exv10w1



 





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	 







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	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	 






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	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







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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.





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     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





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     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.





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     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.





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     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