will and shall cause the Company to:
     (i) maintain raw materials, supplies and other materials included in the
Inventories at levels that are in the Ordinary Course of Business, including,
without limitation, continue to make all payments for space acquisition costs,
rents, maintenance and utilities when due in the Ordinary Course of Business;
     (ii) maintain the Company’s assets (including buildings, offices,
properties and equipment) in the Ordinary Course of Business in good operating
condition and repair, ordinary wear and tear excepted;
     (iii) continue to extend customers credit, collect Receivables and pay
accounts payable and otherwise handle short-term assets and liabilities in the
Ordinary Course of Business;
     (iv) maintain in full force and effect and in the same amounts policies of
insurance comparable in amount and scope of coverage to that now maintained by
or on behalf of the Company;
     (v) continue to maintain its books and records in accordance with GAAP; and
     (vi) continue its cash management practices in the Ordinary Course of
Business;
     (c) Without the prior written consent of Buyer, and without limiting the
generality of any other provision of this Agreement, Seller will not, and shall
cause the Company not to, take any affirmative action, or fail to take any
reasonable action within its control, as a result of which any of the changes or
events listed in Sections 3.11 would be likely to occur.

22

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

 

     5.3 Consents and Approvals. Seller will, and shall cause the Company to,
use its best efforts to obtain, prior to the Closing Date, all Consents
specified in Schedule 3.7, provided, that the Company shall not be required to
pay any cash or other consideration, waive or amend any right, or incur or agree
to incur any additional obligation in order to obtain any such Consent. Buyer
shall cooperate and use its best efforts to assist the Company in obtaining such
Consents.
     5.4 Best Efforts. Subject to the terms and conditions of this Agreement,
each of the parties shall use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or advisable to
consummate the transactions provided for in this Agreement as soon as reasonably
practicable.
     5.5 Update Schedules.
     (a) Seller shall promptly disclose to Buyer any information contained in
its representations and warranties or the Schedules which are incomplete or are
no longer correct as of all times after the date hereof until the Closing Date.
     (b) During the period between the date of this Agreement and the Closing,
Seller shall update the Schedules to the extent that Seller becomes aware that
information contained therein is or becomes untrue or incomplete or inaccurate.
Unless Buyer terminates this Agreement pursuant to Section 9.1(f) below by
reason of such update, written notice by Seller of an update to the Schedules
pursuant to this Section 5.5(b) will be deemed to have amended the Schedules, to
have qualified the representations and warranties contained in Article III
above, and to have cured any misrepresentation or breach of warranty that
otherwise might have existed hereunder by reason of such update.
     5.6 Exclusivity. Seller grants to Buyer the exclusive right to acquire the
Shares until the Final Termination Date. Seller will not, and shall cause the
Company not to, directly or indirectly (i) solicit, initiate or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of the Shares or any capital stock or other voting securities, or any
substantial portion of the assets of, the Company (including any acquisition
structured as a merger, consolidation or share exchange) or (ii) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. Seller will notify
Buyer immediately if any Person makes any proposal, offer, inquiry or contact
with respect to any of the foregoing and Seller shall provide copies and
disclose the terms thereof to Buyer.
     5.7 Confidentiality. Unless and until the Closing has been consummated,
Buyer will hold, and shall cause its Representatives to hold, in confidence any
confidential data or information made available to Buyer in connection with this
Agreement with respect to the Company and its Business using the same standard
of care to protect such confidential data or information as is used to protect
Buyer’s confidential information. If the transactions contemplated by this
Agreement are not consummated, Buyer agrees that, upon the request of Seller,
Buyer shall return or cause to be returned to Seller all written materials and
all copies

23

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

 

thereof that were supplied to Buyer by Seller or the Company that contain any
such confidential data or information, provided that Buyer may retain one copy
of such confidential data and information in secure storage for compliance
purposes or use in any dispute related to this Agreement.
     5.8 Employment Arrangements. Seller shall assist Buyer in Buyer’s efforts
to obtain new contractual employment arrangements with the key managers of the
Business, including suitable agreements not to compete.
     5.9 Financing. Buyer will use its best efforts to complete on or prior to
the Closing Date the financings described in Section 4.6 and shall promptly
notify Seller of any material changes in such financings.
     5.10 Permits.
     (a) Prior to Closing, Buyer will ensure that the Company will have obtained
any and all Permits required to operate the Business after the Closing Date.
     (b) Seller shall cooperate with Buyer to take those commercially reasonable
actions that may be reasonably requested by Buyer and necessary to ensure that
all material Permits required to operate the Business remain in full force and
effect after the Closing Date.
     5.11 Form of Entity Conversion. Immediately prior to the Closing, Seller
shall file with the California Secretary of State the necessary documents or
forms to convert the Company into a California limited liability company
pursuant to Chapter 11.5 of the California Corporations Code.
VI. ADDITIONAL COVENANTS
     6.1 Assistance in Proceedings. Seller and Buyer (and each of their
Representatives) shall mutually cooperate in the contest or defense of, and make
available its personnel and provide any testimony and access to its books and
records in connection with, any Proceeding involving or relating to (a) any of
the transactions contemplated by this Agreement or (b) any action, activity,
circumstance, condition, conduct, event, fact, failure to act, incident,
occurrence, plan, practice, situation, status or transaction on or before the
Closing Date involving the Company or its Business or Seller.
     6.2 Retention of and Access to Books and records. After the Closing Date,
Buyer shall retain for a period consistent with the Company’s record-retention
policies and practices in effect immediately prior to the Closing Date the books
and records of the Company. Buyer shall provide Seller and its Representatives
reasonable access thereto, during normal business hours and on at least three
days’ prior written notice, for any reasonable business purpose specified by
Seller in such notice. After the Closing Date, Seller shall provide Buyer and
its Representatives reasonable access to such books and records of Seller
relating to the Company or the Business during normal business hours and on at
least three days’ prior written notice, for any reasonable business purpose
specified by Buyer in such notice.

