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EXHIBIT 10.1
2
AGREEMENT AND PLAN OF MERGER
AMONG
XXXXXX INCORPORATED,
MIKA MAX, INC.,
XXXXX X. XXXXX
AND
MAXIM HOMES, INC.
March 9, 1998
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TABLE OF CONTENTS
Page
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1. DEFINITIONS ...............................................................................
2. BASIC TRANSACTION..........................................................................
(A) THE MERGER........................................................................
(B) TOTAL CONSIDERATION...............................................................
(C) PROCEDURE FOR PAYMENT.............................................................
(D) THE CLOSING.......................................................................
(E) ACTIONS AT THE CLOSING............................................................
(F) RETIREMENT OF DEBT................................................................
(G) EFFECT OF MERGER..................................................................
3. REPRESENTATIONS AND WARRANTIES OF THE TARGET AND XXXXX.....................................
(A) ORGANIZATION OF THE TARGET........................................................
(B) AUTHORIZATION OF TRANSACTION......................................................
(C) NONCONTRAVENTION..................................................................
(D) BROKERS' FEES.....................................................................
(E) TITLE TO ASSETS...................................................................
(F) SUBSIDIARIES......................................................................
(G) FINANCIAL STATEMENTS..............................................................
(H) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END..................................
(I) UNDISCLOSED LIABILITIES...........................................................
(J) LEGAL COMPLIANCE; LICENSES........................................................
(K) TAX MATTERS.......................................................................
(L) REAL PROPERTY.....................................................................
(M) INTELLECTUAL PROPERTY.............................................................
(N) TANGIBLE ASSETS...................................................................
(O) INVENTORY.........................................................................
(P) CONTRACTS.........................................................................
(Q) NOTES AND ACCOUNTS RECEIVABLE.....................................................
(R) POWERS OF ATTORNEY................................................................
(S) INSURANCE.........................................................................
(T) LITIGATION........................................................................
(U) PRODUCT WARRANTY..................................................................
(V) PRODUCT LIABILITY.................................................................
(W) EMPLOYEES.........................................................................
(X) EMPLOYEE BENEFITS.................................................................
(Y) GUARANTIES........................................................................
(Z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.........................................
(AA) CERTAIN BUSINESS RELATIONSHIPS WITH THE TARGET...................................
(BB) DISCLOSURE.......................................................................
(CC) CONTINUITY OF BUSINESS ENTERPRISE................................................
(DD) SOLE TARGET STOCKHOLDER..........................................................
(EE) NO RELATED REAL ESTATE INTERESTS.................................................
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE SUBSIDIARY.............................
(A) ORGANIZATION......................................................................
(B) CAPITALIZATION....................................................................
(C) AUTHORIZATION OF TRANSACTION......................................................
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(D) NONCONTRAVENTION..................................................................
(E) BROKERS' FEES.....................................................................
(F) CONTINUITY OF BUSINESS ENTERPRISE.................................................
5. COVENANTS..................................................................................
(A) GENERAL...........................................................................
(B) NOTICES AND CONSENTS..............................................................
(C) REGULATORY MATTERS AND APPROVALS..................................................
(D) LISTING OF BUYER SHARES...........................................................
(E) OPERATION OF BUSINESS.............................................................
(F) FULL ACCESS.......................................................................
(G) NOTICE OF DEVELOPMENTS............................................................
(H) EXCLUSIVITY.......................................................................
(I) EMPLOYMENT AGREEMENT..............................................................
(J) INDEMNIFICATION...................................................................
(K) CONTINUITY OF BUSINESS ENTERPRISE.................................................
(L) FEDERAL SECURITIES LAWS...........................................................
(M) RESTRICTIONS ON TRANSFER..........................................................
6. CONDITIONS TO OBLIGATION TO CLOSE..........................................................
(A) CONDITIONS TO OBLIGATION OF THE BUYER AND THE SUBSIDIARY..........................
(B) CONDITIONS TO OBLIGATION OF THE TARGET............................................
7. TERMINATION................................................................................
(A) TERMINATION OF AGREEMENT..........................................................
(B) EFFECT OF TERMINATION.............................................................
8. MISCELLANEOUS..............................................................................
(A) SURVIVAL..........................................................................
(B) CONFIDENTIALITY...................................................................
(C) NO THIRD PARTY BENEFICIARIES......................................................
(D) ENTIRE AGREEMENT..................................................................
(E) SUCCESSION AND ASSIGNMENT.........................................................
(F) COUNTERPARTS......................................................................
(G) HEADINGS..........................................................................
(H) NOTICES...........................................................................
(I) GOVERNING LAW.....................................................................
(J) AMENDMENTS AND WAIVERS............................................................
(K) SEVERABILITY......................................................................
(L) EXPENSES..........................................................................
(M) CONSTRUCTION......................................................................
(N) INCORPORATION OF EXHIBITS AND SCHEDULES...........................................
