Sample Contracts - Stock Purchase Agreement - Meditrust Corp. and Golf Acquisitions LLC

Sample Business Contracts

STOCK PURCHASE AGREEMENT dated as of February 10, 1999 by and among Meditrust Corporation, a Delaware corporation, and Meditrust Operating Company, a Delaware corporation and Golf Acquisitions, L.L.C., a Delaware limited liability company <PAGE> TABLE OF CONTENTS ARTICLE I PURCHASE OF SHARES;CLOSING Section 1.1 Purchased Shares Section 1.2 Deposit; Liquidated Damages Section 1.3 Purchase Price Section 1.4 Closing Section 1.5 Transactions at Closing Section 1.6 Allocation of Purchase Price Section 1.7 Time of the Essence ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS Section 2.1 Organization of the Sellers and the Acquired Companies; Authority Section 2.2 Capitalization; Subsidiaries Section 2.3 No Conflict Section 2.4 Financial Statements; Undisclosed Liabilities; Financial Condition Section 2.5 Absence of Certain Changes Section 2.6 Consents and Approvals Section 2.7 Litigation Section 2.8 Taxes Section 2.9 Employee Benefit Plans Section 2.10 Assets; Properties Section 2.11 Labor and Employment Matters Section 2.12 Contracts and Commitments Section 2.13 Intellectual Property Section 2.14 Environmental Matters Section 2.15 Compliance with Laws; Permits Section 2.16 Insurance Section 2.17 Brokers Section 2.18 Disclaimer; Knowledge; Disclosure; Material Adverse Effect ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER Section 3.1 Organization of the Buyer; Authority Section 3.2 No Conflict Section 3.3 Consents and Approvals Section 3.4 Litigation Section 3.5 Financing Section 3.6 Brokers Section 3.7 Investment Intent Section 3.8 Buyer's Knowledge ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS OF THE BUYER AND SELLER Section 4.1 Conduct of Business Prior to Closing Section 4.2 Investigation Section 4.3 Access to Information Section 4.4 Confidentiality Section 4.5 Regulatory and Other Authorizations; Consents Section 4.6 Further Action Section 4.7 Press Releases Section 4.8 No Solicitation Section 4.9 Tax Cooperation; Structuring Matters Section 4.10 Repair of Damage; Condemnation Section 4.11 Liquor Licenses Section 4.12 Environmental Assessments Section 4.13 Property Holdback Rights Section 4.14 Observation Rights; Certain Communications ARTICLE V EMPLOYEE MATTERS Section 5.1 Employees Section 5.2 Employee Benefits Section 5.3 Other Employee Benefits Section 5.4 Indemnity Section 5.5 No Third Party Beneficiaries ARTICLE VI TAX MATTERS Section 6.1 Conveyance Taxes; Costs Section 6.2 Treatment of Indemnity Payments Section 6.3 Employee Withholding ARTICLE VII CONDITIONS TO CLOSING Section 7.1 Conditions to the Obligations of Each Party Section 7.2 Conditions to Obligations of the Sellers Section 7.3 Conditions to Obligations of the Buyer ARTICLE VIII INDEMNIFICATION Section 8.1 Survival Section 8.2 Indemnification by the Sellers Section 8.3 Indemnification by the Buyer ARTICLE IX TERMINATION, AMENDMENT AND WAIVER Section 9.1 Termination Section 9.2 Effect of Termination Section 9.3 Waiver ARTICLE X GENERAL PROVISIONS Section 10.1 Notices Section 10.2 Certain Definitions Section 10.3 Interpretation Section 10.4 Counterparts Section 10.5 Entire Agreement; No Third Party Beneficiaries; Severability Section 10.6 Amendment Section 10.7 Governing Law Section 10.8 Assignment Section 10.9 Expenses EXHIBITS LIST Exhibit A Companies and Acquired Shares Exhibit B Subsidiaries Owned by the Companies Exhibit C Form of Escrow Agreement Exhibit D Form of Transferor's Certificate of Non-Foreign Status SCHEDULES LIST Schedule 1.6(a) Purchase Price Allocation Schedule 1.6(b) Fair Market Value of MGG and MGG II Assets Schedule 2.2(a) Company Capitalization Schedule 2.2(b) Company Subsidiaries Schedule 2.3 Conflicts of Sellers Schedule 2.4 October Financial Statements Schedule 2.5 Absence of Certain Changes Schedule 2.6(a) Governmental Consents Schedule 2.6(b) Third-Party Consents Schedule 2.7 Litigation Schedule 2.8 Taxes Schedule 2.9 Employee Benefit Matters Schedule 2.10(a) Owned Properties Schedule 2.10(b) Leased Properties Schedule 2.10(c) Property Restrictions Schedule 2.10(d) Property Taxes Schedule 2.11(a) Employment Matters Schedule 2.11(b) Labor Matters Schedule 2.12(a) Certain Contracts Schedule 2.12(b) Certain Contract Exceptions Schedule 2.13 Intellectual Property Schedule 2.14 Environmental Matter Schedule 2.15 Compliance with Laws; Permits Schedule 2.16 Insurance Schedule 2.18(b) Qualifying Materials Schedule 3.2 Conflicts of Buyer Schedule 3.3(a) Government Consents Schedule 3.3(b) Third- Party Consents Schedule 4.1(a)(I) Conduct of Business Schedule 4.1(c) Exceptions to Restrictions on Conduct of Business Schedule 4.7 Form of Press Release Schedule 4.12 Environmental Assessments Schedule 4.13 Property Holdback Rights Schedule 6.4 Allocation for Cobblestone Assets Schedule 7.3(b) Required Consents DEFINED TERMS Agreement REITCO OPCO Sellers Buyers MGG Cobblestone MGG II Companies Subsidiaries Acquired Companies Acquired Shares Transfer Escrow Agent Deposit Escrow Fund Escrow Agreement Liquidated Damages Code Qualifying Income IRS Purchase Price Closing Balance Sheet GAAP Closing Adjustment Review Period Disputed Items Arbitrating Accountant Closing Closing Date Allocation Schedule October Balance Sheet October Financial Statements Severance Arrangements Retention Bonuses Governmental Authority HSR Act IRS Taxes Tax Return Benefit Plans ERISA ERISA Affiliate Owned Properties Land Improvements Leasehold Lease Leased Properties Leased Improvements Properties Property Restrictions Existing Debt Intellectual Property Rights Environmental Reports Environmental Laws Environmental Condition Environmental Liabilities and Costs Law Governmental Order Confidential Memorandum Review Room Qualifying Materials Sellers' Knowledge Material Adverse Effect Buyer's Knowledge Club Representatives Confidentiality Agreement Notification Form Acquisition Proposal Proposal Superior Proposal Phase II Investigations Holdback Designation Date Holdback Property Holdback Letter Allocated Value Holdback Property Closing Date Sellers' Designees Acquired Companies Employees WARN Required Consents Buyer Indemnified Party Organizational Reps Tax Reps Benefit Plan Reps Broker's Fee Reps Indemnified Disputes Excluded Claims Indemnification Cut-Off Date Threshold Amount Maximum Amount Seller Indemnified Party Significant Environmental Liabilities Baseline Condition Affiliate Business Day Encumbrance Losses Person Subsidiary Significant Subsidiary <PAGE> STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of this 10th day of February, 1999, by and among MEDITRUST CORPORATION, a Delaware corporation ("REITCO"), MEDITRUST OPERATING COMPANY, a Delaware corporation ("OPCO" and, together with REITCO, the "Sellers" and, each individually, a "Seller") and GOLF ACQUISITIONS, L.L.C., a Delaware limited liability company (the "Buyer"). WHEREAS, as set forth on Exhibit A hereto, REITCO owns all of the issued and outstanding capital stock of Meditrust Golf Group, Inc., a Delaware corporation ("MGG"); WHEREAS, as set forth on Exhibit A hereto, OPCO owns all of the issued and outstanding capital stock of The Cobblestone Golf Companies, Inc., a Delaware corporation ("Cobblestone"); WHEREAS, as set forth on Exhibit A hereto, REITCO owns, or will own as of the Closing Date (as hereinafter defined), all of the issued and outstanding capital stock of Meditrust Golf Group II, Inc., a Delaware corporation ("MGG II" and, together with MGG and Cobblestone, the "Companies"; and each individually, a "Company"); WHEREAS, the Companies directly or indirectly own all (except as disclosed on Schedule 2.2(b) hereto) of the issued and outstanding capital stock of those entities set forth on Exhibit B hereto (collectively, the "Subsidiaries" and, each individually, a "Subsidiary" and, together with the Companies, the "Acquired Companies" and, each individually, an "Acquired Company"); WHEREAS, the Acquired Companies are engaged in the ownership, leasing, and operation of golf course properties; and WHEREAS, the Sellers desire to sell and the Buyer desires to purchase all of the issued and outstanding capital stock (the "Acquired Shares") of the Companies. NOW THEREFORE, in consideration of the mutual agreements and covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I PURCHASE OF SHARES; CLOSING Section 1.1 Purchased Shares. Subject to the terms and conditions set forth in this Agreement, at the Closing (as hereinafter defined), each Seller shall sell, assign, transfer, convey and deliver (the "Transfer") to the Buyer, from each such Seller, and the Buyer shall buy and receive from each such Seller all, and not less than all, of such Seller's right, title and interest as of the Closing Date, in and to the Acquired Shares as set forth on Exhibit A hereto. Section 1.2 Deposit; Liquidated Damages. (a) No later than the first Business Day (as hereinafter defined) after the date this Agreement is executed and delivered by all parties hereto, the Buyer shall deliver to Stewart Title Guaranty Company, as escrow agent (the "Escrow Agent"), the sum of Fifteen Million-Four Hundred-Forty Thousand U.S. Dollars (US$15,440,000) (the "Deposit"). The Deposit shall be held in escrow by the Escrow Agent in an interest-bearing account (the "Escrow Fund") subject to the Escrow Agreement substantially in the form of Exhibit C attached hereto (the "Escrow Agreement"), and, subject to the terms and conditions set forth below with respect to the termination of this Agreement, shall be delivered, together with interest earned thereon, to the Sellers at Closing (as hereinafter defined) as a credit against the Purchase Price (as hereinafter defined): (i) In the event of the termination of this Agreement pursuant to Section 9.1(a), 9.1(d), 9.1(e) or 9.1(f), following expiration of the five (5) business day time period provided for in Section 3(b) of the Escrow Agreement, Buyer shall receive (in addition to those rights (if any) that it may have under Section 9.2(b) hereof in connection with a termination pursuant to Section 9.1(f) only), as its sole and exclusive remedy (subject to this Section 1.2(a)(i) with respect to any impediment by the Sellers to delivery of the Escrow Fund to the Buyer), the Deposit, together with all interest (if any) actually earned thereon, and each party shall be relieved and released from any further liability and obligation hereunder subject to any continuing obligations pursuant to Section 4.4. In the event Buyer is entitled to receive the return of the Deposit pursuant to this Section 1.2(a)(i), if the Sellers directly or indirectly impede the prompt payment by the Escrow Agent from the Escrow Fund as described in Section 1.2(a) above, the Sellers shall be obligated to pay all costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect such payment, together with interest on the amount of any unpaid amount from the date such amount was required to be paid at an interest rate equal to the prime rate published by The Wall Street Journal from time to time; and (ii) In the event of the termination of this Agreement pursuant to Section 9.1(b) or Section 9.1(c), following expiration of the five (5) business day time period set forth in Section 3(a) of the Escrow Agreement, the Buyer's sole right to receive payment from the Escrow Fund shall be as set forth in Section 1.2(c) hereof and the Sellers shall be entitled to payments from the Escrow Fund when, as and if permitted by Section 1.2(b) hereof. Such entitlement to receive payments from the Escrow Fund shall represent Sellers' sole and exclusive remedy in connection with such termination (subject to this Section 1.2(a)(ii) with respect to any Buyer impediment to payments from the Escrow Fund) and shall constitute liquidated damages (the "Liquidated Damages"), and each party shall be relieved and released from any further liability and obligation hereunder subject to any continuing obligations pursuant to Section 4.4. Sellers and the Buyer agree that actual damages accruing from such a termination of this Agreement are incapable of precise estimation and would be difficult to prove, that the rights stipulated in this Section 1.2 bear a reasonable relationship to the potential injury likely to be sustained in the event of such a breach and that the stipulated rights are intended by the parties to provide just compensation in the event of such a breach and are not intended to compel performance or to constitute a penalty for nonperformance. In the event Sellers are entitled to receive the Deposit (or the Escrow Fund, as applicable) pursuant to this Agreement or the Escrow Agreement, as applicable, if the Buyer directly or indirectly impedes the prompt payment by the Escrow Agent from the Escrow Fund as described in Section 1.2(b) below, the Buyer shall be obligated to pay all costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect such payment, together with interest on the amount of any unpaid amount from the date such amount was required to be paid at an interest rate equal to the prime rate published by The Wall Street Journal from time to time. The parties hereby acknowledge that the agreements contained in this Section 1.2 are an integral part of the transactions contemplated by this Agreement. (b) In the event of a termination described in Section 1.2(a)(ii) hereof, following the expiration of the five (5) business day time period set forth in Section 3(a) of the Escrow Agreement (if applicable), the Buyer and the Sellers agree that the Escrow Agent may not make payments from the Escrow Fund to Buyer or the Sellers except as provided in Section 1.2(c), with respect to the Buyer, and this Section 1.2(b), with respect to the Sellers. The Escrow Fund or any portion thereof shall not be released to the Sellers unless the Escrow Agent receives any one or combination of the following: (x) a letter from REITCO's certified public accountants