24

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

 

     6.3 Further Assurances. Seller, after the Closing, without further
consideration, shall execute, acknowledge, and deliver any further deeds,
assignments, conveyances, and other assurances, documents, and instruments of
transfer, reasonably requested by Buyer, and shall take any other action
consistent with the terms of this Agreement that may reasonably be requested by
Buyer for the purpose of assigning, transferring and delivering the Shares to
Buyer. Each of the parties hereto will cooperate with the other and execute and
deliver to the other parties hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence and confirm the intended
purposes of this Agreement.
     6.4 Press Releases. Except as required by applicable law, no party to this
Agreement shall give notice to third parties or otherwise make any public
statement or releases concerning this Agreement or the transactions contemplated
hereby except for such written information as shall have been approved in
writing as to form and content by the other parties, which approval shall not be
unreasonably withheld.
     6.5 Transfer Taxes. All sales, use and transfer taxes, including any value
added, stock transfer, gross receipts, stamp duty and real, personal, or
intangible property transfer taxes, due by reason of the consummation of the
purchase of the Shares hereunder, including any interest or penalties in respect
thereof, shall be borne by Seller. Seller and Buyer shall cooperate with each
other and use their best efforts to minimize the transfer taxes attributable to
the transfer of the Shares.
     6.6 Use of Seller’s Licenses. If requested by Buyer, and to the extent
permitted by applicable law and regulations and such licenses and permits, after
the Closing, Seller will allow Buyer and the Company to use any licenses and
permits required to operate the Business until Buyer and the Company obtain the
same.
     6.7 Company Guarantee. Immediately after the Closing, Buyer will cause the
Company to execute and deliver to Seller a secured guarantee of the Subordinated
Note upon substantially the same terms as provided in Section 10.12.
     6.8 Removal of Champion Assets. Within a reasonable period of time
following the expiration of the Interim Services Agreement, Champion
Enterprises, Inc. shall be permitted to remove from the premises of the Company
during normal business hours the Cisco Router currently provided by Champion
Enterprises, Inc. for use by the Company.
VII. CONDITIONS TO CLOSING
     7.1 Conditions to Obligations of Buyer. The obligations of Buyer to
consummate the transactions provided for by this Agreement are subject, at the
discretion of Buyer, to the satisfaction at or prior to the Closing of each of
the following conditions:
     (a) The representations and warranties of Seller contained in this
Agreement shall be true and correct on and as of the Closing Date as if
originally made on and as of the Closing Date (other than such representations
and warranties as are made as of a specified date, which need only be true and
correct only as of such specified date),

25

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

 

with only such exceptions as, individually or in the aggregate, have not had, or
would not reasonably be expected to have, a Material Adverse Effect, and Buyer
shall have received a certificate to such effect signed by an officer of Seller.
     (b) All of the agreements and covenants that Seller is required to perform
or comply with pursuant to this Agreement at or prior to the Closing Date shall
have been performed or complied with in all material respects, and Buyer shall
have received a certificate to such effect signed by an officer of Seller.
     (c) Since the date of the Pre-Closing Balance Sheet, no Material Adverse
Effect shall have occurred other than any Material Adverse Effect that
specifically relates to any update of the Schedules pursuant to Section 5.5(b)
and as to which Buyer does not exercise its right to terminate this Agreement
pursuant to Section 9.1(f) as specified therein.
     (d) Each of the Consents specified in Schedule 7.1(d) shall have been
obtained and shall be in full force and effect.
     (e) No Proceeding shall have been instituted by any Person which seeks to
prevent the consummation of the transactions contemplated herein.
     (f) Seller shall have delivered to Buyer an executed supply agreement in
the form attached hereto as Exhibit 7.1(f) (the “Supply Agreement”).
     (g) Seller shall have delivered to Buyer an executed interim services or
secundment agreement in form and substance mutually satisfactory to the parties
(the “Interim Services Agreement”).
     (h) Seller shall have delivered to Buyer an executed confidentiality and
non-competition agreement regarding the operation by Seller of a competing
retail business in California in the form attached hereto as Exhibit 7.1(h).
     (i) Buyer shall have received duly executed termination statements or
discharges terminating any and all Liens on the Company’s assets (other than
Permitted Liens) and on the Shares.
     (j) Seller shall have delivered to Buyer an executed Repurchase Agreement
in favor of Buyer’s lender under the Line of Credit and the terms of such
Repurchase Agreement shall be consistent with those generally in place with
lenders with whom Seller has an existing repurchase relationship and subject to
change from time to time in the normal course of business.
     (k) Seller shall have delivered to Buyer an executed Subordination
Agreement as required by Section 1.3(b).
     (l) Seller shall have delivered to Buyer at Closing the documents and
instruments referred to in Section 2.2(a).

26

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

 

     7.2 Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions provided for by this Agreement are subject, in the
discretion of Seller, to the satisfaction at or prior to the Closing Date of
each of the following conditions:
     (a) The representations and warranties of Buyer contained in this Agreement
shall be true and correct on and as of the Closing Date as if originally made on
and as of the Closing Date (other than such representations and warranties as
are made as of a specified date, which need only be true and correct only as of
such specified date), with only such exceptions as, individually or in the
aggregate, have not had, or would not reasonably be expected to have, a material
adverse effect on Buyer’s ability to consummate the transactions contemplated by
this Agreement, and Seller shall have received a certificate to such effect
signed by an officer of Buyer.
     (b) All of the agreements and covenants that Buyer is required to perform
or comply with pursuant to this Agreement at or prior to the Closing Date shall
have been performed or complied with in all material respects, and Seller shall
have received a certificate to such effect signed by the President of the Buyer.
     (c) Buyer shall have delivered to Seller an executed Security Agreement and
Guaranty, in the form attached hereto as Exhibit 7.2(c), securing payment of the
Subordinated Note.
     (d) Buyer shall have delivered to Seller an executed Supply Agreement.
     (e) Buyer shall have delivered to Seller at Closing the documents and
instruments referred to in Section 2.2(b).
VIII. INDEMNIFICATION
     8.1 Indemnification By Seller. Subject to the provisions of this
Article VIII, Seller shall indemnify and hold harmless Buyer, its successors and
assigns, and its officers, managers, directors, employees, agents and Affiliates
(“Buyer’s Indemnified Persons”) from and against, and shall reimburse Buyer’s
Indemnified Persons for, any and all claims, losses, liabilities, damages, costs
and expenses (including Legal Expenses) (collectively, “Losses”), arising out
of, based upon or incurred in connection with:
     (a) any breach of any representation or warranty of Seller set forth in
this Agreement or the Schedules, or in any certificate or transfer instrument
delivered by Seller at Closing;
     (b) any breach of any covenant, agreement or other obligation of Seller in
this Agreement;
     (c) the litigation and other matters set forth in Schedule 3.26; provided,
however, that the indemnification provided by this Section 8.1(c) with respect
to Case No. 106CV068540 in Superior Court of the State of California, County of
Santa Clara (the “Subject Litigation”), shall not include any portion of the
Losses resulting directly