EXHIBIT A -- Articles of Merger
EXHIBIT B-1 -- Xxxxx Note
EXHIBIT B-2 -- Note to Xxxxxx Xxxx
EXHIBIT B-3 -- Note to X.X. Xxxxx
EXHIBIT C -- Financial Statements
EXHIBIT D -- Employment Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement is entered into as of March 20, 1998 by and among XXXXXX
INCORPORATED, a Nevada corporation (the "Buyer"), MIKA MAX, INC., an Arizona
corporation and a wholly-owned subsidiary of the Buyer (the "Subsidiary"), XXXXX
X XXXXX, an individual ("Xxxxx"), and MAXIM HOMES, INC., an Arizona corporation
(the "Target"). The Buyer, Xxxxx, the Subsidiary, and the Target are referred to
collectively herein as the "Parties".
This Agreement contemplates a tax-free reorganization in ,which the
Buyer will acquire all of the outstanding capital stock of the Target in
exchange for cash and voting stock in Buyer through a forward subsidiary merger
of the Target with and into the Subsidiary pursuant to Section 368(a)(2)(D) of
the Internal Revenue Code of 1986 as amended (hereinafter the "Code").
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Arizona General Corporation Law" means the General Corporation Law of
the State of Arizona, as amended.
"Articles of Merger" has the meaning set forth in Section 2(e) below.
"Buyer Share" means any share of the voting stock, $0.001 par value, of
the Buyer.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Confidential Information" means any information concerning the
businesses and affairs of the Buyer, Subsidiary and Target that is not already
generally available to the public.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Effective Time" has the meaning set forth in Section 2(f)(i) below.
"Environmental, Health and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial or administrative orders and
determination, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control or cleanup of any hazardous materials,
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substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"Escrow Agent" means United Title of Nevada, 0000 Xxxxxx Xxxxxx Xxxxxxx,
Xxx Xxxxx, Xxxxxx 00000.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Xxxx-Xxxxx-Xxxxxx Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge after reasonable investigation and,
in the case of corporations, means such knowledge of any director or executive
officer, or any employee having responsibility for the subject matter.
"Liability" means any liability (whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, due or to become due), including any liability for Taxes.
"Merger" has the meaning set forth in Section 2(a) below.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
3(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in-Section 3(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(g)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a JOINT STOCK company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Requisite Target Stockholder Approval" means the affirmative vote of
the holders of such number of Target Shares as is required under Arizona General
Corporation Law to approve this Agreement and the Merger.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, deed of trust, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Target Share" means any outstanding share of the common stock, having
no par value per share, of the Target immediately prior to the Effective Time.
"Target Stockholder" means any Person who or which holds any Target
Shares.
"Tax" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs, duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
2. Basic Transaction.
(a) The Merger.
On and subject to the terms and conditions of this Agreement, the Target
will merge with and into the Subsidiary (the "Merger") at the Effective Time.
The Subsidiary shall be the corporation surviving the Merger (the "Surviving
Corporation").
(b) Total Consideration.
The total consideration to be paid to Target Stockholder for the Merger
shall equal the sum of Five Hundred Fifty Eight Thousand Two Hundred Thirty Four
and 17/100 Dollars ($558,234.17) and shall be paid by Buyer in accordance with
subsection (c) below. In addition, pursuant to Section 5(i), Xxxxx and Surviving
Corporation shall execute an employment agreement pursuant to which Xxxxx shall
be entitled to earn certain salary, bonuses, non-compete fee and "earn-out
payments" in accordance with the terms thereof.
(c) Procedure for Payment.
(i) As soon as possible after the Effective Time, the
Buyer will furnish to the Xxxxx stock certificate(s) representing that number of
Buyer Shares set forth in Section
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2(g)(iii) below. The Buyer will not pay any dividend or make any distribution on
Buyer Shares (with a record date at or after the Effective Time) to any record
holder of outstanding Target Shares until the holder surrenders for exchange his
or its certificates which represented Target Shares.
(ii) Buyer shall pay to Xxxxx, in immediately-available
funds, the cash sum of Two Hundred Twenty Thousand Dollars ($220,000.00).
(d) The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of the Escrow Agent in Las Vegas,
Nevada, on March 20, 1998 or such other date as the Parties may mutually
determine by written agreement (the "Closing Date").
(e) Actions at the Closing.
At the Closing, (i) the Parties will deliver the various certificates,
instruments, and documents referred to in Section 6(a) below, (ii) the Target
and the Subsidiary will file with the Arizona Secretary of State the Articles of
Merger in the form attached hereto as Exhibit A (the "Articles of Merger"), and
(iii) the Buyer will authorize delivery of a certificate evidencing the Buyer
Shares issued in the Merger, (iv) Buyer shall deposit and Escrow Agent shall
disburse to Xxxxx the cash sum described in Section 2(c)(ii) above, (v) Xxxxx
shall deposit and Escrow Agent shall disburse to Target, the cash sum described
in Section 2(f)(i) below, and (vi) Buyer shall contribute and Escrow Agent shall
disburse the cash capital described in Section 2(f)(ii) below.
(f) Retirement of Debt.
(i) At the Closing, Xxxxx shall pay to the Target,
through escrow, the cash sum of Sixty Five Thousand Dollars ($65,000.00), in
retirement of that promissory note given by Xxxxx to the Target and dated as of
the Closing (the "Xxxxx Note"), a copy of which is attached hereto as Exhibit
B-1.
(ii) At the Closing, the Buyer shall contribute
sufficient capital to the Surviving Corporation to retire the obligations
evidenced by the promissory notes (collectively, the "Notes',) given by the
Target to Xxxxxx Xxxx and X.X. Xxxxx, respectively (collectively, the
"Noteholders"), which Notes are attached hereto as Exhibits X-0, X-0,
respectively.