indicating the maximum amount that can be paid by the Escrow Agent to the Sellers without causing REITCO to fail to meet the requirements of Sections 856(c)(2) and (3) of the Internal Revenue Code of 1986, as amended (the "Code") determined as if the payment of such amount did not constitute income described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as determined by REITCO's certified public accountant, or a subsequent letter from REITCO's accountants revising such amount, in which case the Escrow Agent will release to the Sellers the amount(s) so specified in said accountants' letters, or (y) a letter from REITCO's counsel indicating that REITCO received a ruling from the Internal Revenue Service (the "IRS") holding that the receipt by REITCO of the amounts from the Escrow Fund would either constitute Qualifying Income or would be excluded from gross income within the meaning of Section 856(c)(2) and (3) of the Code (or alternatively, REITCO's legal counsel has rendered a legal opinion to REITCO to the effect that the receipt by the Sellers of the amounts from the Escrow Fund would either constitute Qualifying Income or would be excluded from gross income within the meaning of Sections 856(c)(2) and (3) of the Code), in which case the Escrow Agent will release to the Sellers the amount of the Escrow Fund so specified in said accountants' letters. The Buyer agrees to amend this Section 1.2 at the request of REITCO as may reasonably be necessary (and without additional cost, burden or liability to the Buyer, in excess of de minimis amounts) in order to (i) maximize the portion of the Escrow Fund that may be distributed to the Sellers hereunder without causing REITCO to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code, (ii) improve REITCO's chances of securing a favorable ruling described in this Section 1.2(b), or (iii) assist REITCO in obtaining a favorable legal opinion from its counsel as described in this Section 1.2(b); provided that REITCO's legal counsel has rendered a legal opinion to REITCO to the effect that such amendment would not cause REITCO to fail to meet the requirements of Section 856(c)(2) or (3) of the Code. (c) Any portion of the foregoing Escrow Fund remaining on the fifteenth anniversary of the date of its establishment will be released by the Escrow Agent to the Buyer. Section 1.3 Purchase Price; Closing Adjustment. (a) Subject to the terms and conditions set forth in this Agreement, at the Closing, the Buyer shall pay, or cause to be paid, to REITCO and OPCO, in accordance with the terms of this Agreement, the aggregate amount of Three Hundred Ninety-One Million Two Hundred Seventy-Eight Thousand U.S. Dollars (US$391,278,000), subject to Section 4.13, minus the sum as reflected on the Closing Balance Sheet of (i) long-term debt, less current portion, (ii) capital lease obligations, less current portion, and (iii) deferred purchase price liabilities, less current portion (the resulting amount shall be referred to as the "Purchase Price"). At the Closing, the Buyer shall pay, or cause to be paid, the Purchase Price (A) by the Escrow Agent delivering to the Sellers the Deposit, together with interest earned thereon, and (B) by wire transfer of immediately available funds to a bank account or accounts jointly designated by the Sellers in an amount equal to the Purchase Price, less the Deposit and interest earned thereon delivered by the Escrow Agent to the Sellers. (b) Within forty-five (45) days after the Closing Date, Sellers shall prepare and Pricewaterhouse Coopers LLP shall deliver to the Buyer an audited combined consolidated balance sheet of the Acquired Companies as of the Closing Date (the "Closing Balance Sheet"), prepared in accordance with generally accepted accounting principles in the United States, as in effect from time to time, applied on a consistent basis ("GAAP"), which sets forth the book values of the assets and the liabilities of the Acquired Companies as of the Closing Date, and a calculation of the Closing Adjustment to the Purchase Price. The "Closing Adjustment" shall be a positive or negative number equal to (A)(i) the sum of the book values determined in accordance with GAAP of: (a) cash and cash equivalents less $5,278,000 (which may be a negative number), plus (b) accounts receivable (excluding receivables over 90 days old), inventory, prepaid expenses and other current assets, current portion of notes receivable (net), and notes receivable (net) (representing the long-term portion of notes receivable related to membership sales) as included in the Closing Balance Sheet, minus (ii) the sum of the balances determined in accordance with GAAP of: accounts payable, accrued payroll and related expenses, other current liabilities, deferred revenue (excluding deferred revenue related to membership initiation fees), income taxes payable, accrued property taxes, accrued sales tax, current portion of deferred purchase price, current portion of long term debt, current portion of capital lease obligations, minority interest, accrued rent and any inter-company debt, as included in the Closing Balance Sheet; provided, however, that in no event shall amounts (if any) which may be or may become due and payable under the Retention Bonuses (as defined in Section 2.5(d) hereof) or the Severance Arrangements (as defined in Section 2.5(d) hereof) be included, through accrual or otherwise, in the calculation of the Closing Adjustment. Notwithstanding the actual date of the Closing, in the event the Closing occurs after March 31, 1999, the Closing Adjustment shall be calculated as of March 31, 1999. (c) The Buyer and their independent public accountants, KPMG Peat Marwick, LLP, shall be entitled to make an independent review of the Closing Balance Sheet and related calculation of the Closing Adjustment and shall, during the fifteen (15) day period after delivery of the Closing Balance Sheet and related calculation of the Closing Adjustment (the "Review Period"), have access to all relevant work papers of Pricewaterhouse Coopers LLP used to audit the Closing Balance Sheet and the Closing Adjustment. (d) Before expiration of the Review Period, the Buyer shall deliver to the Sellers its objection, if any, in writing to the calculation of the Closing Adjustment, together with details of the disputed items (the "Disputed Items") set forth in the Closing Balance Sheet and the proposed adjustments to such items. If the Buyer fails to provide notice of objection prior to the end of the Review Period, then the Closing Balance Sheet and the calculation of the Closing Adjustment by Pricewaterhouse Coopers LLP shall be final and binding on all the parties. If the Buyer so notifies the Sellers prior to the end of the Review Period of the Buyer's disapproval of the calculation of the Closing Adjustment or the Closing Balance Sheet audited by Pricewaterhouse Coopers LLP, then the Buyer and the Sellers shall attempt to reach agreement with respect to the Disputed Items. In the event that the Buyer and the Sellers are unable to reach agreement on the Disputed Items, then either shall be entitled to refer the matter to a nationally recognized accounting firm, independent of the Sellers and the Buyer, mutually agreed upon by the Buyer and the Sellers, provided, that if the Buyer and the Sellers are unable to agree upon such accounting firm within a period of fifteen (15) days from the receipt by the Sellers of the Buyer's objection, such accounting firm shall be chosen at random by the Buyer and the Sellers from among the "Big Five" accounting firms which are independent of the Buyer and the Sellers (the "Arbitrating Accountant"). The Arbitrating Accountant shall determine the Disputed Items and calculate the Closing Adjustment within twenty (20) days after the Disputed Items are submitted to them, and such determination shall be final and binding upon all the parties. The fees and expenses of the Arbitrating Accountants shall be paid 50% by the Buyer and 50% by the Sellers. (e) The amount of the Closing Adjustment as finally determined shall be paid in cash, within five (5) business days after final determination of the Closing Adjustment. If the Closing Adjustment is a positive number, then the Buyer shall promptly pay to the Sellers by wire transfer of immediately available funds to a bank account or accounts jointly designated by the Sellers the dollar amount of the Closing Adjustment. If the Closing Adjustment is a negative number, then the Sellers shall promptly pay to the Buyer by wire transfer of immediately available funds to a bank account or accounts designated by the Buyer the amount of such deficit. Section 1.4 Closing. The closing of the Transfer and delivery of all documents and instruments necessary to consummate the transactions contemplated by this Agreement (the "Closing") shall be held at the offices of Goodwin, Procter & Hoar LLP, 599 Lexington Avenue, New York, New York, on March 31, 1999 (with a complete pre-closing on or about March 24, 1999 or, if the Closing occurs after March 31, 1999, such pre-closing shall occur approximately one (1) week prior to such extended Closing Date) or at such other time or such other place as the Buyer and the Sellers may agree, but in no event later than March 31, 1999 except as expressly permitted pursuant to this Agreement. The Sellers shall have the right to postpone the Closing for an additional period of time not exceeding (i) forty-five (45) days by giving written notice to the Buyer if the Sellers' failure to close is not as a result of a breach of Sellers' covenants or other agreements contained in this Agreement or (ii) ninety (90) days by giving written notice to the Buyer in order to permit the satisfaction of the conditions precedent to the obligations of the Buyer set forth in Section 7.1 or Section 7.3 hereof. The date on which the Closing is actually held hereunder is sometimes referred to herein as the "Closing Date." The Closing will be deemed to be effective for purposes of this Agreement as of the opening of business on the Closing Date. The Sellers agree (i) to provide notice of an extension of the Closing Date beyond March 31, 1999 on or before March 16, 1999, and (ii) in the event the Closing Date is extended, to provide notice of the proposed Closing Date at least fifteen (15) days prior to such proposed Closing Date. Section 1.5 Transactions at Closing. (a) At the Closing, the Sellers will deliver or cause to be delivered to the Buyer the following: (i) stock certificates, evidencing all, and not less than all, of the Acquired Shares, in each case duly endorsed in blank or accompanied by stock powers duly executed in blank, and with all required stock transfer tax stamps affixed, or if such stock certificates are not then available, affidavits of loss and indemnity agreements in lieu thereof in form and substance reasonably acceptable to the Buyer; (ii) all minute books and stock transfer books of each of the Acquired Companies; (iii) one or more receipts acknowledging receipt of the aggregate Purchase Price; (iv) a legal opinion addressed to the Buyer, in form reasonably acceptable to the Buyer, that each of the Sellers is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all the requisite corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby; (v) REITCO shall contribute the Note dated as of August 7, 1998 in the principal amount of $6,215,720, together with an assignment, in recordable form, the related Leasehold Deed of Trust dated as of August 7, 1998 to either MGG or MGG II (or their designee); and (vi) each of the certificates and other documents required to be delivered at the Closing pursuant to Section 7.3 hereof. (b) At the Closing, the Buyer will deliver or cause to be delivered to the Sellers the following: (i) the Purchase Price, by wire transfer in cash of immediately available funds pursuant to, and in the manner set forth in, Section 1.3 hereof; and (ii) each of the certificates and other documents required to be delivered at the Closing pursuant to Section 7.2 hereof. Section 1.6 Allocation of Purchase Price; Other Matters. (a) The allocation of the Purchase Price to the Acquired Shares of each of MGG, Cobblestone and MGG II shall be in accordance with Schedule 1.6(a) hereto, which schedule has been prepared by Sellers and approved by Buyer in connection herewith. Any adjustments to the Purchase Price after the Closing pursuant to Section 1.3 hereof (or otherwise) shall be equitably apportioned to the Purchase Price of the Acquired Shares of each of MGG, Cobblestone and MGG II as set forth in Schedule 1.6(a) hereto. Such allocation (and any subsequent adjustment thereto) shall be binding upon Buyer and Sellers for all purposes (including accounting, financial, regulatory reporting and tax purposes except to the extent that the Sellers' and Buyer's independent public accountants mutually agree that such allocation would be inappropriate for accounting, financial and/or regulatory reporting purposes). Buyer and Sellers agree to file their respective tax returns in accordance with such allocation. (b) Buyer and REITCO agree that, the sale of the capital stock of MGG and MGG II shall be structured such that immediately prior to the Closing of Buyer's purchase of MGG's and MGG II's capital stock, each of MGG and MGG II shall be deemed, for federal income tax purposes, to have been incorporated in a taxable transaction resulting in (i) the recognition of gain or loss to REITCO on such deemed incorporation under Section 1001 of the Code and (ii) the tax basis of the assets of MGG and MGG II being determined under Section 1012 of the Code. Buyer and REITCO further agree that the fair market value of the stock deemed issued by MGG and MGG II to REITCO in the deemed incorporation transactions shall be equal to the portion of the Purchase Price allocated to the Acquired Shares of such entity in Schedule 1.6(a); REITCO will prepare an allocation of the purchase price among the assets deemed acquired by MGG and MGG II in the deemed incorporation transactions within 60 days after the Closing (the "Allocation Schedule"), based upon the rules in Section 1060 of the Code and the fair market values of the MGG and MGG II assets set forth in Schedule 1.6(b) hereto, which schedule has been prepared by Sellers and approved by Buyer in connection herewith; and REITCO shall file, and Buyer shall cause MGG and MGG II to file, all relevant tax returns (including Form 8594) in accordance with such Allocation Schedule. Section I.7 Time of the Essence. The parties hereto acknowledge and agree that, subject only to the express adjournment rights contained herein, time is of the essence in consummating the purchase and sale of the Acquired Shares and the delivery of the Purchase Price. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS Except as disclosed in the schedules attached hereto, the Sellers jointly and severally represent and warrant to the Buyer as follows: Section 2.1 Organization of the Sellers and the Acquired Companies; Authority. (a) Each of the Sellers is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all the requisite corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. Each Acquired Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of organization and has all the requisite corporate power and authority to carry on its business as now being conducted and to own, operate and lease the properties and assets owned, operated and leased by it. Each of the Acquired Companies is qualified to do business and is in good standing in each jurisdiction in which the nature of its business requires it to be so qualified, except to the extent the failure to so qualify would not, either individually or in the aggregate, have a Material Adverse Effect (as hereinafter defined). (b) The execution and delivery of this Agreement, the performance by the Sellers of their obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Sellers. This Agreement has been duly executed and delivered by the Sellers and assuming the due authorization, execution and delivery of this Agreement by the Buyer, this Agreement constitutes a legal, valid and binding obligation of the Sellers, enforceable against the Sellers in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. Section 2.2 Capitalization; Subsidiaries. (a) The authorized, issued and outstanding capital stock of each of the Companies is set forth on Schedule 2.2(a). All of the issued and outstanding shares of capital stock of each of the Companies are duly authorized, validly issued, fully paid and nonassessable. None of the issued and outstanding shares of capital stock of the Companies were issued in violation of any preemptive rights. Except as set forth on Schedule 2.2(a) hereto, there are no outstanding options, warrants or other rights of any kind to acquire any additional shares of capital stock of any of the Companies or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares, nor are any of the Companies committed to issue any such option, warrant, right or security. Except as set forth on Schedule 2.2(a) hereto, there are no outstanding oral or written contractual obligations of the Companies to repurchase, redeem or otherwise acquire any of the Acquired Shares, or to provide funds to, or to make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person (as hereinafter defined) in each case except in connection with the making of loans and the entering into of leases in the ordinary course of business consistent with past practice. Except as set forth on Schedule 2.2(a), (i) the Sellers own, or will own as of the Closing Date, the Acquired Shares, free and clear of any and all liens, claims, security interests or options, except for (A) Encumbrances (as hereinafter defined) arising out of, under or in connection with this Agreement, and (B) Encumbrances that will be released at or prior to the Closing, and the Sellers have full legal right, power and authority to sell, transfer and convey the Acquired Shares to the Buyer in the manner contemplated by this Agreement, except for restrictions on transfer under applicable federal and state securities laws, and (ii) except as set forth on Schedule 2.2(b), the Companies do not have, directly or indirectly, any equity interest in any other corporation, joint venture, partnership, limited liability company or other entity. Upon consummation of the transactions contemplated by this Agreement and registration of the Acquired Shares in the name of the Buyer in the stock records of each respective Company, the Buyer will own all of the issued and outstanding capital stock of the Companies free and clear of all Encumbrances, other than any Encumbrances resulting from any facts or circumstances relating solely to the Buyer (including, without limitation, its sources of financing). (b) Schedule 2.2(b) sets forth a true and complete list of all Subsidiaries (as hereinafter defined) and their name, jurisdiction and date of incorporation or formation, their authorized capital stock, partnership capital or equivalent, the number and type of their issued and outstanding shares of capital stock, partnership interests or similar ownership interests and the current ownership of such shares, partnership interests or similar ownership interests. None of the issued and outstanding shares of capital stock of the Subsidiaries were issued in violation of any preemptive rights. All of the issued and outstanding shares of capital stock of each of the Subsidiaries are duly authorized, validly issued, fully paid and nonassessable. Except as set forth on Schedule 2.2(b) hereto, there are no outstanding options, warrants or other rights of any kind to acquire any additional shares of capital stock of any of the Subsidiaries or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares, nor are any of the Subsidiaries committed to issue any such option, warrant, right or security. Except as set forth on Schedule 2.2(b) hereto, there are no outstanding oral or written contractual obligations of the Subsidiaries to repurchase, redeem or otherwise acquire any shares of common stock or other ownership interest in the Subsidiaries, or to provide funds to, or to make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person in each case except in connection with the making of loans and the entering into of leases in the ordinary course of business consistent with past practice. Except as set forth on Schedule 2.2(b), the Acquired Companies own all of the outstanding capital stock of their respective Subsidiaries free and clear of any and all liens, claims, security interests or options, except for (i) Encumbrances arising out of, under or in connection with this Agreement, and (ii) Encumbrances that will be released at or prior to the Closing. (c) Since May 29, 1998, all material corporate actions taken by each Subsidiary have been duly authorized and the Subsidiary has not taken any action that in any material respect conflicts with, constitutes a default under or results in a violation of any provision of its charter or by-laws (or similar organizational documents). True and complete copies of the charter and by-laws (or similar organizational documents), in each case as in effect on the date hereof, of each Subsidiary have been made available by the Sellers to the Buyer. Section 2.3 No Conflict. Except as provided in Schedule 2.3, and except as may result from any facts or circumstances relating solely to the Buyer (including, without limitation, its sources of financing), and assuming that all consents, approvals, authorizations and other actions set forth in Section 2.6 have been obtained and all filings and notifications set forth on Schedule 2.6(a) have been made, neither the Sellers nor the Acquired Companies are subject to or bound: (a) (i) by any provision of any law, statute, rule, regulation or judicial or administrative decision (with respect to the Sellers and the Acquired Companies, but not with respect to their respective assets or properties), and (ii) to Sellers' knowledge (as hereinafter defined) by any provision of any law, statue, rule, regulation or judicial or administrative decision (with respect to the assets and properties of the Sellers and the Acquired Companies), (b) by any provisions of the articles or certificate of incorporation or by-laws (or similar organizational, constitutive or governing document) of the Sellers' or any Acquired Company, (c) to Sellers' Knowledge (as hereinafter defined), by any provision of any mortgage, deed of trust, lease, note, bond, indenture, license, permit, trust, contract, agreement, sublease, franchise or other instrument or arrangement described on Schedule 2.12(a) to which the Sellers or the Acquired Companies are a party as it relates to the business of the Acquired Companies or by which any of the Acquired Shares or any shares of the Subsidiaries or any of such assets or properties is bound or affected, (d) by any provision of any mortgage, deed of trust, lease, note, bond, indenture, license, permit, trust, contract, agreement, sublease, franchise or other instrument or arrangement which is not required to be disclosed on Schedule 2.12(a) to which the Sellers or the Acquired Companies are a party as it relates to the business of the Acquired Companies or by which any of the Acquired Shares or any shares of the Subsidiaries or any of such assets or properties is bound or affected, (e) by any provisions of any shareholders' agreement or partnership agreement, or (f) by any provision of any judgment, order, writ, injunction or decree of any court, governmental body, administrative agency or arbitrator, that would prevent, violate or conflict with or under which there would be a default as a result of the execution, delivery or performance of this Agreement, nor, is the consent of any person or entity under any material contract or agreement, which material contract or agreement is not identified in any Schedule attached to this Agreement, or under federal or state law, which has not been obtained prior to the Closing, required for the execution, delivery, and performance by the Sellers of this Agreement and the transactions contemplated thereby, except for violations, defaults, conflicts or failures to obtain consents or to make filings or provide notices which would not have (i) a Material Adverse Effect or (ii) a material adverse effect on the ability of the Sellers to perform their obligations under this Agreement. Section 2.4 Financial Statements; Undisclosed Liabilities; Financial Condition. (a) Attached hereto as Schedule 2.4 is the audited (i) Combined Consolidated Balance Sheet (the "October Balance Sheet"), (ii) Combined Consolidated Statement of Operations, (iii) Combined Consolidated Statement of The Meditrust Companies' Investment, and (iv) Combined Consolidated Statement of Cash Flows, together with Notes to Combined Consolidated Financial Statements for the Companies together with their subsidiaries as of October 31, 1998 (collectively, the "October Financial Statements") which (i) includes all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of financial position (none of which are material) in accordance with GAAP consistently applied, except as noted on Schedule 2.4 hereto, and (ii) present fairly, in all material respects, the financial position and the results of operations of the Acquired Companies, on a combined consolidated basis with their subsidiaries as of October 31, 1998 and for the periods covered by such statements. (b) Sellers have made available to Buyer copies of each management letter or other letter delivered to any of the Acquired Companies by their independent auditors since May 29, 1998 in connection with their audited financial statements or relating to any review by such independent auditors of the internal controls of the Acquired Companies during the period ended October 31, 1998 or thereafter, and has made, or will make, available for inspection all material reports and working papers produced or developed by their independent auditors (subject to the Buyer's execution and delivery of customary indemnity agreements for the benefit of such independent auditors) or management in connection with their examination of such financial statements. (c) Since May 29, 1998, each of the Acquired Companies have maintained records relating to their businesses that accurately and validly reflect their respective transactions in all material respects, and accounting controls sufficient to insure that such transactions are (i) executed in accordance with management's general or specific authorization and (ii) recorded in conformity with GAAP (subject to customary end of period adjustments). (d) As of the date hereof, none of the Acquired Companies have liabilities, except for (i) liabilities stated or adequately reserved against on the October Balance Sheet, (ii) liabilities which arose in the ordinary course of business after October 31, 1998 consistent with past practice that in the aggregate do not exceed $250,000 (excluding any liabilities which are included in the Closing Adjustment), (iii) liabilities which will not have a Material Adverse Effect, (iv) liabilities set forth on Schedules 2.4 or 2.7 and (v) liabilities under the Acquired Companies' (A) existing contracts and agreements disclosed pursuant to Section 2.12(a) hereof or (B) not required to be disclosed pursuant to Section 2.12(a) hereof. For purposes of this paragraph, "liabilities" means, all liabilities of the Acquired Companies of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, (including, without limitation, liabilities as guarantor or otherwise with respect to obligations of others, or liabilities for taxes due or then accrued or to become due or contingent or potential liabilities relating to activities of the Acquired Companies or the conduct of their business prior