27

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

 

from actions taken or conduct by Buyer, or its employees, officers, members, or
Affiliates existing on or prior to the Closing Date (including the employees,
officers and members of any Affiliates existing on or prior to the Closing
Date);
     (d) the Excluded Liabilities, or Seller’s failure to perform, pay and
discharge any Excluded Liability prior to or following the Closing;
     (e) the operation of the Business on or prior to the Closing Date
(including Liabilities relating to any Seller Deals in Progress), but
specifically excluding the Assumed Liabilities, Ordinary Course Warranty Claims
and Liabilities relating to the Buyer Deals in Progress; and
     (f) enforcement of this Section 8.1.
   8.2 Indemnification by Buyer. Subject to the provisions of this Article VIII,
Buyer shall indemnify and hold harmless Seller, and its officers, directors,
employees, agents and Affiliates (“Seller’s Indemnified Persons”) from and
against, and shall reimburse Seller for, any and all Losses arising out of,
based upon or incurred in connection with:
     (a) any breach of any representation or warranty of Buyer set forth in this
Agreement or in any certificate or other instrument delivered by Buyer at
Closing;
     (b) any breach of any covenant, agreement or other obligation of Buyer in
this Agreement;
     (c) the Assumed Liabilities;
     (d) the operation of the Business after the Closing Date, including
Liabilities relating to the Buyer Deals in Progress, but specifically excluding
the Excluded Liabilities;
     (e) Ordinary Course Warranty Claims; and
     (f) Buyer’s use of licenses or permits held by Seller pursuant to
Section 6.6; and
     (g) enforcement of this Section 8.2.
   8.3 Defense of Third-Party Claims. If any legal proceedings shall be
instituted or any claim is asserted by any third party in respect of which any
party hereto may have an obligation to indemnify another party, the party
asserting such right to indemnity (the “Indemnified Party”) shall give the party
from whom indemnity is sought (the “Indemnifying Party”) written notice thereof,
but any failure to so notify the Indemnifying Party shall not relieve it from
any liability that it may have to the Indemnified Party other than to the extent
the Indemnifying Party is actually prejudiced thereby. Such written notice shall
describe in reasonable detail the facts constituting the basis for such
third-party claim and the amount of the potential Loss, in each case, to the
extent known. The Indemnifying Party shall have the right, at

28

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

 

its option and expense, to participate in and control the defense of such
proceeding or claim; provided, however, that:
     (a) the Indemnified Party shall be entitled to participate in the defense
of such claim and to employ counsel at its own expense to assist in the handling
of such claim;
     (b) the Indemnifying Party shall obtain the prior written approval of the
Indemnified Party before entering into any settlement of such claim or ceasing
to defend against such claim (with such approval not to be unreasonably
withheld);
     (c) no Indemnifying Party shall consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnified Party of a release
from all liability in respect of such claim; and
     (d) the Indemnifying Party shall not be entitled to control (but shall be
entitled to participate at its own expense in the defense of), and the
Indemnified Party shall be entitled to have sole control over, the defense or
settlement of any claim (i) to the extent the claim seeks an order, injunction,
non-monetary or other equitable relief against the Indemnified Party which, if
successful, could materially interfere with the business, operations, assets,
condition (financial or otherwise) or prospects of the Indemnified Party, or
(ii) counsel to the Indemnified Party shall have reasonably concluded that there
is a conflict of interest between the Indemnified Party and the Indemnifying
Party in the conduct of the defense of such third-party claim.
After written notice by the Indemnifying Party to the Indemnified Party of its
election to assume control of the defense of any such action, the Indemnifying
Party shall not be liable to such Indemnified Party hereunder for any Legal
Expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation. If the
Indemnifying Party does not assume control of the defense of such claim as
provided in this Section 8.3 within thirty (30) days after receipt of written
notice of such claim, the Indemnified Party shall have the right to defend such
claim in such manner as it may deem appropriate at the cost and expense of the
Indemnifying Party, and the Indemnifying Party will promptly reimburse the
Indemnified Party therefor in accordance with this Section 8.3. The
reimbursement of fees, costs and expenses required by this Section 8.3 shall be
made by periodic payments during the course of the investigations or defense, as
and when bills are received or expenses incurred. Notwithstanding anything to
the contrary in this Section 8.3 but subject to Section 8.3(d)(provided that
Section 8.3(d) shall not apply to the Subject Litigation), Seller shall control
in all respects and in its sole discretion the defense of all matters relating
to the litigation and other matters set forth in Schedule 3.26 (including the
Subject Litigation) and Seller shall conduct such defense in a commercially
reasonable manner and with the same vigor as Seller and Seller Guarantor defend
other similar claims; provided further, however, that Seller shall not consent
to the entry of any judgment or enter into any settlement with respect to such
litigation or other matters that does not include as an unconditional term
thereof the giving by each claimant or plaintiff to the Company of a release
from all liability in respect of such claim and Seller shall provide Buyer with
prior written notice of Seller’s intention to cease to defend against any such
litigation. Buyer shall be entitled at any time at its sole cost and expense to

29

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

 

assume the defense of the Subject Litigation upon prior written notice to
Seller, at which time (i) Seller’s obligation to indemnify Buyer for the Subject
Litigation pursuant to this Article VIII shall terminate in all respects (except
with respect to any applicable Losses existing prior to such notice), and
(ii) the Subject Litigation shall become an Assumed Liability for which Buyer
shall indemnify Seller in accordance with the provisions of Section 8.2(b) with
respect to any applicable Losses occurring after such notice.
     8.4 Other Claims. A claim for indemnification for any matter not involving
a third-party claim shall be asserted by the Indemnified Party to the
Indemnifying Party in writing, setting forth specifically the obligation with
respect to which the claim is made, the facts giving rise to and the alleged
basis for such claim and, if known or reasonably ascertainable, the amount of
the liability asserted or which may be asserted by reason thereof, but any
failure to so notify the Indemnifying Party shall not relieve it from any
liability that it may have to the Indemnified Party other than to the extent the
Indemnifying Party is actually prejudiced thereby. In the event the Indemnifying
Party disputes its obligation to indemnify the Indemnified Party under this
Section 8.4 the Indemnifying Party shall have thirty (30) days after receipt of
notice under this Section 8.4 to give written notice of such objection, and the
grounds therefor, and the Indemnified Party shall thereafter have thirty
(30) days to respond in writing to the objection of the Indemnifying Party. If
after such thirty (30) day period there remains a dispute as to any obligation,
the parties shall attempt in good faith for thirty (30) days to agree upon the
rights of the respective parties with respect to such indemnification
obligation. Promptly, but in any event within three (3) Business Days following
the final determination of the amount of any Losses claimed by the Indemnified
Party (whether determined in accordance with this Section 8.4 or by a final,
non-appealable judgment by a court of competent jurisdiction), the Indemnifying
Party shall pay such Losses to the Indemnified Party by wire transfer of
immediately available funds or by certified check made payable to the order of
the Indemnified Party.
     8.5 Survival. Subject to the time limitations of this Section 8.5, all
representations, warranties, covenants and obligations contained in this
Agreement shall survive the Closing and the consummation of the transactions
contemplated by this Agreement. The representations and warranties of each party
contained in this Agreement shall survive the Closing for a period of two
(2) years following the Closing Date, provided, however, that (i) the
representations and warranties of Seller set forth in Sections 3.1 (Authority
and Enforceability), 3.3 (Ownership of Shares), 3.4 (Organization), 3.8
(Capitalization) and 3.14 (Title) shall survive indefinitely, and (ii) the
representations and warranties set forth in Sections 3.20 (Employee Benefit
Plans), 3.23 (Taxes), and 3.29 (Environmental Matters) shall survive until
60 days after the running of the applicable statute of limitations. Any claim
for indemnity under Sections 8.1(a) or 8.2(a) shall be asserted in writing
within the foregoing time periods, except for claims arising as a result of
fraud, willful breach or criminal liability, as to which the limitations of this
Section 8.5 shall not apply. The right to indemnification hereunder based upon
such representations, warranties, covenants and obligations shall not be
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution of this Agreement or the Closing Date, with respect to, the accuracy
or inaccuracy of or compliance with any such representation, warranty, covenant
or obligation.
     8.6 Indemnification Limitations.