(g) Effect of Merger.
(i) General. The Merger shall become effective at the
time (the "Effective Time") the Target and the Subsidiary have filed the
Articles of Merger with the Arizona Secretary of State. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either the Target or the Subsidiary in order to carry out and effectuate the
transactions contemplated by this Agreement.
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(ii) Directors and Officers. The directors and officers
of the Subsidiary shall remain the directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office).
(iii) Conversion of Target Shares. At and as of the
Effective Time, each Target Share shall be converted into the right to receive a
number of Buyer Shares in an amount equal to Three Hundred Thirty Eight Thousand
Two Hundred Thirty Four and 17/100 Dollars ($338,234.17) divided by the NASDAQ
market asked price for Buyer Shares as of the close of trading on the last
market day preceding the Closing, as published by the Wall Street Journal;
provided, however, that in no event shall the number of Buyer Shares issued to
Target Shareholder hereunder exceed Seventy Five Thousand (75,000) shares. Each
Target Share shall then be deemed treasury stock of the Surviving Corporation,
and no Target Share shall be deemed to be outstanding or to have any rights
other than those set forth above in this Section 2(h)(iii) after the Effective
Time.
3. Representations and Warranties of the Target and Xxxxx.
Each of the Target and Xxxxx represents and warrants to the Buyer and
the Subsidiary that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the disclosure schedule accompanying this Agreement and initialed
by the Parties (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3.
(a) Organization of the Target.
The Target is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Arizona, and is duly qualified
under the laws of the State of Utah to do business in the State of Utah.
(b) Authorization of Transaction.
The Target has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and to perform its
obligations hereunder. Without limiting the generality of the foregoing, the
board of directors of the Target and the Target Stockholders have each duly and
unanimously approved the Merger and authorized the execution, delivery, and
performance of this Agreement by the Target. This Agreement constitutes the
valid and legally binding obligation of the Target, enforceable in accordance
with its terms and conditions.
(c) Noncontravention.
Neither the execution and the delivery of this Agreement nor the
consummation of the transactions contemplated will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge
or other restriction of any government, governmental agency or court to which
the Target is subject or any provision of the charter or bylaws of the Target,
or (ii) conflict with, result in a breach of, constitute a default under, result
in the
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acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Target is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). The Target does not need to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, other than the
filing of the Articles of Merger.
(d) Brokers' Fees.
The Target has no Liability or obligation to pay any fees or commissions
to any broker, finder or agent with respect to the transactions contemplated by
this Agreement for which the Buyer or Surviving Corporation could become liable
or obligated.
(e) Title to Assets.
The Target has good and marketable title to the properties and assets
owned by it as indicated in the Disclosure Schedule, free and clear of all
Security Interests and restrictions on transfer except as reflected in the title
commitments listed in the Disclosure Schedule.
(f) Subsidiaries.
Target has no subsidiaries, including any corporation, partnership,
limited liability company or other business entity with respect to which a
specified Person (or a subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
(g) Financial Statements.
Attached hereto as Exhibit C are the following financial statements
(collectively the "Financial Statements"): (i) audited consolidated and
unaudited consolidating balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal year ended
September 30, 1997, (the "Most Recent Fiscal Year End") for the Target; and (ii)
unaudited consolidated and consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow (the "Most Recent
Financial Statements") as of and for the four (4) months ended December, 1997
(the "Most Recent Fiscal Month End") for the Target. The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Target as of such dates and the results of operations
of the Target for such periods, are correct and complete, and are consistent
with the books and records of the Target (which books and records are correct
and complete).
(h) Events Subsequent to Most Recent Fiscal Year End.
Since the Most Recent Fiscal Year End, there has not been any material
adverse change in the business, financial condition, operations, results of
operations, or future prospects of the Target. Without limiting the generality
of the foregoing, since that date:
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(i) the Target has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Target has not entered into any agreement,
contract, lease or license (or series of related agreements, contracts, leases
and licenses) outside the Ordinary Course of Business;
(iii) no party (including the Target) has accelerated,
terminated, modified or canceled any agreement, contract, lease or license (or
series of related agreements, contracts, leases, and licenses) to which the
Target is a party or by which it is bound;
(iv) the Target has not imposed or permitted any
Security Interest upon any of its assets, tangible or intangible, except as
reflected in the Disclosure Schedule;
(v) the Target has not made any capital expenditure (or
series of related capital expenditures) either involving more than $10,000.00 or
outside the Ordinary Course of Business;
(vi) the Target has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans and acquisitions);
(vii) the Target has not issued any note, bond or other
debt security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation involving more than $10,000.00
singly or in the aggregate, other than as shown on the Disclosure Schedule;
(viii) the Target has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) the Target has not canceled, compromised, waived or
released any right or claim (or series of related rights and claims) either
involving more than $10,000.00 or outside the Ordinary Course of Business;
(x) the Target has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the
charter or bylaws of the Target;
(xii) the Target has not issued, sold or otherwise
disposed of any of its capital stock, or granted any options, warrants or other
rights to purchase or obtain (including upon conversion, exchange or exercise)
any of its capital stock;
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(xiii) the Target has not declared, set aside or paid
any dividend or made any distribution with respect to its capital stock (whether
in cash or in kind) or redeemed, purchased or otherwise acquired any of its
capital stock;
(xiv) the Target has not experienced any damage,
destruction or loss (whether or not covered by insurance) to its property;
(xv) the Target has not made any loan to, or entered
into any other transaction with, any of its directors, officers and employees
outside the Ordinary Course of Business;
(xvi) the Target has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(xvii) the Target has not granted any increase in the
base compensation of any of its directors, officers and employees outside the
Ordinary Course of Business;
(xviii) the Target has not adopted, amended, modified or
terminated any bonus, profit-sharing, incentive, severance or other plan,
contract or commitment for the benefit of any of its directors, officers and
employees (or taken any such action with respect to any other employee benefit
plan);
(xix) the Target has not made any other change in
employment terms for any of its directors, officers and employees outside the
Ordinary Course of Business;
(xx) the Target has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) there has not been any other material occurrence,
event, incident, action, failure to act or transaction outside the Ordinary
Course of Business involving the Target; and
(xxii) the Target has not committed to any of the
foregoing.
