EXHIBIT 10.5
Shareholder Control Agreement, dated June 13, 1996,
between the Xxxxxxx X. Xxxxxx Institute and the Company
regarding control of their joint venture entity, Innovative Homes, Inc.
INNOVATIVE HOMES, INC.
SHAREHOLDER CONTROL AGREEMENT
THIS AGREEMENT is made effective as of June 13, 1996 by and among the
Xxxxxxx X. Xxxxxx Institute, a Minnesota nonprofit"corporation ("WCNI") and
International Building Concepts, Ltd., a Minnesota corporation ("IBC"),
(collectively referred to herein as the "Founding Shareholders").
RECITALS
A. The Founding Shareholders own all of the 625,000 issued and
outstanding Class A voting common stock of Innovative Homes, Inc., a
Minnesota corporation (the "Corporation"). WCNI holds 250,000 shares, IBC
holds 375,000 shares.
B. The shareholders intend this Agreement to control certain
aspects of the management of the Corporation's business and of the relations
among the shareholders, all pursuant to and enforceable as a shareholder
control agreement under Minnesota Statutes Sections 302A.457 and 302A.751,
subd. 3(a), and laws supplementary thereto and amendatory thereof.
C. The term "shareholders" in this Agreement means an of the
original parties to this Agreement collectively and any other persons who may
subsequently become owners of stock while this Agreement is in effect.
1.1 GENERALLY. The Corporation was formed for the purpose of
providing readily available, affordable, and high-quality housing, and shall
be bound by all state and federal laws, rules, and orders applicable to this
business. The Articles of Incorporation and Bylaws of the Corporation shall
govern and regulate the affairs of the Corporation except as specifically
provided in this Agreement.
1.2 ISSUANCE OF SHARES. The Corporation shall not issue any
shares, nor any options or rights to purchase shares, except pursuant to
commitments of the Corporation in effect as of the date of this Agreement,
without the prior approval of shareholders holding at least two-thirds (2/3)
of the shares of the Corporation outstanding at the time of such proposed
issuance.
1.3 TRANSFER OF SHARES. Notwithstanding any provisions in the
Bylaws to the contrary, at any time following the occurrence of any of the
following described events, shareholders shall have the right to purchase the
shares owned by a shareholder involved in any of the described occurrences:
(a) A shareholder makes a voluntary application for relief under
federal bankruptcy law or any other law providing relief for debtors;
(b) An involuntary bankruptcy proceeding is commenced against a
shareholder and is not dismissed within sixty (60) days of its commencement;
(c) A receiver is appointed for any of the property of a shareholder;
(d) An execution or attachment proceeding is directed at the shares
owned by a shareholder;
(e) An order or decree is issued in connection with any divorce,
marriage dissolution, separation or similar proceedings providing for the
transfer of any of the shares, except to a (former) spouse who is an
existing shareholder; or
(f) The shares owned by a shareholder are subject to any event
which would result in the transfer of the shares by operation of law except
as specifically authorized herein.
The purchase price for such stock shall be computed using book value, which
is defined as the value arrived at by adding all assets and deducting all
liabilities and dividing that sum by the number of shares of common stock
outstanding.
1.4 WARRANTS. The shareholders agree that the following
individuals have rights to a warrant for the purchase of the Corporation's
Class A common stock, as follows:
17,500 shares, Xxx Xxxxx, at $1.00 per share;
10,000 shares, Xxxx Xxxxx, at $1.00 per share; and
10,000 shares, Xxxx X. Xxxxxxxx, at $1.00 per share.
These warrants are exercisable over five (5) years, 25% exercisable after second
year, 25% after third year, 25% after fourth year and 25% after fifth year.
1.5 ADDITIONAL WARRANTS. The shareholders agree that the following
shares of Class A common stock are to be reserved for future warrants:
12,500 shares, future employees, at market price at time of issue; and
25,000 shares, directors, at market price at time of issue.
1.6 FIRST FINANCING. The goal of the first round of financing is
to issue a total of 125,000 shares at $2.00 per share through a private
placement of common stock. It is contemplated that 50,000 shares will be
issued in northern Minnesota to entities and individuals acceptable to the
Board of Directors and an additional 75,000 shares will be issued to other
individuals and entities acceptable to the Board of Directors.
1.7 FAILURE OF FIRST FINANCING. If the Board of Directors finds
that it cannot complete the financing pursuant to section 1.06 of this
Agreement, WCNI shall have the right to
purchase all, but not less than all, of 125,000 shares at $1.00 each. If
WCNI does not exercise this right, WCNI and IBC shall have the right to
purchase 50,000 and 75,000 shares respectively, at; $1.00 each, representing
a continuation of their pro-rata ownership. If the parties cannot agree to
complete the purchase of shares on these terms, or if no other agreement can
be reached to raise capital from the Founding Shareholders, IBC may purchase
all of WCNI shares for $125,000. This purchase price may be paid from the
proceeds of the sale of the model home, together with IBC convertible
debentures, the terms of which must be agreed upon by WCNI and IBC.