30

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

 

     (a) Except for Losses relating to breaches of Sections 3.1, 3.3, 3.4, 3.8
and 3.23 and Losses arising as a result of fraud, willful breach or criminal
liability, as to which the limitations of this Section 8.6 shall not apply,
(i) Buyer’s Indemnified Persons may not assert any claim for Losses under
Section 8.1(a) until the aggregate amount of such claims under this Agreement
exceed $280,000 (the “Basket”), provided that, if the aggregate amount of all
Losses exceeds the Basket, then this subparagraph (i) shall cease to have effect
and Seller shall be liable for all Losses for which Seller would be liable
pursuant to this Article 8 without giving effect to this subparagraph (i),
including all Losses initially incurred up to the Basket; and (ii) in no event
shall the aggregate liability of Seller for claims of Losses under
Sections 8.1(a) and (b) exceed $10,000,000. For the avoidance of doubt, the
Basket and other limitations set forth in this Section 8.6(a) shall not apply to
Losses arising from Sections 8.1(c), (d), (e) or (f) or arising as a result of
fraud, willful breach or criminal liability.
     (b) Seller’s Indemnified Persons may not assert any claim for Losses under
Section 8.2(a) until the aggregate amount of such claims under this Agreement
exceed the Basket, provided that, if the aggregate amount of all Losses exceeds
the Basket, then this paragraph (b) shall cease to have effect and Buyer shall
be liable for all Losses for which Buyer would be liable pursuant to this
Article 8 without giving effect to this paragraph (b), including all Losses
initially incurred up to the Basket.
     (c) No Indemnified Person shall have a right to indemnification with
respect to any incidental, special, punitive or consequential damages incurred
or suffered by an Indemnified Person hereunder, and in no event shall Losses
include a Person’s incidental, special, punitive or consequential damages,
except for any consequential damages that may be duly proven with respect to
Losses relating to breaches of Sections 3.1, 3.3, 3.4, 3.8 and 3.23 and Losses
relating to fraud.
     (d) Indemnification payments shall be treated by the parties as an
adjustment to the Purchase Price, unless otherwise required by Law.
     (e) Buyer’s Indemnified Persons may not assert any claim for Losses related
to or in any way arising out of the non-competition provisions of (i) the
Employment and Non-Competition Agreement, dated January 16, 1998, with Art
Chatoff, as amended, or (ii) the Employment and Non-Competition Agreement, dated
January 16, 1998, with Glenn Gilliam, as amended, provided, however, that this
Section 8.6(e) shall not limit claims for Losses relating to the matters
identified in Section 8.1(c).
   8.7 Set-Off Rights. Any amounts due Buyer by Seller under this Agreement
(including, without limitation, pursuant to this Article 8) may, at the option
of Buyer, be set off against any amounts due Seller by Buyer under the
Subordinated Note, as such set-off shall be provided for in the Subordinated
Note. If Buyer offsets any amounts due Seller under the Subordinated Note, and a
final, non-appealable judgment by a court of competent jurisdiction or
subsequent settlement between the parties determines that such offset was
wrongful, the offset amount shall be paid to Seller with interest at a rate
equal to seven and one-half percent (7.50%) per annum.

31

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

 

     8.8 Exclusive Remedy. Each party hereby acknowledges and agrees that, from
and after the Closing Date, its sole and exclusive remedy for monetary damages
with respect to any and all claims for breach of representations, warranties,
and covenants relating to the subject matter of this Agreement shall be pursuant
to the indemnification provisions set forth in this Article 8. Notwithstanding
any implication herein to the contrary, (i) any party shall be entitled to seek
specific performance of (or other equitable relief with respect to) such rights
without posting a bond or other security, and (ii) each party shall have all
rights and remedies to which such Person is entitled at law (including common
law) or in equity with respect to any claim based on fraud, willful breach or
criminal liability.
IX. TERMINATION
     9.1 Termination. This Agreement may be terminated at any time prior to
Closing:
     (a) by mutual consent of Buyer and Seller;
     (b) by either Buyer or Seller at any time after the date that is the two
(2)-month anniversary of the date of this Agreement (the “Final Termination
Date”), provided that if the Closing shall not have occurred by the Final
Termination Date as the result of a breach of this Agreement, then any party
responsible for such breach may not avail itself of the right under this
Section 9.1, and provided further that in any such event, the non-breaching
party(ies) shall not be deprived of any remedy hereunder or at law against the
breaching party;
     (c) by Buyer, by giving written notice to Seller in the event Seller is in
material breach of any representation, warranty, covenant or agreement contained
in this Agreement, and such breach, individually or in combination with any
other such breach, (i) would cause any of the conditions set forth in
Section 7.1(a) or Section 7.1(b) not to be satisfied and (ii) is not cured
within ten (10) days following delivery by Buyer to Seller of written notice of
such breach;
     (d) by Seller, by giving written notice to Buyer in the event Buyer is in
material breach of any representation, warranty, covenant or agreement contained
in this Agreement, and such breach, individually or in combination with any
other such breach, (i) would cause the conditions set forth in Section 7.2(a) or
Section 7.2 (b) not to be satisfied and (ii) is not cured within ten (10) days
following delivery by Seller to Buyer of written notice of such breach;
provided, however, that if the Closing does not occur on or before September 29,
2006, such event shall not constitute a material breach of this Agreement.
     (e) by either Buyer or Seller if a court of competent jurisdiction or
Governmental Authority shall have issued an order, decree or ruling or taken any
other action, in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable; or

32

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

 