(i) Undisclosed Liabilities.
To the best of Target's and Xxxxx'x respective Knowledge, the Target
does not have any Liability (and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against any of them giving rise to any Liability), except for Liabilities
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto).
(j) Legal Compliance; Licenses.
Target has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and
charges thereunder) of federal, state, local
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and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced against any of them alleging any failure so to
comply. Target is duly licensed and in good standing as a general contractor in
the State of Utah, holding License No. 00-000000-0000.
(k) Tax Matters.
(i) the Target has filed all tax returns that it was
required to file. All such tax returns were correct and complete in all
respects. All Taxes owed by the Target (whether or not shown on any tax return)
have been paid. The Target is not currently the beneficiary of any extension of
time within which to file any tax return. No claim has ever been made by an
authority in a jurisdiction where the Target does not file tax returns that it
is or may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Target that arose in connection with any
failure (or alleged failure) to pay any Tax;
(ii) the Target has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party;
(iii) no Target Stockholder or director or officer (or
employee responsible for Tax matters) of the Target expects any authority to
assess any additional Taxes for any period for which tax returns have been
filed. There is no dispute or claim concerning any Tax Liability of the Target
either (A) claimed or raised by any authority in writing or (B) as to which any
of the Target Stockholders and the directors and officers (and employees
responsible for Tax matters) of the Target has Knowledge based upon personal
contact with any agent of such authority. The Target has delivered to the Buyer
correct and complete copies of all federal income tax returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Target since September, 1997;
(iv) the Target has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency; and
(v) the unpaid Taxes of the Target (A) did not, as of
the Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Target in filing its tax returns.
(l) Real Property.
(i) The Disclosure Schedule lists and describes briefly
all real property that the Target owns. With respect to each such parcel of
owned real property:
(A) the Target has good and marketable title to
the parcel of real property, free and clear of any Security Interest, easement,
covenant or other restriction, except as reflected in the title commitments
listed in the Disclosure Schedule;
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(B) there are no pending or, to the Knowledge of
any of the Target Stockholders and the directors and officers (and employees
with responsibility for real estate matters) of the Target, threatened
condemnation proceedings, lawsuits or administrative actions relating to the
property or other matters affecting adversely the current use, occupancy or
value thereof;
(C) the legal description for the parcel
contained in the deed thereof describes such parcel fully and adequately, the
buildings and improvements are located within the boundary lines of the
described parcels of land, are not in violation of applicable setback
requirements, zoning laws and ordinances (and none of the properties or
buildings or improvements thereon are subject to "permitted non-conforming use"
or "permitted non-conforming structure" classifications), and do not encroach on
any easement which may burden the land, the land does not serve any adjoining
property for any purpose inconsistent with the use of the land, and the property
is not located within any flood plain or subject to any similar type restriction
for which any permits or licenses necessary to the use thereof have not been
obtained;
(D) all facilities have received all approvals
of governmental authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, rules and regulations;
(E) there are no leases, subleases, licenses,
concessions or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of the parcel of real
property;
(F) there are no outstanding options or rights
of first refusal to purchase the real property, or any portion thereof or
interest therein, other than the sale agreements listed in the Disclosure
Schedule;
(G) there are no parties (other than the Target)
in possession of the real property, other than tenants under any leases
disclosed in the Disclosure Schedule who are in possession of space to which
they are entitled;
(H) all facilities located on the real property
are supplied with utilities and other services necessary for the operation of
such facilities, including gas, electricity, water, telephone, sanitary sewer
and storm sewer, all of which services are adequate in accordance with all
applicable laws, ordinances, rules and regulations and are provided via public
roads or via permanent, irrevocable, appurtenant easements benefiting the real
property; and
(I) each parcel of real property abuts on and
has direct vehicular access to a public road, or has access to a public road via
a permanent, irrevocable, appurtenant easement benefiting the parcel of real
property, and access to the property is provided by paved public right-of-way
with adequate curb cuts available.