1.8 SUBSEQUENT FINANCING. It is anticipated that additional
capital, if needed, will come from outside investors. However, if after the
shareholders approve an offering of shares under Section 1.02 above, the
Board of Directors finds it desirable to delay outside financing or that
outside finance cannot be obtained on acceptable terms, each current
shareholder will be given the right to purchase shares in accordance with the
shareholder's pro rata portion of the offering. If a shareholder declines
the right to purchase such pro rata share of stock, the remaining
shareholders may, but are not required to, purchase the additional shares.
1.9 DIRECTORS AND OFFICERS. The shareholders agree to vote their
shares to elect Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxxxx, Xxxx X. Xxxxxxxxx,
Xxxxxx X. Xxxxxxx, Xxx Xxxxx, and two nominees to be agreed upon by the
Founding Shareholders. In the case of resignation or removal of any director
elected by one of the Founding Shareholders, such Founding Shareholder shall
have the right to name a successor. Each Founding Shareholder is deemed to
have elected the following directors: Xxx Xxxxxx and Xxxxx Xxxxxxxx, elected
by IBC; Xxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxx, elected by WCNI. All other
director vacancies will be filled in accordance with the Bylaws. The
unanimous approval of the Board of Directors is required for dividends or
cash contributions.
Officers shall be elected from time to time by the Board of Directors
and shall include Chairman of the Board, President and Chief Executive Officer,
Secretary, Treasurer and Chief Financial Officer.
1.10 CONTRIBUTIONS OF FOUNDING SHAREHOLDERS. In addition to the
cash consideration for the initial stock by WCNI, the shareholders agree that
the Founding Shareholders' contributions are as follows:
(a) WCNI
1. Continued expert assistance and guidance;
2. Corporate, academic and government contacts;
3. Expert assistance through the Job Creation Collaborative,
or Xxxxxx X. Xxxxxx.
(b) IBC
1. Both a non-exclusive and exclusive license for the 12 foot
oriented strand board housing technology invention claimed in U.S.
Provisional Patent Application, Serial No. 60/011,265 for Monolithic
Shelter (the "Invention"), or such successor housing technology as may be
developed by IBC or any successor to the Invention, including all future
Letters Patent issued therefor (collectively, "Housing"), including rights
to manufacturing, marketing and sales, in accordance with the License
Agreement of even date herewith (the "License Agreement");
2. Right to market and manufacture the Housing within the
territory described in Section 1.11 of this Agreement. Upon approval of the
Board of Directors, the Corporation shall have the right to sublicense
technology within the exclusive territory;
3. Provide Housing shells to the Corporation at MANUFACTURING
cost (as defined in Section 1.12) plus 10%;
4. Provide field assembly support of housing shell in field to
first three orders of all developers and dealers in 1996 and 1997 and
product support expertise on an ongoing basis; as IBC introduces major new
technology, such as the two story house, IBC will provide field assembly for
three houses in the first year and three houses in the second year;
5. Provide training on an ongoing basis;
6. Provide access to all internal documents, including
financial information, and support and assistance from personnel reasonably
necessary to develop a business plan for the Corporation;
7. Provide building code approval on the following schedule:
Minnesota, approval received,
Iowa, approval received,
North Dakota, no later than 30 days after receipt of order,
or IBC will initiate a request for code approval if
necessary to obtain orders for Housing in the state,
South Dakota, no later than 30 days after receipt of order,
or IBC will initiate a request for code approval if
necessary to obtain orders for Housing in the state,
Manitoba, no later than 7/l/96, or earlier if necessary to
obtain orders for Housing in the province
Nebraska, no later than 9/30/96, or earlier if necessary to
obtain orders for Housing in the state
Other states and Indian tribes, as need is determined by the
Corporation.
1.11 TERRITORY. The shareholders agree that license for the
technology shall cover the following areas:
(a) EXCLUSIVE TERRITORY
1. Province of Manitoba, Canada
2. All Indian Tribes in the United States and Canada
3. All areas south of the Canadian border from Pembina,
North Dakota to Omaha, Nebraska and extending 50 miles east and 50
miles west of Interstate Highway I-29.
IBC agrees that it will not sell or assist others in selling in the
Exclusive Territory granted to Corporation.
(b) NON-EXCLUSIVE TERRITORY
The Corporation shall use the license on a non-exclusive basis in all
other areas, subject to the terms of the License Agreement.