     (f) by Buyer, by giving written notice to Seller in the event (i) Seller
has within the previous ten (10) days updated the Schedules in accordance with
Section 5.5(b) above and (ii) such update has had a Material Adverse Effect or
such update when considered together with all other previous updates to the
Schedules in accordance with Section 5.5(b) have had in the aggregate a Material
Adverse Effect, other than updates to Schedule 1.3(a) in accordance with
Sections 1.3 and 1.4 as to which this Section 9.1(f) shall not apply; provided
however that in no event shall Buyer have less than two (2) business days to
review any update of the Schedules.
     9.2 Effect of Termination. In the event of termination of this Agreement by
either Buyer or Seller, as provided above, this Agreement shall forthwith
terminate and there shall be no liability on the part of either Seller or Buyer
or their respective Affiliates or Representatives, except (i) that Section 5.7,
this Section 9.2 and Article 10 shall survive any such termination and (ii) that
nothing herein shall relieve any party from liability for any breach of any
covenant in this Agreement prior to the termination hereof; provided, however,
in the event a party terminates this Agreement as a result of a material breach
by another party, in addition to any other remedies the non-breaching party may
have, the breaching party shall reimburse the non-breaching party for all of its
invoiced, out-of-pocket third party costs and expenses incurred directly in
connection with its due diligence investigation of the Business, financing its
acquisition of the Business and/or its preparation and negotiation of this
Agreement and the other agreements contemplated herein and for all other damages
arising out of, based upon or incurred in connection with such breach.
X. OTHER PROVISIONS
     10.1 Appendices, Exhibits and Schedules. All Recitals, Appendices, Exhibits
and Schedules referred to herein are intended to be and hereby are specifically
made a part of this Agreement. The Schedules provide information with respect
to, or otherwise qualify, the representations and warranties in the specific
sections of this Agreement that are expressly referenced in the Schedules and
such other sections of this Agreement to the extent that it is readily apparent
that such disclosure applies to such other section of this Agreement.
     10.2 Amendment. This Agreement and the Appendices, Exhibits and Schedules
hereto may not be amended except by an instrument in writing signed on behalf of
each of the parties hereto.
     10.3 No Waiver. No party shall be deemed to have waived compliance by any
other party with any provision of this Agreement unless such waiver is in
writing. No failure of any party to this Agreement to exercise any power given
it under this Agreement, or to insist upon strict compliance with any provision
of this Agreement, and no custom or practice at variance with the terms of this
Agreement shall constitute a waiver any such party’s right to demand strict
compliance with the terms of this Agreement.
     10.4 Entire Agreement; No Third Party Beneficiaries. This Agreement,
together with the Appendices, Exhibits and Schedules hereto, (a) constitutes the
entire Agreement between the parties pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or

33

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

 

written, of the parties, and (b) is not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder.
     10.5 Governing Law. This Agreement shall be governed by, construed,
interpreted and the rights of the parties determined in accordance with the laws
of the State of Michigan (regardless of the laws that might be applicable under
principles of conflicts of law).
     10.6 Waiver of Jury Trial. EACH OF THE PARTIES HERETO WAIVES TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN
RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED ON, OR ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY HERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE. THE PARTIES HERETO EACH HEREBY AGREES THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
     10.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) on the day of service if served personally
on the party to whom notice is given, (b) on the date of receipt if delivered by
telecopy or nationally recognized overnight courier, or (c) on the third (3rd)
business day after deposit in the U.S. mail if mailed to the party to whom
notice is given by registered or certified mail, postage prepaid, return receipt
requested and properly addressed as follows:
If to Seller, addressed to:
William C. Griffiths, Chairman, President & CEO
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, Michigan 48326-2566
Facsimile: 248-340-9345
with a copy to:
John J. Collins, Jr., Esq.
Champion Enterprises, Inc.
2701 University Drive, Suite 320
Auburn Hills, Michigan 48326-2566
Senior Vice President & General Counsel
Facsimile: 248-340-7773
with a copy (which will not constitute notice) to:

34

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

 

Dykema Gossett PLLC
39577 Woodward Avenue — Suite 300
Bloomfield Hills, Michigan 48304-2820
Attention D. Richard McDonald
Facsimile: 248-203-0763
If to Buyer, addressed to:
James Nichols
Managing Member
Encore Partners LLC
1895 Plumas Street, Suite 3
Reno, Nevada 89509
Facsimile: 775-825-9179
with a copy (which will not constitute notice) to:
Jaffe Raitt Heuer & Weiss, P.C.
27777 Franklin Road
Suite 2500
Southfield, MI 48034-8214
Attention: Jeffrey M. Weiss
Facsimile: 248-351-3082
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
     10.8 Counterparts; Headings. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings of the
several Articles and Sections herein are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. Copies (whether photostatic, facsimile or
otherwise) of this Agreement may be made and relied upon to the same extent as
an original.
     10.9 Expenses. Except as otherwise provided in Section 9.2, regardless of
whether the transactions contemplated hereby are consummated, each party hereto
shall pay its or their own costs and expenses, including legal, accounting,
consulting and other professional fees, incurred in connection with the
negotiation, preparation, investigation, and performance by such party of this
Agreement and the transactions contemplated hereunder.
     10.10 Construction.
     (a) The parties acknowledge that they have participated jointly in the
negotiation and drafting of the terms of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise

35

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

 

favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
     (b) Unless the context of this Agreement otherwise requires, (i) words of
any gender include each other gender; (ii) words using the singular or plural
number also include the plural or singular number, respectively; (iii) the terms
“hereof,” “herein,” “hereby” and derivative or similar words refer to this
entire Agreement; (iv) the terms “Article” or “Section” refer to the specified
Article or Section of this Agreement; (v) the term “including” (and with
correlative meaning “include”) means including without limiting the generality
of any description preceding such term. Whenever this Agreement refers to a
number of days, such number shall refer to calendar days unless Business Days
are specified. Unless otherwise specified herein, all accounting terms used
herein shall be interpreted and all accounting determinations hereunder shall be
made in accordance with GAAP.
     10.11 Successors and Assigns. No party may assign its rights and
obligations under this Agreement without the prior written consent of the other
parties; provided, however, that Buyer may assign its rights and obligations
hereunder to an affiliate of Buyer, provided that no such assignment shall
relieve Buyer from any of its obligations hereunder. This Agreement, and all
rights and powers granted hereby, will bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
     10.12 Buyer Guarantee. Encore Partners LLC (“Buyer Guarantor”) irrevocably
guarantees each and every representation, warranty, covenant, indemnity,
agreement and obligation of Buyer and the full and timely performance of its
obligations under the provisions of this Agreement, including without
limitation, the Subordinated Note. This is a guarantee of payment and
performance, and not of collection, and Buyer Guarantor acknowledges and agrees
that this guarantee is full and unconditional, and no release or extinguishment
of Buyer’s obligations or liabilities (other than in accordance with the terms
of this Agreement), whether by decree in any bankruptcy proceeding or otherwise,
shall affect the continuing validity and enforceability of this guarantee. Buyer
hereby waives, for the benefit of Seller, (i) any right to require Seller or the
Company as a condition of payment or performance of Buyer Guarantor to proceed
against Buyer or pursue any other remedies whatsoever and (ii) to the fullest
extent permitted by law, any defenses or benefits that may be derived from or
afforded by law that limit the liability of or exonerate guarantors or sureties,
except to the extent that any such defense is available to Buyer. Buyer
Guarantor understands that Seller is relying on this guarantee in entering into
this Agreement.
     10.13 Seller Guarantee. Champion Enterprises, Inc. (“Seller Guarantor”)
irrevocably guarantees each and every representation, warranty, covenant,
indemnity, agreement and obligation of Seller and the full and timely
performance of its obligations under the provisions of this Agreement. This is a
guarantee of payment and performance, and not of collection, and Seller
Guarantor acknowledges and agrees that this guarantee is full and unconditional,
and no release or extinguishment of Seller’s obligations or liabilities (other
than in accordance with the terms of this Agreement), whether by decree in any
bankruptcy proceeding or otherwise, shall affect the continuing validity and
enforceability of this guarantee. Seller hereby waives, for the benefit of
Buyer, (i) any right to require Buyer as a condition of payment or performance
of