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(ii) The Disclosure Schedule lists and describes briefly
all real property leased or subleased to Target, or to any third party by
Target, or which Target has any rights to acquire. The Target has delivered to
the Buyer correct and complete copies of the leases, subleases and purchase
agreements listed in the Disclosure Schedule (as amended to date). With respect
to each lease and sublease listed in the Disclosure Schedule:
(A) the lease, sublease or purchase agreement is
legal, valid, binding, enforceable, and in full force and effect;
(B) the lease, sublease or purchase agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby;
(C) no party to the lease, sublease or purchase
agreement is in breach or default, and no event has occurred which, with notice
or lapse of time, would constitute a breach or default or permit termination,
modification or acceleration thereunder;
(D) no party to the lease, sublease or purchase
agreement has repudiated any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease, sublease or purchase agreement;
(F) with respect to each sublease, the
representations and warranties set forth in subsections (A) through (E) above
are true and correct with respect to the underlying lease;
(G) the Target has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold, subleasehold or property to be purchased;
(H) all facilities leased or subleased
thereunder have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws, rules and
regulations;
(I) all facilities leased or subleased
thereunder are supplied with utilities and other services necessary for the
operation of said facilities; and
(J) the owner of the facility leased or
subleased has good and marketable title to the parcel of real property, free and
clear of any Security Interest, easement, covenant or other restriction, except
for installments of Taxes and special assessments not yet delinquent and
recorded easements, covenants and other restrictions which do not impair the
current use, occupancy or value, or the marketability of title, of the property
subject thereto.
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(m) Intellectual Property.
(i) The Target owns or has the right to use pursuant to
license, sublicense, agreement or permission all Intellectual Property necessary
or desirable for the operation of the businesses of the Target as presently
conducted and as presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Target immediately prior to the Closing hereunder
will be owned or available for use by the Buyer or the Subsidiary on identical
terms and conditions immediately subsequent to the Closing hereunder. The Target
has taken all necessary and desirable action to maintain and protect each item
of Intellectual Property that it owns or uses.
(ii) The Target has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of third parties, and none of the Target Stockholders and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Target has ever received any charge, complaint, claim, demand or
notice alleging any such interference, infringement, misappropriation or
violation (including any claim that the Target must license or refrain from
using any Intellectual Property rights of any third party). To the Knowledge of
any of the Target Stockholders and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Target, no third
party has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of the Target.
(n) Tangible Assets.
The Target owns or leases all buildings, machinery, equipment and other
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used and presently is proposed to be used.
(o) Inventory.
The inventory of the Target consists of raw materials and supplies,
manufactured and purchased goods, goods in process and finished goods, all of
which is merchantable and fit for the purpose for which it was procured or
manufactured, and none of which is slow-moving, obsolete, damaged or defective,
subject only to the reserve for inventory writedown set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Target.
(p) Contracts.
The Disclosure Schedule lists the following contracts and other
agreements to which the Target is a party:
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(i) any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for lease
payments in excess of $10,000.00 per annum;
(ii) any prime construction contract and any
construction subcontract (or group of related agreements) for the construction
of all or any part of any work of improvement;
(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation in excess of $10,000.00 or
under which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement involving any of the Target
Stockholders and their Affiliates (other than the Target);
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance or other plan or
arrangement for the benefit of its current or former directors, officers and
employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting or other basis;
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers or employees;
(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect on the business,
financial condition, operations, results of operations or future prospects of
the Target;
(xii) any agreement for the purchase, sale, option,
lease or other disposition by the Target of any real property or interest
therein, including any right of refusal; or
(xii) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of
$10,000.00.
The Target has delivered to the Buyer a correct and complete copy of each
written agreement listed in the Disclosure Schedule (as amended to date). With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in
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breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(q) Notes and Accounts Receivable.
All notes and accounts receivable of the Target are reflected properly
on its books and records, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Target.
(r) Powers of Attorney.
There are no outstanding powers of attorney executed on behalf of the
Target.
(s) Insurance.
The Disclosure Schedule sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability and workers' compensation coverage and bond and surety
arrangements) to which the Target has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past 3 years:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments
or other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Target nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Target has been covered during the past 12 months by
insurance in scope and amount customary and reasonable for the businesses in
which
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it has engaged during the aforementioned period. The Disclosure Schedule
describes any self-insurance arrangements affecting the Target.
(t) Litigation.
The Disclosure Schedule sets forth each instance in which the Target (i)
is subject to any outstanding injunction, judgment, order, decree, ruling or
charge or (ii) is a party or to the Knowledge of any of the Target Stockholders
and the directors and officers (and employees with responsibility for litigation
matters) of the Target, is threatened to be made a party to any action, suit,
proceeding, hearing or investigation of, in or before any court or quasijudicial
or administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings,-hearings and
investigations set forth in the Disclosure Schedule could result in any material
adverse change in the business, financial condition, operations results of
operations, or future prospects of the Target. Neither the Target nor Xxxxx has
any reason to believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened against the Target.
(u) Product Warranty.
Each product manufactured, sold, leased, or delivered by the Target has
been in conformity with all applicable contractual commitments and all express
and implied warranties, and the Target does not have any Liability (and there is
no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for warranty claims set forth
on the face of the Most Recent Balance Sheet (rather than in any notes thereto)
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Target.
(v) Product Liability.