to the date hereof regardless of whether claims in respect thereof had been asserted as of such date). Section 2.5 Absence of Certain Changes. Except as set forth on Schedule 2.5, from October 31, 1998 to the date of this Agreement, the Acquired Companies have operated only in the ordinary course of business consistent with past practice and there has not been any of the following: (a) change in, or effect on, the Acquired Companies resulting in a Material Adverse Effect; (b) change in any Acquired Company's authorized or issued capital stock; grant of any option, right to purchase or similar right regarding the capital stock of any Acquired Company; grant of any registration rights by any Acquired Company; purchase, redemption, retirement, or other acquisition by any Acquired Company of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of the capital stock of any Acquired Company, except that cash balances of the Subsidiaries are concentrated daily in the Companies' accounts, no material cash balances are held by any of the Acquired Companies and no intercompany payable or receivable is shown on the October Balance Sheet in connection therewith; (c) amendment to the certificate or articles of incorporation or bylaws of any Acquired Company, or any action with respect to the certificate of incorporation or bylaws of any Acquired Company; (d) payment of any bonuses, or increase in salaries or other compensation, by any Acquired Company to any of its directors, officers, or employees, except for annual bonus awards and increases in salaries consistent with past practice; or entry into any employment, severance, retention plans, stay bonus plans or similar agreement or understanding with any director, officer or employee except for (i) any severance agreement or understanding under and in accordance with those severance agreements, plans, policies and understandings ("Severance Arrangements") set forth on Schedule 2.5 (true and correct copies of the form of all such written agreements (except for exhibits thereto setting forth the Retention Bonuses referred to in subclause (ii) of this Section 2.5(d)) are attached hereto as Schedule 2.5) and (ii) retention incentive payments (the "Retention Bonuses") which will be paid by the Sellers at or prior to the Closing (which Retention Bonuses may be reflected in the written agreements evidencing the Severance Arrangements; provided, that, notwithstanding this inclusion in the agreements evidencing the Severance Arrangements, the Sellers shall be liable for all such Retention Bonuses); (e) adoption of, or increase in the schedule of payments or benefits under, any Benefit Plan (as hereinafter defined), for or with any officer, director or employee of the Acquired Companies (except for any officer, director or key employee newly employed or promoted since such date, which officers, directors or key employees so newly employed or promoted are identified on Schedule 2.5 (excluding officers, directors or employees who are not compensated directly by the Acquired Companies)); (f) damage to or destruction or loss of any asset or property of an Acquired Company, whether or not covered by insurance, which has had a Material Adverse Effect; (g) sale, purchase, lease, license or other transfer of any share of capital stock of any Acquired Company or mortgage, pledge, or imposition of any Encumbrance on any of the shares of capital stock of any Acquired Company; (h) incurrence of indebtedness or guarantee of debt or other liability of any third party by any Acquired Company; (i) material change in the accounting methods or principles used by the Sellers (with respect to the assets, liabilities, financial condition or results of operations of any Acquired Company) or any Acquired Company except for (A) write-downs or write-offs in the value of assets as required or permitted by GAAP and as set forth on Schedule 2.5, or (B) such adjustments as required by GAAP as a result of the transactions contemplated by this Agreement; (j) purchases, leases, sales or dispositions of any asset or property with a purchase price in excess of $75,000 individually and $250,000 in the aggregate, purchases or leases of any capital asset for an amount of more than $75,000 individually and $250,000 in the aggregate except in each case as provided in the Acquired Companies' capital budget attached as Schedule 2.5 and Schedule 4.1(c) or the voluntary grant of mortgages, pledges or liens of any of its properties or assets, except for any such mortgage, pledge or lien which, by its terms, will be terminated or otherwise be extinguished at or prior to the Closing; (k) any capital expenditures or commitment for any capital expenditure in excess of $75,000 individually or $250,000 in the aggregate, except in compliance with the capital budgets attached as Schedule 2.5 and Schedule 4.1(c); or (l) entering into an agreement, whether oral or written, by the applicable party bound by clauses (a) through (k), as the case may be, to do any of the actions described in clauses (a) through (k). Section 2.6 Consents and Approvals. (a) Except as set forth on Schedule 2.6(a), the execution, delivery and performance of this Agreement by the Sellers will not, as of the Closing Date, require any consent, approval, authorization or other action by, or filing with or notification to, any federal, state, local, or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body, excluding those municipalities or other governmental entities that are parties to those ground leases disclosed in Schedule 2.12(a), in their capacity as lessors thereunder, and the City of Escondido, in its capacity as a lender and/or creditor under those agreements disclosed in Schedule 2.12(a) (a "Governmental Authority"), except (i) the notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if applicable, (ii) where failure to obtain such consent, approval, authorization or action, or to make such filing or notification, would not (A) have a Material Adverse Effect, (B) delay or prevent the consummation of the transactions contemplated by this Agreement, or (C) have a material adverse effect on the ability of the Sellers to perform their obligations under this Agreement, and (iii) as may be necessary as a result of any facts or circumstances relating solely to the Buyer (including, without limitation, its sources of financing). (b) Except as set forth on Schedule 2.6(b), the execution, delivery and performance of this Agreement by the Sellers will not, as of the Closing Date, require any third-party consents, approvals, authorizations or actions, except where failure to obtain such consents, approvals, authorizations or actions would not (i) have a Material Adverse Effect, (ii) delay or prevent the consummation of the transactions contemplated by this Agreement, or (iii) have a material adverse effect on the ability of the Sellers to perform their obligations under this Agreement. Section 2.7 Litigation. Except as set forth in Schedule 2.7, there is no action, suit or proceeding, claim, arbitration or investigation against an Acquired Company pending or, to the Sellers' Knowledge, threatened, which, if adversely determined, (a) would have a Material Adverse Effect, (b) would delay or prevent the consummation of the transactions contemplated by this Agreement, or (c) would have a material adverse effect on the ability of the Sellers to perform their obligations under this Agreement. Section 2.8 Taxes. (a) Except as set forth on Schedule 2.8 or as would not have a Material Adverse Effect: (i) The Acquired Companies have paid or caused to be paid and will as of the Closing Date pay or cause to be paid all Taxes (as defined in Section 2.8(b)) required to be so paid prior to the date of this Agreement and prior to the Closing Date and have made provision, in accordance with GAAP, for all Taxes owed or accrued through the date of this Agreement. (ii) The Acquired Companies have timely filed or been included in, or will timely file or be included in, all material Tax Returns (as defined in Section 2.8(b)) required to be filed by them or in which they are required to be included with respect to Taxes for any period ending on or before the date of this Agreement and on or before the Closing Date, taking into account any extension of time to file granted to or obtained on behalf of the Sellers or the Acquired Companies. All such filed Tax Returns are complete and accurate in all material respects. (iii) Neither the Internal Revenue Service (the "IRS") nor any other Governmental Authority is asserting as of the date of this Agreement by written notice to Sellers or the Acquired Companies or, to the Sellers' Knowledge, threatening as of the date of this Agreement to assert against the Sellers or the Acquired Companies, any deficiency or claim for any material amount of additional Taxes. (iv) No federal, state, local or foreign audits or other administrative proceedings or court proceedings are pending as of the date of this Agreement with regard to any Taxes or Tax Returns of any of the Sellers or the Acquired Companies and none of Sellers or the Acquired Companies has received a written notice prior to the date of this Agreement of any actual or threatened audits or proceedings or is otherwise aware of any such audits or proceedings. (v) There are no agreements, waivers or arrangements currently in effect which extend the statutory period of limitation applicable to any claim for, or the period for the collection or assessment of, Taxes due from or with respect to the Acquired Companies for any taxable period, and no powers of attorney have been granted by or with respect to the Acquired Companies with respect to Taxes which are currently in force. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of any state, local, or foreign law has been entered into by or with respect to the Acquired Companies which is currently in force or effect. (vi) As of the Closing Date, MGG, MGG II and their respective Subsidiaries will be "Qualified REIT Subsidiaries" within the meaning of Section 856(i) of the Code. (b) "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, service, use, license, net worth, payroll, franchise, transfer and recording bites, fees and charges, imposed by the IRS or any taxing authority (whether domestic or foreign including, without limitation, any state, county, local or foreign government or any subdivision or taxing agency thereof (including a United States possession)), whether computed on a separate, consolidated, unitary, combined or other basis; and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes, including, without limitation, information returns, any document, with respect to or accompanying payments of estimated taxes, or with respect to or accompanying requests for the extension of time in which to file any such, report, return, document, declaration or other information. Section 2.9 Employee Benefit Plans. All of the employee benefit plans, programs and arrangements maintained for the benefit of any current or former employee, officer or director or any dependents or beneficiaries of such individuals of any of the Acquired Companies (the "Benefit Plans") are listed on Schedule 2.9. With respect to such Benefit Plans, except for such matters as, individually or in the aggregate, would not have a Material Adverse Effect or as set forth in Schedule 2.9, (a) each Benefit Plan and any related trust intended to be qualified under Sections 401(a), 501(a) or 501(c) of the Code has received a favorable determination letter from the IRS that it is so qualified and nothing has occurred since the date of such letter that could reasonably be expected to adversely affect the qualified status of such Benefit Plan or related trust, (b) each Benefit Plan has been operated in all material respects in accordance with the terms and requirements of applicable law including requirements under ERISA and the Code (including COBRA requirements under Section 4980B of the Code), (c) none of the Acquired Companies has incurred any direct or indirect liability under, arising out of or by operation of Title I or Title IV of the Employee Retirement and Income Security Act of 1974, as amended ("ERISA"), in connection with any Benefit Plan or other retirement plan or arrangement, and to Sellers' Knowledge no fact or event exists that could reasonably be expected to give rise to any such liability, (d) all contributions due and payable on or before the date of this Agreement in respect of each Benefit Plan have been made in full and in proper form and as of the Closing, neither the Acquired Companies nor Buyer shall have or assume any liability that is unfunded or unaccrued related to any Benefit Plan, (e) none of the Acquired Companies have ever sponsored or been obligated to contribute to any "multiemployer plan" (as defined in Section 3(37) of ERISA), "multiple employer plan" (as defined in Section 413 of the Code) or "defined benefit plan" (as defined in Section 3(35) of ERISA) and/or Section 412 of the Code, or "excess benefit plan" or "top-hat plan" as described under ERISA Sections 3(36) and 201(2), (f) except as set forth on Schedule 2.9 and, except as otherwise required under ERISA, the Code and applicable state laws, no Benefit Plan currently or previously maintained by the Acquired Companies provides any post-retirement health or life insurance benefits, and none of the Acquired Companies maintains any obligations to provide post-retirement health or life insurance benefits in the future, (g) all reporting and disclosure obligations imposed under ERISA and the Code have been satisfied with respect to each Benefit Plan, (h) each Benefit Plan maintained for the benefit of any current or former employee, officer or director of any of the Acquired Companies is listed on Schedule 2.9 and true and complete copies of the current plan documents for each such Benefit Plan have been provided to Buyer, and (i) except