36

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

 

Seller Guarantor to proceed against Seller or pursue any other remedies
whatsoever and (ii) to the fullest extent permitted by law, any defenses or
benefits that may be derived from or afforded by law that limit the liability of
or exonerate guarantors or sureties, except to the extent that any such defense
is available to Seller. Seller Guarantor understands that Buyer is relying on
this guarantee in entering into this Agreement.

37

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

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                  BUYER:   BAYSHORE ADVANTAGE LLC    
 
               
 
  By       /s/ James D. Nichols                       Name:   James D. Nichols  
 
 
         
 
        Title:   Managing Member    
 
         
 
   
 
                SELLER:   CHAMPION RETAIL, INC.    
 
               
 
  By       /s/ John J. Collins, Jr.                       Name:   John J.
Collins, Jr.         Title:   Vice President    
 
         
 
   
 
                BUYER GUARANTOR:   ENCORE PARTNERS, LLC    
 
               
 
  By       /s/ James D. Nichols                       Name:   James D. Nichols  
 
 
         
 
        Title:   Managing Member    
 
         
 
   
 
                SELLER GUARANTOR:   CHAMPION ENTERPRISES, INC.    
 
               
 
  By       /s/ John J. Collins, Jr.                       Name:   John J.
Collins, Jr.         Title:   Senior Vice President    

38

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

 

APPENDIX A
Definitions
For purposes of this Agreement, the following terms shall have the meanings
specified or referred to in this Appendix A:
     “Affiliate” means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such specified Person.
     “Agreement” is defined in the Preamble.
     “Assumed Liabilities” means (i) the Company’s trade accounts payable and
accruals for employee payroll, bonuses and related accruals, and customer
deposits incurred by the Company in the Ordinary Course of Business, as set
forth on the Closing Financial Information; (ii) all Liabilities of the Company
arising from and after the Closing Date with respect to the General Contracts;
and (iii) Liabilities related to Buyer Deals in Progress.
     “Basket” is defined in Section 8.6.
     “Business” is defined in the Recitals.
     “Business Day” means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
     “Buyer” is defined in the Preamble.
     “Buyer Deals in Progress” means all Deals in Progress other than Seller
Deals in Progress.
     “Buyer Group” is defined in Section 5.1.
     “Buyer Guarantor” is defined in Section 10.12.
     “Buyer’s Indemnified Persons” is defined in Section 8.1.
     “Closing” is defined in Section 2.1.
     “Closing Date” is defined in Section 2.1.
     “Closing Financial Information” is defined in Section 1.4.
     “Closing Net Working Capital” is defined in Section 1.2.
     “Closing Payment” is defined in Section 1.3.
     “COBRA” means the Consolidated Omnibus Budget Reconciliation Act.

APP A-1

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

 

     “Code” means the Internal Revenue Code of 1986, as amended.
     “Company” is defined in the Recitals.
     “Consent” means any consent, approval, authorization, permission,
ratification or waiver from, notice to, or registration or filing with, any
Person.
     “Contract” means any agreement, contract, subcontract, lease, instrument,
note, option, purchase order, work order, customer order, license or sublicense
or other commitment or undertaking of any nature (whether written or oral), in
each case that is legally binding.
     “Control” (including the terms “Controlling,” “Controlled by” and “under
common Control with”) means with respect to the relationship between or among
two or more Persons, the possession, directly or indirectly, or as trustee,
personal representative or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee, personal representative or executor,
by Contract or otherwise, including the ownership, directly or indirectly, of
securities having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person, and in any event and without
limiting the foregoing, any Person owning ten percent (10%) or more of the
voting securities of another Person shall be deemed to control that Person.
     “Current Assets” means the current assets (as determined in accordance with
GAAP) set forth on the Closing Financial Information.
     “Deals in Progress” means all pending contracts for the sale of Inventory
and any other sales transactions where a deposit has been received prior to the
Closing Date.
     “Employee Plans” means employment related plans, including but not limited
to, employment or consulting agreements, collective bargaining and supplemental
agreements, pension, profit sharing, incentive, bonus, deferred compensation,
retirement, stock option, stock purchase, severance, medical, hospitalization,
dental, prescription, life insurance, disability, vacation, salary continuation,
sick pay, welfare, fringe benefit and other employee benefit plans, contracts,
programs, policies and arrangements, whether written or oral.
     “Environmental Claim” means any and all administrative, regulatory or
judicial actions (including governmental actions and actions brought by
non-governmental persons), suits, orders, demands, claims, notices of violation,
investigations or proceedings or requests for information involving any Person
alleging liability arising out of or resulting from (A) alleged noncompliance
with any Environmental Laws or Environmental Permits; (B) alleged liability
arising out of any Environmental Laws or Environmental Permits; or (C) the
alleged presence, migration or Release of, or exposure to, any Hazardous
Substances at any location.
     “Environmental Laws” means all Laws, Environmental Permits, Governmental
Orders or legally binding agreements relating to pollution, conservation,
management or protection of endangered species, natural resources, human health
or the environment (including soils, air, groundwater, surface water and
sediments) and relating to the use, management, possession, generation,
transportation, treatment, storage, release or disposal of wastes and Hazardous

APP A-2

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

 