To the best of the Target's and Xxxxx'x respective Knowledge, the Target
does not have any Liability (and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of the ownership, possession or
use of any product manufactured, sold, leased or delivered by the Target.
(w) Employees.
To the best of the Target's and Xxxxx'x respective Knowledge, no
executive, key employee or group of employees has any plan to terminate
employment with the Target. The Target is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances
or claims of unfair labor practices or other collective bargaining disputes. The
Target has not committed any unfair labor practice. Neither the Target nor Xxxxx
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Target.
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(x) Employee Benefits.
(i) The Disclosure Schedule lists each employee benefit
plan that the Target maintains or to which the Target contributes or has any
obligation to contribute.
(ii) Each such employee benefit plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(iii) All required reports and descriptions have been
timely filed and distributed appropriately with respect to each such employee
benefit plan. The requirements of COBRA have been met with respect to each such
employee benefit plan which is an employee welfare benefit plan.
(iv) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such employee benefit plan which is an employee pension
benefit plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such employee pension
benefit plan or accrued in accordance with the past custom and practice of the
Target. All premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such employee benefit plan
which is an employee welfare benefit plan.
(y) Guaranties.
The Target is not a guarantor or otherwise is liable for any Liability
or obligation (including indebtedness) of any other Person.
(z) Environmental, Health, and Safety Matters.
(i) Target has complied and is in compliance with all
Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing,
Target has obtained and complied with, and is in compliance with, all permits,
licenses and other authorizations that are required pursuant to Environmental,
Health, and Safety Requirements for the occupation of its facilities and the
operation of its business.
(iii) Target has not received any written or oral
notice, report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to THE
Target or its facilities arising under Environmental, Health, and Safety
Requirements.
(iv) None of the following exists at any property or
facility owned or operated by the Target: (1) underground storage tanks, (2)
asbestos-containing material in any
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form or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments or disposal areas.
(v) Target has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled or released any
substance, including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Solid Waste
Disposal Act, as amended ("SWDA") or any other Environmental, Health, and Safety
Requirements.
(aa) Certain Business Relationships With the Target.
None of the Target Stockholders has been involved in any business
arrangement or relationship with the Target within the past 12 months, and none
of the Target Stockholders owns any asset, tangible or intangible, which is used
in the business of the Target.
(bb) Disclosure.
The representations and warranties contained in this O 3 do not contain
any untrue statement of a fact or omit to state any fact necessary in order to
make the statements and information contained in this Section 3 not misleading.
(cc) Continuity of Business Enterprise.
The Target operates at least one significant historic business line, or
owns at least a significant portion of its historic business assets, in each
case within the meaning of Reg. Section 1.368-l(d).
(dd) Sole Target Stockholder.
Xxxxx is the sole Target Stockholder, holding one thousand (1,000)
shares of Target Stock free and clear of any claim, encumbrance or charge
whatsoever.
(ee) No Related Real Estate Interests.
The Target and Xxxxx each represent and warrant to Buyer and Subsidiary
that neither the Target nor Xxxxx is a partner, member of a limited liability
company, shareholder, beneficiary of a trust, or holds any other form of
ownership or economic interest, in or to any real estate related entity, except
with respect to Xxxxx'x personal residence. Any such real estate interests shall
be transferred to the Target prior to the Effective Date, without additional
consideration and free and clear of any monetary encumbrances.
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4. Representations and Warranties of the Buyer and the Subsidiary.
Each of the Buyer and the Subsidiary represents and warrants to the
Target that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization.
Each of the Buyer and the Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) Capitalization.
The entire authorized voting stock of the Buyer consists of 55,000J000
Buyer Shares, of which 7,619,142 Buyer Shares are issued and outstanding and
zero (0) Buyer Shares are held in treasury. All of the Buyer Shares to be issued
in the Merger have been duly authorized and, upon consummation of the Merger,
will be validly issued, fully paid, and nonassessable.
(c) Authorization of Transaction.
Each of the Buyer and the Subsidiary has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of each the Buyer and the Subsidiary,
enforceable in accordance with its terms and conditions.
(d) Noncontravention.
To the Knowledge of the Buyer, neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either the Buyer or the Subsidiary is
subject or any provision of the charter or bylaws of either the Buyer or the
Subsidiary or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
either the Buyer or the Subsidiary is a party or by which it is bound or to
which any of its assets is subject, except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, or
failure to give notice would not have a material adverse effect on the ability
of the Parties to consummate the transactions contemplated by this Agreement. To
the Knowledge of any director or officer of the Buyer, and other than in
connection with the provisions of the Xxxx-Xxxxx-Xxxxxx Act, the Arizona General
Corporation Law, the Securities Exchange Act, the Securities Act, the Trust
Indenture Act, and the state securities laws, neither the Buyer nor the
Subsidiary needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file,
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or to obtain any authorization, consent, or approval would not have a material
adverse effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
(e) Brokers' Fees.
Neither the Buyer nor the Subsidiary has any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Target could become
liable or obligated.
(f) Continuity of Business Enterprise.
It is the present intention of the Buyer to continue at least one
significant historic business line of the Target, or to use at least a
significant portion of the Target's historic business assets in a business, in
each case within the meaning of Reg.
Section 1.368-l(d).
5. Covenants.
The Parties agree as follows with respect to the period from and after
the execution of this Agreement:
(a) General.