as set forth on Schedule 2.9, no benefit or amount payable or which may become payable by the Acquired Companies pursuant to any Benefit Plan, agreement or contract with any employee, shall constitute an "excess parachute payment," within the meaning of Section 280G of the Code, which is or may be subject to the imposition of any excise tax under Section 4999 of the Code or which could not reasonably be expected to be deductible by reason of Section 280G of the Code. "ERISA Affiliate" means any corporation, trade or business the employees of which, together with the employees of the Acquired Companies, are required to be treated as employed by a single employer under the provisions of ERISA or Code Section 414. Neither the Acquired Companies nor Buyer shall have any liability on or after the Closing with respect to any employee benefit plan, arrangement, program or policy maintained or sponsored by any ERISA Affiliate, except for the Benefit Plans listed on Schedule 2.9. Section 2.10 Assets; Properties. Except as disclosed herein or as would individually or in the aggregate not have a Material Adverse Effect, the Sellers represent as follows: (a) Marketable Title. To the Sellers' Knowledge, except for Property Restrictions (as defined in Section 2.10(c) hereof) and except as disclosed on Schedule 2.10(a), the Acquired Companies own good and marketable fee simple title to all of the Owned Properties, free and clear of any liens or security interests. For purposes of this Agreement "Owned Properties" shall mean: (i) the real property set forth on Schedule 2.10(a) hereto or purchased since the date of this Agreement (collectively, the "Land"); (ii) all existing buildings, structures and other improvements, located upon the Land owned by the Acquired Companies, including without limitation all clubhouse buildings, maintenance facilities, golf courses, driving ranges, practice areas, landscaping improvements, man-made lakes, irrigation systems (including sprinklers, pipe, and fittings), lakeliners, pumps, flood control works, paving, walkways, road improvements, parking facilities and all other improvements of whatever kind owned by the Acquired Companies which have previously been made, installed or erected and are now located on the Land (collectively, the "Improvements"); and (iii) all appurtenances, hereditaments, easements, reversionary rights, and all other rights, privileges, and entitlements belonging to or running with the Land owned by the Acquired Companies. (b) Improvements in Operable Condition. To the Sellers' Knowledge, except for Property Restrictions and except as set forth on Schedule 2.10(b), (i) the Acquired Company identified therein holds a good and marketable leasehold interest (each, a "Leasehold") in the Leased Property pursuant to a valid ground lease (each, a "Lease"), each of the Leases at present and immediately prior to the Closing shall be in full force and effect, the Acquired Company which is the lessee thereunder is not, nor will it be at Closing, in default under any Lease in respect of any monetary obligation or otherwise in any material respect, subject however to obtaining the consents identified on Schedule 2.6(b) as it relates to the Leases, and each of the Leases represents the complete agreement between such Acquired Company and the lessor thereunder and all material (ii) (A) Improvements and (B) Leased Improvements are in operable condition and the Sellers have the right to possess, occupy and operate same, free and clear of any liens or security interests. "Leased Improvements" include all existing buildings, structures and other improvements located upon each of the parcels of real property comprising a golf facility leased by the Acquired Companies (the "Leased Properties") as set forth on Schedule 2.10(b) hereto or leased since the date of this Agreement, which buildings, structures and other improvements include without limitation all clubhouse buildings, maintenance facilities, golf courses, driving ranges, practice areas, landscaping improvements, man-made lakes, irrigation systems (including sprinklers, pipes and fittings), lakeliners, pumps, flood control works, paving, walkways, road improvements, parking facilities, and all other improvements of whatever kind owned by the Acquired Companies which have previously been made, installed or erected and are now located on such Leased Properties (collectively, the "Leased Improvements," and together with the Leaseholds, the Improvements, the Owned Properties and the Leased Properties, the "Properties"). (c) Property Restrictions. To the Sellers' Knowledge, except as set forth below and as set forth on Schedule 2.10(c) hereto, the Properties are not subject to any easements, rights of way, covenants, conditions, restrictions, reservations, leases or other rights of occupancy, laws, ordinances and regulations affecting building use or occupancy or reservations of an interest in, or exception to or defect in title (collectively, "Property Restrictions"), except for (i) Property Restrictions imposed or promulgated by law or any Governmental Authority with respect to real property, including zoning regulations that do not and as a consequence of the transactions contemplated herein will not adversely affect the current use of the property, materially detract from the value of or materially interfere with the present use of the property, (ii) Encumbrances and Property Restrictions disclosed on existing title policies, commitments (and the documents listed as exceptions, therein), reports certificates of title, title opinions or current surveys (in each case limited to only those title policies, commitments (and the documents listed as exceptions therein), reports and surveys that were delivered or made available to the Buyer for review prior to the date of this Agreement, but excluding any monetary liens, vendors' liens, mechanic's and materialmen's liens, judgment liens and other third party monetary liens except as set forth on, or securing the debt listed on, Schedule 2.12(a)(ii)), (iii) any other item currently of record in the applicable land or comparable real property records that does not materially detract from the value of or materially interfere with the present use of the applicable Property, but excluding matters currently of record which are monetary liens, vendors' liens, mechanic's and materialmen's liens, judgment liens and other third-party monetary liens except as set forth on Schedule 2.12(a)(ii) but only if and to the extent identified in writing by the Buyer and received by the Sellers prior to 6:00 p.m. (local Boston, Massachusetts time) on Wednesday, February 17, 1999, and (iv) all obligations under the existing contracts and agreements entered into by the Acquired Companies and listed on Schedule 2.12(a) or not required to be disclosed on such schedule, including those mechanics', carriers', suppliers', workmen's or repairmen's liens and other Encumbrances, Property Restrictions and other limitations of any kind, if any, which, individually or in the aggregate, are not material in amount, do not and as a consequence of the transactions contemplated herein will not materially detract from the value of or materially interfere with the present use of any of the Properties subject thereto or affected thereby, do not and as a consequence of the transactions contemplated herein will not otherwise materially impair business operations conducted by the Acquired Companies and which have been incurred only in the ordinary course of business. (d) Taxes. Except as set forth on Schedule 2.10(d) and for any proceeding or appeal which, if determined adversely to the respective Acquired Company, individually or in the aggregate, would not have a Material Adverse Effect, there are no outstanding abatement proceedings or appeals to which the Acquired Companies are a party with respect to the assessment of any of the Properties for the purpose of real property taxes, and there are no agreements with any Governmental Authority to which the Acquired Companies are a party with respect to such assessments or tax rates on any of the Properties. Section 2.11 Labor and Employment Matters. (a) Except as set forth on Schedule 2.11(a) and as would not have a Material Adverse Effect, the Acquired Companies are, as of the date hereof, in compliance in all material respects with all federal, state and municipal laws respecting employment and employment practices, terms and conditions of employment, and wages and hours, including but not limited to ERISA, the Code, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act and the related rules and regulations adopted by those federal agencies responsible for the administration of such laws, and there are no arrearages in the payment of wages, social security tax or any other employment related levy or tax. (b) Except as set forth on Schedule 2.11(b) and as would not have a Material Adverse Effect, none of the Acquired Companies is a party to or otherwise bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. Except as set forth on Schedule 2.11(b) and as would not have a Material Adverse Effect, as of the date of this Agreement, none of the Acquired Companies is subject to any charge, demand, petition or representation proceeding seeking to compel, require or demand it to bargain with any labor union or labor organization nor, as of the date of this Agreement, is there pending or, to the Sellers' Knowledge, threatened, any material labor strike, dispute, walkout, work stoppage, slow-down or lockout involving the Acquired Companies. Section 2.12 Contracts and Commitments. (a) Schedule 2.12(a) lists each of the following contracts or agreements (if any) of each of the Acquired Companies: (i) management contracts with respect to the Properties, and management contracts with respect to golf course properties or facilities owned by third parties; (ii) all material documents evidencing or creating indebtedness for borrowed money of the Acquired Companies with a remaining principal balance in excess of $75,000 individually or $250,000 in the aggregate or secured by the Properties and outstanding on the date of this Agreement which will not be retired or repaid on or prior to the Closing Date ("Existing Debt"); (iii) partnership agreements and joint venture agreements to which any Acquired Company is a party (and having as another party any person who is not an Acquired Company) which requires a payment, or delivery of assets or services; (iv) all Leases of Leased Properties and other real property leased by the Companies; (v) except as set forth on Schedule 2.5, employment, severance or consulting agreements with any director, officer or Acquired Companies Employee (as hereinafter defined) requiring an annual payment of cash compensation in excess of $100,000 individually; (vi) agreements granting to any third party a first-refusal, first-offer or other right to purchase or acquire any of the Properties or any of the Acquired Shares; (vii) agreements materially limiting or restricting the ability of any Acquired Company to enter into or engage in any geographic area or line of business; and (viii) agreements that will not be terminated on or before the Closing between (1) any Acquired Company and any Seller or its Affiliates (as hereinafter defined), or (2) any Seller or its Affiliates (except for any Acquired Company) and a third party that commit any one or more of the Acquired Companies to pay, in the aggregate, more than $150,000. (b) True and complete copies of the contracts and agreements disclosed pursuant to Section 2.12(a) hereof have been made available to the Buyer. Except as disclosed on Schedule 2.12(b) or as would not have a Material Adverse Effect (i) each contract and agreement disclosed pursuant to Section 2.12(a) hereof is valid and binding on the Acquired Company party thereto and, to the Sellers' Knowledge, on the other party or other parties thereto, and is in full force and effect in accordance with its respective terms, (ii) upon consummation of the transactions contemplated by this Agreement, each such contract and agreement shall continue in full force and effect in accordance with its respective terms without penalty, acceleration of payment or other adverse consequence, (iii) none of the Acquired Companies is in breach of, or default under, any such contract or agreement, and no event exists that, but for the giving of notice or passage of time, would result in such a breach or default by the Acquired Company party thereto, and (iv) to the Sellers' Knowledge, no other party to any such contract or agreement is in breach thereof or default thereunder, and no event exists that, but for the giving of notice or passage or time, would result in such a breach or default by the other party thereto. Certain other contracts and agreements concerning the Properties and the Acquired Companies have been provided to the Buyer in the Review Room (as hereinafter defined). Section 2.13 Intellectual Property. Except as set forth on Schedule 2.13, to Sellers' Knowledge, the Sellers own or have the right to use all trademarks, trade names, service marks, trade secrets, copyrights and other intellectual property rights (collectively, the "Intellectual Property Rights"), as are used or necessary in connection with the business of the Acquired Companies taken as a whole, except where the failure to own or have the right to use such Intellectual Property Rights would not have a Material Adverse Effect. Except as disclosed on Schedule 2.13 or as would not have, either individually or in the aggregate, a Material Adverse Effect, to the Sellers' Knowledge, the rights of any Acquired Company in or to the Intellectual Property Rights do not conflict with or infringe on the rights of any other Person, and none of the Sellers, nor the Acquired Companies has received any claim or written notice from any Person, to such effect. Section