Substances and includes but is not limited to the Federal Clean Air Act, the
Federal Water Pollution Control Act, the Federal Resource Conservation and
Recovery Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Hazardous Materials Transportation Act, the
Federal Toxic Substances Control Act, the Federal Atomic Energy Act of 1954, the
Federal Nuclear Waste Policy Act, the Federal Low-Level Radioactive Waste Policy
Act, and the Federal Insecticide, Fungicide, and Rodenticide Act, and the rules
and regulations promulgated thereunder.
     “Environmental Permits” means Permits which are or have been required under
or are or have been issued pursuant to Environmental Laws.
     “ERISA” is defined in Section 3.20.
     “ERISA Affiliate” is defined in Section 3.20.
     “Estimated Purchase Price” is defined in Section 1.3.
     “Excluded Liabilities” means all Liabilities of the Company other than
Assumed Liabilities. Notwithstanding anything to the contrary in this Agreement,
the “Excluded Liabilities” shall include, without limitation: (i) any liability
or obligation of the Company under the Environmental Laws with respect to solid
waste or Hazardous Substances which have been transported by or on behalf of the
Company for offsite disposal on or prior to the Closing Date; (ii) any liability
or obligation relating to any investigation, remediation or monitoring of
Hazardous Substances which were present, as of the Closing Date, in the ground
water, surface water or surface or subsurface soil of any real property owned or
leased by the Company or their predecessors in interest on or at anytime before
the Closing Date; (iii) any liability or obligation of the Company for any
violation of the Environmental Laws, including, without limitation, any fine or
penalty arising from any permit violations related to Environmental Laws,
occurring on or prior to the Closing Date; (iv) any liability for Taxes imposed
on or relating to the Company, the Business or the Company’s assets for any
period (or any portion thereof) that ends on or prior to the Closing Date
(including any Taxes arising in connection with the consummation of the
transactions contemplated hereby); (v) any liability or obligation with respect
to claims for bodily injury or property damage of any kind, type or description
which arises out of any act or occurrence on or prior to the Closing Date;
(vi) any liability or obligation of the Company to pay fees for professional
services (e.g. legal, accounting or broker fees) as a result of the transactions
contemplated by this Agreement; (vii) any actual or alleged defect in any
product manufactured by the Company, Seller or their respective Affiliates on or
prior to the Closing Date, but only to the extent that the purchase and sale of
such product closed on or prior to the Closing Date and does not relate to a
Buyer Deal in Progress; (viii) any liability for Taxes of Seller or any other
Person under Reg. §1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise; and
(ix) any liability of the Company or Champion Enterprises, Inc. for equity-based
compensation due to employees of the Company as disclosed in item 7 of
Schedule 3.9 to this Agreement.
     “Final Purchase Price” is defined in Section 1.4.
     “Final Termination Date” is defined in Section 9.1.

APP A-3

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

 

     “Financial Statements” is defined in Section 3.9.
     “FMLA” means the Family Medical Leave Act, as amended.
     “GAAP” means United States generally accepted accounting principles and
practices, consistently applied throughout the specified period.
     “General Contracts” mean the written Contracts to which the Company is a
party set forth on the attached Schedule A-1.
     “Governmental Authority” means the government of the United States or any
foreign country or any state or political subdivision thereof and any entity,
agency, body or authority exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
     “Governmental Order” means any legally binding order, writ, judgment,
injunction, decree, stipulation, award or determination of any Governmental
Authority.
     “Hazardous Substance” means any and all substances, chemicals or wastes
which have been defined or classified as hazardous, toxic or harmful pursuant to
any Environmental Laws, or which are regulated and/or listed pursuant to or
under, or identified in, any Environmental Law, including but not limited to
petroleum and each of its fractions, products, chemical constituents and
by-products, urea formaldehyde foam insulation, polychlorinated biphenyls, and
asbestos in any form.
     “HIPAA” means the Health Insurance Portability and Accountability Act of
1996.
     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act.
     “Indemnified Party” is defined in Section 8.3.
     “Indemnifying Party” is defined in Section 8.3.
     “Intellectual Property Rights” means all intellectual property owned or
licensed (as licensor or licensee) by the Company in which the Company has a
proprietary interest, including:
     (i) The Company’s name, all assumed fictional business names, trade names,
registered and unregistered trademarks, service marks and applications
(collectively, “Marks”);
     (ii) all patents, patent applications and inventions and discoveries that
may be patentable (collectively, “Patents”);
     (iii) all registered and unregistered copyrights in both published works
and unpublished works and all rights in mask works (collectively, “Copyrights”);
     (iv) all know-how, trade secrets, confidential or proprietary information,
customer and supplier lists, Software, technical information,

APP A-4

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

 

manufacturing processes, business practices, customer and supplier
relationships, data, process technology, plans, (collectively, “Trade Secrets”);
     (v) “Software” means all computer software and subsequent 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, materials, manuals, design notes and other items and
documentation related thereto or associated therewith; and
     (vi) all rights in internet web sites and internet domain names presently
used by the Company (collectively “Net Names”).
     “Interim Services Agreement” is defined in Section 7.1.
     “Inventory” means:
     (i) all New Homes Inventory;
     (ii) all WIP Inventory; and
     (iii) all Other Inventory.
     “knowledge of Seller” and words of similar import mean, with respect to any
matter in question, the actual knowledge of any of Phyllis Knight, John Collins,
Jay Kreindler, Pam Svendsen, Tom DaRosa, Curtis Ford, Ray Medina, Ara Sarkisian,
and Dan Valcazar after reasonable inquiry and investigation under the
circumstances.
     “Law” means any law, ordinance, code, statute, rule, regulation, order,
judgment, injunction, award, or decree of any court, arbitrator, administrative
agency, regulatory body or authority and governmental body or authority, whether
federal, state, local or foreign.
     “Leased Real Property” is defined in Section 3.17.
     “Legal Expenses” means reasonable attorney’s, accountants’, and experts’
fees, and expenses reasonably sustained or incurred in connection with the
defense of any Losses.
     “Liabilities” means any and all debts, liabilities, guarantees, commitments
and obligations, whether fixed, contingent or absolute, asserted or unasserted,
matured or unmatured, liquidated or unliquidated, accrued or not accrued, known
or unknown, due or to become due, whenever or however arising.
     “Lien” means any pledge, lien (including without limitation any tax lien),
charge, encumbrance, security interest, mortgage, option, restriction on
transfer (including without limitation any buy-sell agreement or right of first
refusal or offer), forfeiture, penalty, license, equity or other right of
another Person of every nature and description whatsoever.
     “Line of Credit” is defined in Section 1.3.