Each of the Parties will use its reasonable best efforts to take all
action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents.
Each of the Parties will give any to third parties, and will use its
best efforts to obtain any third party consents, that the other party may
request in connection with the matters referred to in Section 3(c) and Section
4(d) above.
(c) Regulatory Matters and Approvals.
Each of the Parties will give any notices to, make any filings with, and
use its reasonable best efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(c) and Section 4(d) above. Without limiting the
generality of the foregoing, each of the Parties will file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Xxxx-Xxxxx-Xxxxxx Act, will use its reasonable
best efforts to obtain an early termination of the applicable waiting period,
and will make any further filings pursuant thereto that may be necessary, proper
or advisable.
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(d) Listing of Buyer Shares.
The Buyer will use its reasonable best efforts to cause the Buyer Shares
that will be issued in the Merger to be approved for listing on the NASDAQ Stock
Exchange, subject to official notice of issuance, prior to the Effective Time.
(e) Operation of Business.
The Target will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) the Target will not authorize or effect any change
in its charter or bylaws;
(ii) the Target will not grant any options, warrants or
other rights to purchase or obtain any of its capital stock or issue, sell or
otherwise dispose of any of its capital stock (except upon the conversion or
exercise of options, warrants, and other rights currently outstanding);
(iii) the Target will not declare, set aside or pay any
dividend or distribution with respect to its capital stock (whether in cash or
in kind), or redeem, repurchase or otherwise acquire any of its capital stock;
(iv) the Target will not issue any note, bond or other
debt security or create, incur, assume or guarantee any indebtedness for
borrowed money or capitalized lease obligation;
(v) the Target will not impose any Security Interest
upon any of its assets outside the Ordinary Course of Business;
(vi) the Target will not make any capital investment in,
make any loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) the Target will not make any change in employment
terms for any of its directors, officers and employees; and
(viii) the Target will not commit to any of the
foregoing.
(f) Full Access.
The Target will permit representatives of the Buyer to have full access
to all premises, properties, personnel, books, records (including tax records),
contracts and documents of or pertaining to the Target. Each of the Buyer and
the Subsidiary will treat and hold as such any Confidential Information it
receives from the Target in the course of the reviews contemplated by this
Section 5(f), will not use any of the Confidential Information except in
connection with this
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Agreement, and, if this Agreement is terminated for any reason whatsoever,
agrees to return to the Target all tangible embodiments (and all copies) thereof
which are in its possession.
(g) Notice of Developments.
Each Party will give prompt written notice to the other of any material
adverse development causing a breach of any of its own representations and
warranties in Section 3 and Section 4 above. No disclosure by any Party pursuant
to this Section 5(~), however, shall be deemed to amend or supplement the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
(h) Exclusivity.
The Target will not solicit, initiate or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of the Target (including any
acquisition structured as a merger, consolidation or share exchange); provided,
however, that the Target and its directors and officers will remain free to
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require. The Target shall
notify the Buyer immediately if any Person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
(i) Employment Agreement.
At the Closing, the Surviving Corporation and Xxxxx X. Xxxxx shall
execute and enter into an employment agreement in the form attached hereto as
Exhibit D.
(j) Indemnification.
The Subsidiary, as the Surviving Corporation in the Merger, will observe
any indemnification provisions now existing in the certificate of incorporation
or bylaws of the Target for the benefit of any individual who served as a
director or officer of the Target at any time prior to the Effective Time.
(k) Continuity of Business Enterprise.
The Buyer will continue at least one significant historic business line
of the Target, or use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of Reg. Section
1.368-l(d).
(l) Federal Securities Laws.
Xxxxx represents and warrants that he is acquiring the Buyer Shares to
be issued pursuant to the Merger for investment and not with a view toward any
distribution thereof, and Xxxxx understands that such Buyer Shares will not be
registered under the Securities Act and Rules and Regulations promulgated
thereunder by the SEC.
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(m) Restrictions on Transfer.
Xxxxx understand, acknowledges and agrees that unless and until the
Buyer Shares are registered under the Securities Act, the Buyer Shares will be
subject to Rule 144 of the Securities and Exchange Commission, and Xxxxx will
not be permitted to sell or otherwise transfer or dispose of any Buyer Shares or
any interest therein except in accordance with said Rule 144 or any other
applicable exemption from registration thereunder. In addition, Xxxxx shall not
dispose of any Buyer Shares without first having complied with each of the
following conditions, unless Buyer waives such conditions in writing:
(1) Buyer shall have received written notice of the proposed sale or
transfer, setting forth the circumstances and details thereof;
(2) Buyer shall have received a written opinion from a law firm
satisfactory to Buyer specifying the nature and circumstances of
the proposed sale or transfer and indicating that the proposed
sale or transfer will not be in violation of any of the
provisions of the Securities Act and the Rules and Regulations
promulgated thereunder; and
(3) Buyer shall have received an opinion from its own counsel
concurring in the opinion that the proposed sale or transfer will
not be in violation of any of the provisions of the Securities
Act and the Rules and Regulations promulgated thereunder.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer and the Subsidiary.
The obligation of the Buyer and the Subsidiary to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Target shall have performed and complied with
all of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasijudicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets, to operate the former businesses of the
Target.