(c) MARKETING AND DEVELOPMENT
The Corporation will concentrate its marketing efforts in the
Exclusive Territories but will also target the following areas for
development:
1. The "Conac Region" in North Dakota (center of North
American Coalition for Rural Development). This includes six counties
in North Central North Dakota (Xxxxxx, Botuneau, McHenry, Pierce,
Rolette, and Xxxxxx)
2. The "Lakes Region" in Minnesota an area beginning in
Baudette at the Canadian border, running south to Grand Rapids, to
Aitkin south to Isle, then following 29 west to Wheaton, Minnesota.
The Corporation will build model homes, develop contractor and dealer
relationships and extend a significant marketing effort in these areas. Upon
successful market penetration and sales in any Non-exclusive Territory, the
Corporation may request, and IBC may grant, but is not required to grant, an
exclusive license for that territory. The Corporation shall have a right of
first refusal to acquire other exclusive territories in accordance with Section
l(b) of the License Agreement.
1.12 MANUFACTURER. The Founding Shareholders agree that IBC shall
manufacture the housing components and sell them to the Corporation at cost
plus 10%. The selling price shall be adjusted quarterly and manufacturing
cost will be determined on a square foot basis, and total cost will be
determined in accordance with the following formula:
(a) COST PER SQUARE FOOT CALCULATION
Direct materials X.XX
Direct labor X.XX
----
Total cost X.XX
10% .XX
----
X.XX
(b) TOTAL COST. = Cost Per Square x Total Square footage of
ordered housing from time to time.
If the Corporation elects to manufacture the components pursuant to the License
Agreement, the Corporation shall seek outside sources of equity and debt
financing. The shareholders agree that the cost of material is based upon cost
for oriented strand board of $10.00 per sheet, which will be reviewed quarterly
and adjusted as necessary. IBC will provide the square foot manufacturing costs
upon execution of this Agreement, and quarterly thereafter.
1.13 SPECIFIC PERFORMANCE. The parties acknowledge that the
damages arising out of any breach of any provision of this Agreement will be
difficult or impossible to determine; accordingly, the parties agree that in
any action commenced with respect to such a breach, the plaintiff(s) shall be
entitled to specific performance or other equitable relief and no party will
assert the defense to such action that the plaintiffs has an "adequate remedy
at law." Exercise of the provisions of this paragraph shall not constitute a
waiver of the right to seek damages or any other legal remedy.
1.14 CERTIFICATE LEGEND. The certificates representing shares
owned by the shareholders shall bear the following legend:
The shares evidenced by this certificate are subject to the
terms of that certain Shareholder Control Agreement dated as
of June 13, 1996, by and among the shareholders of the
Corporation, a copy of which is on file in the office of the
Secretary of the Corporation.
1.15 TERMINATION. This Agreement shall terminate upon the sooner
of any of the following events:
(a) Unanimous written agreement of all the shareholders.
(b) If either IBC or WCNI seeks protection from creditors under
Chapters 7 or 11 of the Bankruptcy Code, or is dissolved and completely
liquidated.
(c) If one shareholder purchases all of the shares of the other
shareholders pursuant to Section 7.8 of the Bylaws.
(d) The entry of an order for relief under Chapter 7 of the
Bankruptcy Code, or the dissolution or complete liquidation of the
Corporation.
The termination of this Agreement shall not affect obligations or rights accrued
prior to the effective date of termination. Upon the termination of this
Agreement, the shareholders shall surrender to the Corporation their share
certificates and the Corporation shall issue to them in lieu thereof new
certificates for an equal number of shares, without the legend set forth in
Section 1.15 of this Agreement
1.16 SHAREHOLDER CONTROL PROVISIONS. The parties intend that
applicable provisions of this Agreement shall constitute a shareholder
control agreement under Section 302A.457 of the Business Corporations Act and
shall be enforceable and binding in accordance with such Section, and that
all provisions of this Agreement, notwithstanding the application of
Section 302A.457, shall be fully enforceable and binding upon all parties
hereto, to the extent permitted by law. For purposes of compliance with Section
302A.457, the shareholders hereby acknowledge and agree that:
(a) This Agreement has been signed by all persons who are now
shareholders, whether or not all shareholders of the Corporation have voting
rights, and by all subscribers for shares, whether or not voting shares, to
be issued.
(b) A copy of this Agreement shall at all times be kept on file in
the office of the Secretary of the Corporation.
(c) The existence and location of a copy of this Agreement shall
be noted conspicuously on the face or back of each certificate for shares of
the Corporation.
(d) Every shareholder, beneficial owner of shares, and other
person having a permitted security interest in shares shall have the right,
upon written demand, to obtain a copy of this Agreement from the
Corporation, at the expense of the Corporation.