APP A-5

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

 

     “Losses” is defined in Section 8.1.
     “Material Adverse Effect” means any event, change, development or effect
that is materially adverse to (a) the Business, assets, Liabilities or financial
condition of the Company, or (b) the ability of Seller to consummate the
transactions contemplated by this Agreement, provided, however, that none of the
following shall be deemed, either alone or in combination, to constitute a
Material Adverse Effect, nor shall any of the following be taken into account in
determining whether there has been a Material Adverse Effect: any event, change,
development or effect resulting from or arising out of (i) the announcement of
this Agreement, the pendency or consummation of the transactions contemplated
hereby or the identity of Buyer; (ii) the performance by Seller of its
respective obligations under this Agreement; (iii) actions or effects caused by
or under the responsibility of Buyer; (iv) general economic conditions in the
United States; (v) general conditions in the industries in which the Company
conducts the Business; or (vi) any natural disaster or any acts of terrorism,
sabotage, military action or war (whether or not declared) or any escalation or
worsening thereof.
     “Material Contracts” is defined in Section 3.21.
     “Net Working Capital Adjustment” is defined in Section 1.2.
     “New Homes Inventory” means all the new or used mobile homes, manufactured
housing or modular housing inventory and all parts, accessories, and attachments
thereto.
     “Notice of Disagreement” is defined in Section 1.4.
     “Ordinary Course of Business” means the usual and ordinary course of
business consistent with past custom and practice of the Company.
     “Ordinary Course Warranty Claims” means claims or request of customers for
service and or repair under written warranty agreements given by the Seller in
the Ordinary Course of Business.
     “OSHA” means the Occupational Safety and Health Act of 1970.
     “Other Inventory” means all rights to residential real property park
spaces, land inventory and other similar rights for the placement of homes.
     “Owned Real Property” is defined in Section 3.16.
     “Permits” means all permits, approvals, consents, registrations, licenses,
certificates, variances or other authorizations granted by or obtained from any
Governmental Authority.
     “Permitted Lien” means any of the following (a) Liens imposed by Law for
Taxes, assessments, charges, levies or other claims not yet delinquent, or the
validity of which are being contested in good faith by appropriate proceedings
and the Company has established adequate reserves on its books with respect
thereto; (b) materialmen’s, mechanics’, carriers’, warehousemen’s, workmen’s,
repairmen’s and other like Liens imposed by Law, arising in the Ordinary Course
of Business and securing Liabilities that are not overdue by more than sixty

APP A-6

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

 

(60) days or the validity of which are being contested in good faith by
appropriate proceedings; (c) pledges or deposits to secure obligations under
workers’ compensation Laws or similar legislation or to secure public or
statutory obligations; (d) Liens, irregularities, easements, reserves,
servitudes, encroachments, rights of way or other imperfections of title or
possession that do not secure the payment of money and otherwise do not
materially interfere with the occupation, use and enjoyment by the Company of
any of the affected property in the Ordinary Course of Business or materially
impair the value of such affected property; (e) registered easements,
rights-of-way, restrictive covenants and servitudes and other similar rights in
land granted to, reserved or taken by any Governmental Authority or public
utility or any registered subdivision, development, servicing, site plan or
other similar agreement with any Governmental Authority or public utility which
do not materially interfere with the occupation, use and enjoyment by the
Company of any of the affected property in the Ordinary Course of Business or
materially impair the value of such affected property; and (f) customary
contractual provisions providing for retention of title to goods until payment
is made.
     “Person” or “person” means an individual, a partnership, limited
partnership, a corporation, a limited liability company, proprietorship, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, union, any other business entity, or a Governmental Authority (or
any department, agency, or political subdivision thereof).
     “Personal Property” means all tangible personal property and interests
therein, including, but not limited to, all machinery, equipment, tools, dies,
jigs, patterns, molds, trade fixtures, furniture, furnishings, vehicles,
computer hardware, drawings, designs and blue prints
     “Pre-Closing Balance Sheet” is defined in Section 3.9.
     “Proceeding” means any claim, action, charge, complaint, suit, litigation,
arbitration, grievance, inquiry, proceeding, hearing, audit, examination or
investigation (including any civil, criminal, administrative, investigative or
appellate proceeding) by or before any Governmental Authority or arbitrator.
     “Purchase Price” is defined in Section 1.2
     “Real Property” means other than Inventory, all real property, leaseholds
and other interests in real property of the Company, including, but not limited
to, the Owned Real Property listed on Schedule 3.16 and the Leased Real Property
listed on Schedule 3.17, in each case together with the Company’s right, title
and interest in all buildings, improvements, fixtures and all appurtenances
thereto.
     “Real Property Leases” is defined in Section 3.17.
     “Receivables” means all accounts receivable, notes receivable and other
amounts receivable from third parties.
     “Registered Intellectual Property” is defined in Section 3.25.

APP A-7

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

 

     “Release” means any actual or threatened release, spill, emission, leaking,
dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching
or migration into or through the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata) or within any building,
structure, facility or fixture.
     “Representative” means with respect to a particular Person, any director,
officer, manager, employee, agent, consultant, advisor, accountant, financial
advisor, legal counsel or other representative of that Person.
     “Repurchase Agreement” means the appropriate repurchase agreement with any
lender to Buyer which repurchase agreement provides that, upon Buyer’s default,
Seller shall repurchase new manufactured housing product manufactured by Seller
or its affiliates, purchase either at or following the Closing Date.
     “Reviewing Accountant” is defined in Section 1.4.
     “Securities Act” means the Securities Act of 1933, as amended.
     “Seller” is defined in the Preamble.
     “Seller Deals in Progress” means those Deals in Progress for which (i) a
closing with a customer has occurred, (ii) delivery of the home has been made,
and (iii) the funds have been received within three (3) business days after the
Closing Date.
     “Seller Guarantor” is defined in Section 10.13.
     “Seller’s Indemnified Persons” is defined in Section 8.2.
     “Shares” is defined in the Recitals.
     “Significant Customer” is defined in Section 3.22.
     “Significant Supplier” is defined in Section 3.22.
     “Subject Litigation” is defined in Section 8.1.
     “Subordinated Note” is defined in Section 1.3.
     “Subordination Agreement” is defined in Section 1.3.
     “Supply Agreement” is defined in Section 7.1.
     “Target Net Working Capital” is defined in Section 1.2.
     “Tax” or “Taxes” means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code §59A),
duties including customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real

APP A-8

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

 

property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
whether computed on a separate or consolidated, unitary or combined basis or in
any other manner, including any interest, penalty, deficiency, or addition
thereto, whether disputed or not and including any obligation to indemnify or
otherwise assume or succeed to the liability for Taxes of any other Person.
     “Tax Return” means any report, return, declaration, statement or other
information required to be supplied to a taxing authority in connection with
Taxes.
     “WARN” is defined in Section 3.19.
     “WHCRA” means the Women’s Health and Cancer Rights Act of 1998, as amended.
     “WIP Inventory” means all skirting, transportation costs, decks and
improvements to home locations in preparation for sale.

APP A-9