II.14 Environmental Matters. Except as disclosed on Schedule 2.14 and except for any matter which would not result in a Material Adverse Effect, to Sellers' Knowledge, (a) the Acquired Companies are in compliance in all material respects with all applicable Environmental Laws (as hereinafter defined), (b) there are no material Environmental Liabilities and Costs (as hereinafter defined) of the Acquired Companies, (c) there are no material Environmental Conditions (as hereinafter defined) on or related to the Properties, (d) none of the Acquired Companies has received any written notice prior to the date of this Agreement from any governmental agency or other third party alleging any violation of, or noncompliance with, any Environmental Law, or requiring the removal, clean-up, or remediation of any Environmental Condition, whether or not on any of the Properties relating to the Acquired Companies, which such matter has not been resolved as of the date of this Agreement, and (e) the Acquired Companies have not received written notice prior to the date of this Agreement that they are subject to any enforcement or investigatory action by any governmental agency regarding an Environmental Condition with respect to any Property, which such matter has not been resolved as of the date of this Agreement. As used herein, the terms "toxic" or "hazardous" wastes, substances or materials shall include, without limitation, all those so designated in and in any way regulated by any current Environmental Laws. The Acquired Companies have previously made available to the Buyer copies of all of the following written materials in their possession or control: copies of any environmental audits, site assessments, documentation regarding off-site disposal of hazardous materials, and material correspondence with any federal, state or local government, administrative agency, or other Governmental Authority, regarding the foregoing (the "Environmental Reports"). For purposes of this Agreement, the following definitions shall apply: "Environmental Laws" means all applicable federal, state and local statutes or laws, judgments, orders, regulations, licenses, permits, rules and ordinances relating to pollution or protection of health, safety or the environment, including, but not limited to the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.), Resources Conservation and Recovery Act (42 U.S.C. 6901 et. seq.), Safe Drinking Water Act (42 U.S.C. 3000(f) et. seq.), Toxic Substances Control Act (15 U.S.C. 2601 et seq.), Clean Air Act (42 U.S.C. 7401 et. seq.), Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.), and other similar state and local statutes. "Environmental Condition" means the introduction into the environment of any contaminant, pollutant, hazardous or toxic waste, substance or material (whether or not upon the Owned Properties or the Leased Properties) at levels or in amounts in excess of applicable legal or regulatory permits, limits or standards, as a result of which the Acquired Companies, with respect to this Section 2.14, (1) have or may become liable to any Person or Governmental Authority, (2) are in violation of any Environmental Law, or (3) by reason of which any of the properties or other assets of the Acquired Companies, with respect to this Section 2.14, may suffer or be subject to any lien. "Environmental Liabilities and Costs" means all liabilities, obligations, responsibilities, obligations to conduct cleanup, losses, damages, deficiencies, punitive damages, costs and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of any necessary investigations and feasibility studies and responding to government requests for information or documents), fines, penalties, monetary sanctions, known or unknown, absolute or contingent, past, present or future, resulting from any claim or demand, by any Person or Governmental Authority, whether based in contract, tort, implied or express warranty, strict liability, joint and several liability, criminal or civil statute, under any Environmental Law, or arising from Environmental Conditions, as a result of past or present ownership, leasing or operation of any properties, owned, leased or operated by the Acquired Companies with respect to Section 2.14. Section 2.15 Compliance with Laws; Permits. Except as set forth on Schedule 2.15, (i) none of the Acquired Companies (excluding for such purpose all of their respective properties or assets) are in violation of any federal, state, local or foreign judgement, order, decree, statute, law, ordinance, rule, regulation, code and any judicial or administrative interpretation thereof, or any other government or rule of law ("Law") or order of any Governmental Authority ("Governmental Order") applicable to any of the Acquired Companies except such violations as would not have a Material Adverse Effect and (ii) to the Sellers' Knowledge, none of the Acquired Companies (including for such purpose only all of their respective properties or assets) are in violation of any Law or Governmental Order applicable to any such properties or assets, except such violations as would not have a Material Adverse Effect. The Acquired Companies have obtained all licenses, permits and other authorizations and have taken all actions required by applicable law or governmental regulations in connection with their business as now or as previously conducted where the failure to obtain any such license, permit or authorization or to take any such action, individually or in the aggregate, would have a Material Adverse Effect. Section 2.16 Insurance. Schedule 2.16 sets forth a true and correct summary of the insurance policies held by, or for the benefit of, the Acquired Companies including the underwriter of such policies and the amount of coverage thereunder. To the Sellers' Knowledge, such insurance policies are valid and currently in effect. The Sellers or the Acquired Companies have paid, or caused to be paid, all premiums due under such policies and are not in default with respect to any monetary obligations under such policies in any material respect. Section 2.17 Brokers. No broker, investment banker, financial advisor or other Person, other than Goldman Sachs & Co., the fees and expenses of which will be paid by the Sellers, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement. Section 2.18 Disclaimer; Knowledge; Disclosure; Material Adverse Effect. (a) The Sellers do not make, and have not made, any representations or warranties relating to the Sellers, the Acquired Companies, the Properties, or the operations or businesses of the Sellers or the Acquired Companies, or the businesses or operations conducted on, at or with respect to the Properties, or otherwise in connection with the transactions contemplated hereby, other than those expressly made by Sellers in this Agreement. Without limiting the generality of the foregoing, except only as expressly set forth in those representations and warranties made in Section 2.1 through 2.17 hereof (but subject to the limitations set forth in Section 2.18(b) below), the Sellers have not made, and shall not be deemed to have made, any representations or warranties in any presentation of the businesses of the Acquired Companies (including without limitation any management presentation or property or facility tour) in connection with the transactions contemplated hereby, and no statement made in any such presentation (including without limitation any management presentation or property or facility tour) shall be deemed a representation or warranty hereunder or otherwise. It is understood that any cost estimates, projections or other predictions, any data, any financial information, document, reports, sales brochure or other literature, maps or sketches, financial information, or statements, or presentations (including without limitation any management presentation or property or facility tour), or any memoranda or offering materials including, without limitation, that certain "Confidential Information Memorandum" dated November 1998 and any materials or information contained therein and any amendments or supplements thereto (the "Confidential Memorandum"), are not and shall not be deemed to be or to include representations or warranties of the Sellers or the Acquired Companies, except only as expressly set forth in those representations and warranties made in Section 2.1 through 2.17 hereof (but subject to the limitations set forth in Section 2.18(b) below), and the Buyer acknowledges that it has not relied and is not relying on any such estimates, projections, predictions, data, financial information, memoranda, offering materials or presentations (including without limitation any management presentation or property or facility tour), including without limitation, the Confidential Memorandum. No Person has been authorized by the Sellers or the Acquired Companies to make any representation or warranty relating to the Sellers, the Acquired Companies, the Properties, the businesses of the Sellers or the Acquired Companies, or the businesses or operations conducted on, at or with respect to the Properties, or otherwise in connection with the transactions contemplated hereby and, if made, such representation or warranty must not be relied upon as having been authorized by the Sellers or the Acquired Companies. (b) Prior to the Closing Date, the Buyer will have had the opportunity to make all inspections and investigations, including a review of the materials located in the due diligence review room (the "Review Room") at the offices of Goodwin, Procter & Hoar LLP, concerning the Acquired Companies and the Properties, which the Buyer deems necessary or desirable to protect its interest in acquiring the Acquired Companies and their respective assets, including without limitation, the Properties. The representations and warranties herein are fully qualified by any matters disclosed in the items described or otherwise listed in Schedule 2.18(b) hereto (but subject to the limitations contained in such Schedule 2.18(b)) (the "Qualifying Materials"). By way of explanation and not in supplementation of the preceding sentence, it is specifically acknowledged and agreed by the parties hereto, as a material inducement to the Sellers entering into this Agreement in the form hereof, without which agreement Sellers would be unwilling to enter into this Agreement in the form hereof, that any and all representations and warranties contained in this Agreement, the accuracy of which could be confirmed or denied based upon any material present in the Qualifying Materials, shall be null and void and deemed deleted from this Agreement for all purposes. Except as otherwise expressly set forth in this Agreement, neither the Sellers nor anyone acting for or on behalf of the Sellers has made any representation, warranty, promise or statement (including without limitation in the cover memorandum delivered with the form Stock Purchase Agreement to each prospective buyer on or about December 23, 1998), express or implied, to the Buyer on which the Buyer has relied concerning the Acquired Companies and the Properties or the condition or use thereof. As a material inducement to the execution and delivery of this Agreement by the Sellers, the Buyer agrees that, except as otherwise expressly provided herein (but subject to the limitations contained in this Section 2.18), at the Closing Date, the Buyer will acquire the Properties in an "as-is" physical condition and in an "as-is" state with all faults, subject only to the expressed representations and warranties set forth in this Agreement. Notwithstanding anything herein to the contrary, the Buyer waives and the Sellers disclaim all implied warranties of any type or kind with respect to the Properties. (c) Whenever a representation or warranty made by the Sellers herein refers to the knowledge of the Sellers, or to the "Sellers' Knowledge," it shall be deemed to refer only to the actual knowledge (and not constructive, imputed or implied knowledge) on the date hereof and on the Closing Date, as applicable, of James A. Husband, Stefan C. Karnavas, Andrew Crosson, Gary L. Dee, Terri Colachis, William D. Keogh, Bobby West, John G. Hungerford, Norm Goodmanson, James B. Kelly, Jim Bergmark, Dan Tilley, Tighue Shields, Ray Dznowski, Jr., Alan Wieme, Bill Mungia, John Williams, Larry Hayes, David F. Benson, Michael S. Benjamin and Laurie T. Gerber, none of whom shall have any personal liability or obligations regarding such knowledge. The Sellers have not undertaken, nor shall they have any duty to undertake, any investigation concerning any matter as to which a representation or warranty is made as to its "Knowledge." (d) Notwithstanding anything to the contrary contained in this Agreement or in any of the schedules attached hereto, any information disclosed in one schedule shall be deemed to be disclosed in all schedules provided that the information so disclosed is disclosed with the requisite degree of specificity in order to qualify, or disclose for the purposes of, such other schedule. Certain information set forth in the schedules is included solely for informational purposes and may not be required to be disclosed pursuant to this Agreement. The disclosure of any information shall not be deemed to constitute an acknowledgment that such information is required to be disclosed in connection with the representations and warranties made by the Sellers in this Agreement or that it is material, nor shall such information be deemed to establish a standard of materiality. The Sellers have prepared the schedules to this Agreement in good faith and without regard to any applicable "Material Adverse Effect" or other "materiality" qualifier, provided, however, that notwithstanding such standard of preparation, nothing contained herein shall limit or otherwise qualify the standard of the representations and warranties contained in Sections 2.1 through 2.17 hereof for the purposes of determining the existence of a breach of any such representation or warranty. (e) "Material Adverse Effect" means any change in, or effect on, the Acquired Companies, taken as a whole, that is (individually or in the aggregate with any other changes therein or effects thereon that would be specifically addressed by a representation or warranty contained in this Agreement but for a "Material Adverse Effect" exception or qualification) materially adverse to the business, operations, assets, liabilities, financial condition or results of operations or prospective business and earnings (assuming such prospective business is conducted in a manner consistent with prior business operations) of the Acquired Companies, taken as a whole, other than any such changes or effects resulting from any of the following, the change in or effect of which shall not constitute or result in (i) a Material Adverse Effect or (ii) a breach of a representation or warranty under this Article II: (A) changes in general (national, regional or local) economic, regulatory or political conditions or changes in the golf course industry generally, or (B) this Agreement, the transactions contemplated hereby, or any announcement or indication thereof, or any actions taken by the Buyer hereunder or in contemplation hereof, or any actions which a Seller was required to take, hereunder, or any direct contact of the Buyer or any of its representatives with any of the customers or suppliers, or potential customers or suppliers, or any of the employees of, the Acquired Companies (including any departure of any such employee). ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER Section 3.1 Organization of the Buyer; Authority. (a) The Buyer is a duly formed, validly existing and in good standing under the laws of the State of Delaware and has all the requisite corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The Buyer is qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified except to the extent the failure to so qualify would not, either individually or in the aggregate, have a material adverse effect on the ability of the Buyer to perform its obligations under this Agreement. (b) The execution and delivery of this Agreement, the performance by the Buyer of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Buyer. This Agreement has been duly executed and delivered by the Buyer and assuming the due authorization, execution and delivery of this Agreement by the Sellers, this Agreement constitutes a legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. Section 3.2 No Conflict. Except as provided in Schedule 3.2, and except as may result from any facts or circumstances related solely to the Sellers, and assuming that all consents, approvals, authorizations and other actions described in Section 3.3 have been obtained and all filings and notifications listed in Schedule 3.3(a) have been made, neither the Buyer nor any of its subsidiaries is subject to or bound: (a) to Buyer's Knowledge (as hereinafter defined), by any provision of any law, statute, rule, regulation or judicial or administrative decision, (b) by the provisions of any articles or certificate of incorporation or by-laws, (or similar organizational, constitutive or governing document) of the Buyer, (c) to Buyer's Knowledge, by any provision of any mortgage, deed of trust, lease, note, shareholders' agreement, partnership agreement, bond, indenture, license, permit, trust, contract, agreement, sublease, franchise or other instrument or arrangement to which the Buyer is a party as it relates to the business of the Buyer or by which any of such assets or properties are bound or affected, or (d) by any provision of any judgment, order, writ, injunction or decree of any court, governmental body, administrative agency or arbitrator, that would prevent, violate or conflict with or under which there would be a default as a result of the execution, delivery or performance of this Agreement, nor, is the consent of any person or entity under any material contract or agreement or under federal or state law, which has not been obtained prior to the Closing, required for the execution, delivery, and performance by the Buyer of this Agreement and the transactions contemplated thereby, except for violations, defaults, conflicts or failures to obtain consents or to make filings or provide notices which would not have a material adverse effect on the Buyer or a material adverse effect on the ability of the Buyer to perform its obligations under this Agreement. Section 3.3 Consents and Approvals. (a) To the Buyer's Knowledge, except as set forth on Schedule 3.3(a), the execution, delivery and performance of this Agreement by the Buyer will not, as of the Closing Date, require any consent, approval, authorization or other action by, or filing with or notification to, any Governmental Authority, except (i) the notification requirements of the HSR Act, if applicable, (ii) where failure to obtain such consent, approval, authorization or action, or to make such filing or notification, would not have a material adverse effect on the ability of the Buyer to perform its obligations under this Agreement, and (iii) as may be necessary as a result of any facts or circumstances relating solely to the Sellers. (b) Except as set forth on Schedule 3.3(b), the execution, delivery and performance of this Agreement by the Buyer will not, as of the Closing Date, require any third-party consents, approvals, authorizations or actions, except where failure to obtain such consents, approvals, authorizations or actions would not have a material adverse effect on the ability of the Buyer to perform its obligations under this Agreement. Section 3.4 Litigation. There is no action, suit or proceeding, claim, arbitration or investigation against the Buyer or, to the Buyer's Knowledge, threatened, which, if adversely determined, (a) would delay or prevent the consummation of the transactions contemplated by this Agreement, or (b) would have a material adverse effect on the ability of the Buyer to perform its obligations under this Agreement. To the Buyer's Knowledge, the Buyer is not subject to any Governmental Order (nor, to the Buyer's Knowledge, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) which (x) would delay or prevent the consummation of the transactions contemplated by this Agreement, or (y) would have any material adverse effect on the ability of the Buyer to perform its obligations under this Agreement. Section 3.5 Financing. The Buyer has, or has available to it, all funds necessary to consummate the transactions contemplated by this Agreement. Section 3.6 Brokers. No broker, investment banker, financial advisor or other Person, other than NationsBanc Montgomery Securities, the fees and expenses of which will be paid by the Buyer, is entitled to any broker's, finder's, financial advisor's or other similar fee, commission or expense in connection with the transactions contemplated by this Agreement. Section 3.7 Investment Intent. The Buyer is acquiring the Acquired Shares solely for the purpose of investment and not with a view to, or for offer or sale in connection with, any distribution thereof. Section 3.8 Buyer's Knowledge. Whenever a representation or warranty made by Buyer herein refers to the knowledge of Buyer, or to the "Buyer's Knowledge" it shall be deemed to refer only to the actual knowledge (and not constructive, imputed or implied knowledge) on the date hereof and on the Closing Date, as applicable, of Robert H. Dedman, Jr., and Terry A. Taylor, none of whom shall have any personal liability or obligations regarding such knowledge. The Buyer has not undertaken, nor shall it have any duty to undertake, any investigation concerning any matters as to which a representation or warranty is made as to its "Knowledge." ARTICLE IV CERTAIN COVENANTS AND AGREEMENTS OF THE BUYER AND SELLER Section 4.1 Conduct of Business Prior to Closing. (a) The Sellers covenant and agree that, between the date hereof and the Closing Date, they shall cause the Acquired Companies to operate in the ordinary course of business, consistent with past practice, except as otherwise provided in this Agreement and except: (i) as otherwise contemplated by this Agreement; (ii) except as permitted by Section 4.1(b), that the Acquired Companies may not distribute cash and cash equivalents to one or more of the Sellers on or prior to the Closing Date; and (iii) that the rights (if any) of REITCO in and to, and the obligations under or arising from, (x) the tradename "Cobblestone" and (y) that certain license agreement by and among REITCO, as successor by merger to Cobblestone Holdings, Inc., MGG and Cobblestone, pursuant to which REITCO and MGG currently license certain rights in and to the tradename "Cobblestone" will be assigned by REITCO to MGG prior to the Closing and (iv) that the Sellers or their Affiliates (including the Acquired Companies) may transfer shares of capital stock of the Acquired Companies so long as (A) the Sellers transfer to the Buyer pursuant to Article I hereof, all of the issued and outstanding Acquired Shares, and (B) the Companies own all of the issued and outstanding capital stock of their Subsidiaries, except as disclosed on the Schedules hereto. Without limiting the generality of the foregoing, from the date hereof until the Closing, except as required by this Agreement and except for transactions expressly approved in writing by Buyer, which approval shall not be unreasonably withheld, Sellers shall use commercially reasonable efforts to: (A) Maintain inventories and pre-paid expenses at current levels, except for purchases and/or sales in the ordinary course of business, and maintain the properties and assets of the Acquired Companies in good repair, order and condition, reasonable wear and tear and involuntary casualty and condemnation excepted; (B) Maintain and keep in full force and effect (I) all insurance on the Acquired Companies' assets and property, (II) the insurance for the benefit of employees of the Acquired Companies, (III) all liability and other casualty insurance, and (IV) all bonds on personnel, which, in each case, are currently in effect, or commercially reasonable substitutions therefor; (C) Maintain and operate the Acquired Companies and the properties and assets of the Acquired Companies in compliance in all material respects with all applicable Laws, including, without limitation and subject to the rights set forth in Section 4.12 hereunder, all applicable Environmental Laws; (D) Manage and administer all pending and threatened litigation matters in a manner consistent with commercially reasonable business practice, giving due regard to recommendations of legal counsel; (E) Maintain all liquor (or beer and wine, as applicable) licenses, permits and authorizations required by Law for the continued sale of alcohol by the Acquired Companies at those Properties at which alcohol is presently served; (F) Maintain all current insurance or reinsurance policies the absence of which would have a Material Adverse Effect, unless simultaneously with any cancellation, termination, or lapse, replacement policies providing coverage equal to or greater than the coverage so canceled, terminated, or lapsed are in full force and effect and written copies thereof have been provided to Buyer; and (G) Continue all capital projects, including without limitation, the construction and development of the Blackstone Golf Club in Frisco, Texas and the Whitestone Golf Club in Benbro, Texas as set forth in the capital expenditure budget attached as Schedule 4.1(c). (b) The Sellers and the Buyer agree that all intercompany accounts (if any) between the Sellers or any affiliate of the Sellers (other than an Acquired Company) on the one hand and any of the Acquired Companies on the other hand shall be settled by the Sellers and the Acquired Companies, at or prior to the Closing. (c) In furtherance and not in limitation of the foregoing, the Sellers covenant and agree that, except as described in Schedule 4.1(c), the Acquired Companies will not, prior to the Closing, without the consent of the Buyer, which consent shall not be unreasonably withheld (except as set forth in subsections (iv) and (vii) below): (i) Make any purchase, sale or disposition of any asset or property with a purchase price in excess of $75,000 individually or $100,000 in the aggregate, except as provided in the Acquired Companies existing capital budget, or mortgage, pledge, subject to a voluntary lien or otherwise voluntarily encumber (except for mechanics', carriers', suppliers' workmen's or repairmen's liens) any of its properties or assets, except for any such mortgage, pledge, lien or encumbrance which, by its terms, will be terminated or otherwise be extinguished at or prior to the Closing; (ii) Incur any material contingent liability as a guarantor or otherwise with respect to the obligations of others, or incur any other material contingent or fixed obligations or liabilities in excess of $75,000 individually or $100,000 in the aggregate; (iii) Make any change or incur any obligation to make a change in its articles or certificate of incorporation, by-laws or authorized or issued capital stock, except for the release of any pledge of the Acquired Shares made by or on behalf of the Sellers to REITCO's senior lenders; (iv) Declare, set aside or pay any dividend, make any other distribution in respect of its capital stock or make any direct or indirect redemption, purchase or other acquisition of its capital stock, except for any transfer of the Acquired Shares by and between the Sellers and/or their respective Subsidiaries on or prior to the Closing Date and provided, however, that, from and after March 31, 1999 (provided that Sellers shall have extended the Closing Date in accordance with Section 1.4 hereof) in no event shall the Acquired