1.17 SHAREHOLDER EXPECTATIONS. The shareholders agree that this
Agreement reflects the parties reasonable expectations concerning matters in
this Agreement pursuant to Section 302A.751, subd. 3a., of Minnesota Statutes
and the parties have had the opportunity to seek the advice of counsel
concerning their rights and obligations hereunder.
1.18 ADDITIONAL PARTIES TO THIS AGREEMENT. In the event any
additional parties become shareholders in the Corporation, whether as a
result of purchasing shares from the Corporation or from shareholders, or
both, or through a permitted transfer of shares from current or future
shareholders, each new shareholder, as a condition to the purchase of shares,
shall enter into an Addendum to this Agreement in which he or she agrees to
be bound by all provisions hereof. Each new shareholder who executes and
delivers such an Addendum shall be entitled to all rights and benefits
hereunder, and bound by the obligations hereunder, to the same extent as if
he or she had been an original party to this Agreement. Each of the
shareholders agrees to execute and deliver an Addendum to this Agreement with
any new shareholder, so long as the new shareholder is treated consistently
with other parties to this Agreement, based on the number of shares held by
each.
1.19 AMENDMENTS. This Agreement may be amended only by a writing
executed and delivered by all of the parties hereto.
1.20 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
1.21 NOTICES. Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when delivered in
person or sent by certified or registered mail, postage prepaid, to any
shareholder at its address as reflected by the records of the Corporation, to
the Corporation at the address hereinafter set forth, or, to any of the
parties at any other address that a party may hereafter specify by written
notice to the other party given hereunder:
If to WCNI:
The Xxxxxxx X. Xxxxxx Institute
0000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxx, Vice President
With a copy to:
Xxxx X. Xxxxxxxx
0000 X. 00xx Xxxxxx
Xxxxxxxxxxx, XX 00000
If to IBC:
International Building Concepts, Inc.
0000 0xx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx
With a copy to:
Xxxxx X. Xxxxxxx, Esq.
Robins, Kaplan, Xxxxxx & Ciresi
000 XxXxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
1.22 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Minnesota.
1.23 COSTS. If any legal action or other proceeding is brought for
the enforcement of this Agreement, or, because of alleged dispute, breach,
default or misrepresentation, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and all other costs
incurred in that action or proceeding, in addition to any other relief to
which the parties may be entitled.
1.24 WAIVER. No waiver of any provision of this Agreement shall be
effective unless expressed in writing by the party to be charged with such
waiver. No waiver shall be deemed to have continuing effect unless it is
expressly stated to have continuing effect.
1.25 INTERPRETATION AND INVALIDITY. As used in this Agreement,
words denoting gender shall include masculine, feminine, and neuter, and the
singular includes the plural (and vice versa). The provisions of this
Agreement shall be applied and interpreted in a manner consistent with each
other so as to carry out the purposes and intent of the parties, but if for
any reason any provision is unenforceable or invalid, such remaining
provisions shall be carried out with the same force and effect as if the
severed provision had not been a part of this Agreement.
1.26 INTEGRATION. This Agreement constitutes and expresses the
entire agreement and understanding among the parties relative to the subject
matter hereof and supersedes all prior agreements, understandings, and
promises, whether oral or in writing, relating to such subject matter, except
as specifically provided in this Agreement. No amendment or modification of
this Agreement shall be valid unless set forth in a subsequent writing signed
by all parties to this Agreement.
1.27 BINDING EFFECT. This Agreement shall bind and be enforceable
by the parties hereto and their respective heirs, legal representatives,
successors, and permitted assigns, who are obligated to take any action which
may be necessary 6r'proper to carry out the purposes and intent hereof,
notwithstanding any contrary directions contained in any will or other
testamentary instrument.
1.28 SEVERABILITY; CONFLICTS.
(a) To the extent possible, each provision of this Agreement shall
be interpreted in such a manner to be valid and effective under applicable
law, but if any provision of this
Agreement is held to be invalid, illegal, or unenforceable under any
achievable law or rule in any jurisdiction, such provision shall be
ineffective only to the extent of such invalidity, illegality, or
unenforceability in such jurisdiction, without invalidating the remainder
of this Agreement in such jurisdiction or any provision hereof in any other
jurisdiction.
(b) To the extent permitted by Minnesota law, any conflict between
the provisions of this Agreement and the Articles of Incorporation or Bylaws
of the Corporation shall be resolved in favor of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
XXXXXXX X. XXXXXX INSTITUTE
By:____________________________________
Title:_________________________________
INTERNATIONAL BUILDING CONCEPTS,
INC.
By:____________________________________
Title:_________________________________