Companies pay any dividend, make any distribution in respect of its capital stock, issue any capital stock or make any direct or indirect redemption, purchase or other acquisition of its capital stock, make payments to any Affiliates (other than any other Acquired Company and its Subsidiaries) except only for payments permitted under Sections 4.1(b) and 4.1(c)(vi) hereof except (x) for any transfer of the Acquired Shares by and between the Sellers and/or their respective Subsidiaries on or prior to the Closing Date, as extended, and (y) the Acquired Companies shall be entitled to distribute or otherwise pay to the Sellers amounts contributed, loaned or otherwise paid by Sellers after March 31, 1999 in connection with capital projects; (v) Make any change in the compensation payable or to become payable (A) to any of the officers, employees, agents or independent contractors who receive total annual compensation of $50,000 or less other than in the ordinary course of business consistent with past practice; or (B) to any of its officers, employees, agents or independent contractors who receive total annual compensation in excess of $50,000; (vi) Prepay any loans (if any) from its shareholders, officers or directors, other than as required by their respective terms and as required by Section 4.1(b) hereof, or make any change in its borrowing arrangements; (vii) Amend, modify or terminate any contract or agreement disclosed pursuant to Section 2.12(a) hereof or execute or otherwise enter into or amend or modify any contract or agreement with the Sellers or their Affiliates (except for the Acquired Companies) except as otherwise contemplated by this Agreement; (viii) Change any material accounting principles, policies or practices used by its relating to the Acquired Companies, except for (A) the write-off (if any) of goodwill, and (B) any change required by reason of a concurrent change in generally accepted accounting principals and notice of which is given in writing by Sellers to Buyer; (ix) Amend the membership by-laws for any club (each a "Club", and collectively, the "Clubs") owned or operated by any of the Acquired Companies; (x) Sell, assign or create any life or equivalent membership in any Club; (xi) Sell, create or assign memberships (a) which include a change of more than 10% in the pricing of any goods or services, including but not limited to initiation fees, joining fees, dues, greens fees, cart fees, food, beverage or merchandise, either individually or in the aggregate, or (b) in excess of 110% of the pro rated monthly revenue budget for memberships and initiation fees; (xii) sell more than five memberships to any one party; (xiii) Create or issue any honorary membership at any Club; (xiv) Collect any monthly or quarterly dues (in excess of de minimis amounts) more than 1 collection period in advance; (xv) Merge or consolidate with or agree to merge or consolidate with, nor purchase or agree to purchase all or substantially all of the assets of, or otherwise acquire, any other party (subject to the terms of Section 4.8 hereof); (xvi) Authorize for issuance, issue, sell or deliver any additional stock of any class of any Acquired Company or any securities or obligations convertible into stock of any class of any Acquired Company or issue or grant any option, warrant or other right to purchase any stock of any class of any Acquired Company; (xvii) Except for the transfer of capital stock of MGG II from OPCO to REITCO, assign, transfer, convey, pledge or transfer any shares of any Acquired Company's capital stock; (xviii) Modify, amend or alter any existing credit facilities, the obligations with respect to which will remain with the Acquired Company after the Closing Date; (xix) Cause a default by an Acquired Company under any existing material agreement or contract of such Acquired Company, which default, if not willful, could have a Material Adverse Effect; (xx) Execute or otherwise enter into any construction or development agreement requiring a payment in excess of $100,000 except as otherwise provided in the Acquired Companies' capital budget attached as Schedule 4.1(c) hereto; (xxi) Cause or suffer any act or omission from and after the date of this Agreement which would cause or result in the breach of the representations and warranties contained in Section 2.14, which breach would have a Material Adverse Effect; provided, however, that the disclosure of items by the Buyer pursuant to Section 4.12 hereof shall not be deemed to be an act or omission resulting in a breach of the representations and warranties contained in Section 2.14; (xxii) Take any affirmative action, or affirmatively fail to take any action, necessary to maintain all permits, licenses and authorizations (except as they relate to alcohol) required by Law for the operation of the Acquired Companies and the Properties the absence of which would have a Material Adverse Effect; and (xxiii) Agree or make any commitment to take any of the actions prohibited by this Section 4.1. Section 4.2 Investigation. The Buyer acknowledges and agrees that it (a) has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, the Acquired Companies, and (b) will not assert any claim against the Sellers or the Acquired Companies or any of their respective directors, officers, employees, agents, shareholders, Affiliates, consultants, investment bankers, advisors or representatives, or hold the Sellers or any such Persons liable, for any inaccuracies, misstatements or omissions with respect to such information furnished by the Sellers or such Persons concerning the Acquired Companies, other than any inaccuracies or misstatements in the representations and warranties contained in this Agreement or as otherwise expressly provided herein (subject to the limitations set forth in Section 2.18) or in the case of fraud. Sellers acknowledge and agree that Buyer will make its own investigations and inquiries with respect to the Acquired Companies and Properties; provided that information obtained through such investigations that is not included in the Review Room will not limit, qualify or in any manner affect Sellers' representations or warranties contained in this Agreement or limit Buyer's rights to assert claims based upon such representations or warranties. Section 4.3 Access to Information. (a) From the date hereof until the Closing Date, upon reasonable notice, the Sellers shall, and shall cause each Acquired Company and each of their respective officers, directors, employees, representatives, attorneys, auditors and authorized agents to, (i) afford the officers, directors, employees, authorized agents, auditors, attorneys and representatives of the Buyer reasonable access, during normal business hours, to the offices, properties, other facilities, books and records of the Acquired Companies and to those officers, directors, employees, representatives, counsel, auditors and agents of the Acquired Companies who have material knowledge pertaining to the Properties or the Acquired Companies including, without limitation, access to enter upon and investigate the Properties or the Acquired Companies, and (ii) furnish to the officers, directors, employees and authorized agents, auditors, attorneys and representatives of the Buyer such additional financial and operating data and other information regarding the Acquired Companies as the Buyer may from time to time reasonably request; provided, however, that (A) such investigation shall not unreasonably interfere with any of the businesses or operations of the Acquired Companies, (B) the Buyer shall not, prior to the Closing Date, have any contact whatsoever with respect to the Acquired Companies or with respect to the transactions contemplated by this Agreement with any partner, lender, ground lessor, vendor or supplier of the Acquired Companies, except in consultation with the Sellers and then only with the express prior approval of the Sellers, which approval shall not be unreasonably withheld or delayed, and (C) all requests by the Buyer for access or information pursuant to this Section 4.3(a) shall be submitted or directed exclusively to an individual or individuals to be designated by the Sellers. The Buyer shall not be permitted to conduct any invasive tests on any Property without the Sellers' and the applicable Acquired Company's prior written consent, which consent shall not be unreasonably withheld or delayed. The Buyer agrees to indemnify the Sellers from and against any and all Losses (as hereinafter defined) suffered by the Sellers as a result of any actions taken by the Buyer with respect to the investigations and inspections contemplated hereby (excluding any Losses associated with any pre-existing Environmental Conditions discovered or identified as a result of the exercise of Buyer's rights under Section 4.12 below). (b) During the preparation, review and dispute resolution time periods contemplated by Section 1.3, upon reasonable notice, the Buyer shall, and shall cause each Acquired Company (or any successor thereto) and each of their respective officers, directors, employees, representatives, attorneys, auditors and authorized agents to, (i) afford the officers, directors, employees, auditors, attorneys, authorized agents and representatives of the Sellers reasonable access, during normal business hours, to the offices, properties, books and records of the Acquired Companies (or any successor or successors thereto), (ii) furnish to the officers, directors, employees, auditors, attorneys, authorized agents and representatives of the Sellers such additional financial and operating data and other information regarding the Acquired Companies (or any successor or successors thereto) as the Sellers may from time to time reasonably request to perform its obligations, or avail itself of its rights, contained, in each case, in Section 1.3 hereof; provided, however, that such investigation shall not unreasonably interfere with any of the businesses or operations of the Acquired Companies (or any successor or successors thereto). (c) In order to facilitate the resolution of any claims made by or against or incurred by the Buyer of the Acquired Companies after the Closing or for any other reasonable purpose, for a period of seven (7) years following the Closing, the Sellers shall (i) retain the books and records of the Sellers which relate to the Acquired Companies and their operations for periods prior to the Closing and which shall not otherwise have been delivered to the Buyer or the Acquired Companies and (ii) upon reasonable notice, afford the officers, directors, employees, authorized agents, auditors, attorneys and representatives of the Buyer and Acquired Companies reasonable access (including the right to make photocopies, at the expense of the Buyer or the Acquired Companies), during normal business hours, following reasonable notice thereof, to such books and records. (d) In order to facilitate the resolution of any claims made by or against or incurred by the Sellers after the Closing in respect of their ownership of the Acquired Companies or for any other reasonable purpose, for a period of seven (7) years following the Closing, the Buyer shall, and shall cause the Acquired Companies to, (i) retain the books and records of the Buyer or the Acquired Companies, as the case may be, and their operations for periods prior to the Closing and which shall not otherwise have been retained by the Sellers and (ii) upon reasonable notice, afford the officers, directors, employees, authorized agents, auditors, attorneys and representatives of the Sellers reasonable access (including the right to make photocopies, at the expense of the Sellers), during normal business hours, following reasonable notice thereof, to such books and records. Section 4.4 Confidentiality. Subject to the requirements of applicable Law until the Closing, the parties will, and will instruct each of their respective Affiliates, associates, partners, employees, directors, officers, agents, attorneys, auditors, investment bankers, representatives and advisors (the "Representatives") to, hold in confidence all such information as is confidential or proprietary, will use such information only in connection with the consummation of the transactions contemplated by this Agreement and, if this Agreement is terminated in accordance with its terms, will deliver promptly to the others (or destroy and certify to the other the destruction of) all copies of such information (and any copies, compilations or extracts thereof or based thereon) then in their possession or under their control. Each party hereto agrees that money damages would not be a sufficient remedy for any breach of this Section 4.4 by the other party hereto or any of its Representatives, and that, in addition to all other remedies, such non-breaching party shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach, and each such party further agrees to waive and to use its best efforts to cause its Representatives to waive, any requirement for the securing or posting of any bond in connection with any such remedy. Each party agrees to be responsible for any breach of this Section 4.4 by any of its Representatives. Nothing contained in this Section 4.4 shall effect, modify or otherwise limit the respective agreements and other obligations of Club Corporation of America (now known as ClubCorp USA, Inc.), on the one hand, and Sellers, on the other, contained in that certain Confidentiality Agreement dated as of November 15, 1998, (the "Confidentiality Agreement"), which Confidentiality Agreement shall remain in full force and effect. Section 4.5 Regulatory and Other Authorizations; Consents. (a) The Sellers shall use their good faith commercially reasonable efforts to obtain (or cause the Acquired Companies to obtain) the authorizations, consents, orders and approvals that are

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