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(iv) any applicable waiting periods (and any extensions
thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or otherwise been
terminated and the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Section 3(c) and Section 4(d) above, and the NASDAQ Stock Market, Inc. shall not
have required that Buyer's stockholders approve the Merger;
(v) the Buyer and the Subsidiary shall have received
from counsel to the Target an opinion in form and substance acceptable to Buyer,
addressed to the Buyer and the Subsidiary, and dated as of the Closing Date;
(vii) all actions to be taken by the Target in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
the Buyer and the Subsidiary; and
(viii) Xxxxx shall have repaid to the Target the sum of
$65,000.00 currently outstanding under loans previously made by the Target to
Xxxxx.
The Buyer and the Subsidiary may waive any condition specified in this
Section 6(a) if they execute a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target.
The obligation of the Target to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasijudicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets and to operate the former businesses.
(vi) any applicable waiting periods (and any extensions
thereof) under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or otherwise been
terminated and the Parties shall have received all other authorizations,
consents and approvals of governments and governmental agencies referred to in
Section 3(c) and Section 4(d) above; and
(vii) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments
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and other documents required to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to the Target.
The Target may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement.
Any of the Parties may terminate this Agreement with the prior
authorization of its board of directors (whether before or after stockholder
approval) as provided below:
(i) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
(ii) the Buyer and the Subsidiary may terminate this
Agreement by giving written notice to the Target at any time prior to the
Effective Time (A) in the event the Target has breached any material
representation, warranty or covenant contained in this Agreement in any material
respect, or (B) if the Closing shall not have occurred on or before March 31,
1998, by reason of the failure of any condition precedent under Section 6(a)
hereof (unless the failure results primarily from the Buyer or the Subsidiary
breaching any representation, warranty, or covenant contained in this
Agreement);
(iii) the Target may terminate this Agreement by giving
written notice to the Buyer and the Subsidiary at any time prior to the
Effective Time (A) in the event the Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, and the Target has notified the Buyer and Subsidiary of the
breach, or (B) if the Closing shall not have occurred on or before March 31,
1998, by reason of the failure of any condition precedent under Section 6(b)
hereof (unless the failure results primarily from the Target breaching any
representation, warranty or covenant contained in this Agreement);
(b) Effect of Termination.
If any Party terminates this Agreement pursuant to Section 7(a) above,
all rights and obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party (except for any liability of any Party
then in breach); provided, however, that the confidentiality provisions
contained in Section 8(b) below shall survive any such termination.
8. Miscellaneous.
(a) Survival.
Each of the representations, warranties and covenants of the Parties
shall survive the Effective Time and consummation of the transactions
contemplated hereby.
-24-
29
(b) Confidentiality.
Each Party agrees that any confidential business, financial or other
information relating to the other Party disclosed at any time prior to the
Effective Time to such Party, or its advisors, employees, agents, attorneys,
accountants or affiliates ("Related Persons"), by or on behalf of the other
Party (collectively, "Confidential Information") will be maintained in strictest
confidence by such Party until the Effective Time, and will not be disclosed to
any other person without the prior written consent of the disclosing Party until
the Effective Time. No such Party will use any Confidential Information for any
purpose other than the performance of this Agreement and the transactions
contemplated hereby. In the event of any termination of this Agreement, each
Party will promptly return to the other Party all of the other Party's
Confidential Information and copies thereof in the possession of such Party,
provided that internally prepared notes or documents containing or based upon
Confidential Information may be promptly destroyed in lieu of being returned.
The foregoing notwithstanding, Buyer shall have the right to disclose any
Confidential Information to its investment bankers, to potential investors, to
NASDAQ, and to the SEC. Neither the Target or the Target Shareholders shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of Buyer. Buyer
shall have the right in its sole discretion to issue any such press release or
make any such public announcement.
(c) No Third Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns;
provided, however, that the provisions in Section 5(j) above concerning
indemnification are intended for the benefit of the individuals specified
therein and their respective legal representatives.
(d) Entire Agreement.
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the Parties and supersedes any prior
understandings, agreements or representations by or between the Parties, written
or oral, to the extent they related in any way to the subject matter hereof,
including (without limitation) that certain Letter of Intent between Buyer, the
Target and Xxxxx X. Xxxxx dated as of February 5, 1998.
(e) Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other Party.
(f) Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
-25-
30
(g) Headings.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(h) Notices.
All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Target: Copy to:
0000 Xxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx X. Xxxxx
Fax #: (000) 000-0000
If to the Buyer or Subsidiary:
0000 X. Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxx, Xxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Fax #: (000) 000-0000
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Party notice in
the manner herein set forth.
(i) Governing Law.
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Nevada without giving effect to any choice or
conflict of law provision or rule (whether of the State of Nevada or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Nevada.
(j) Amendments and Waivers.
The Parties may mutually amend any provision of this Agreement at any
time prior to the Effective Time with the prior authorization of their
respective boards of directors; provided, however, that any amendment effected
subsequent to stockholder approval will be subject to the
-26-
31
restrictions contained in the Arizona General Corporation Law. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by both of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability.
Any term or provision of this Agreement that is invalid or unenforceable
in any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
(l) Expenses.
Each of the Parties will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
(m) Construction.
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.
(n) Incorporation of Exhibits and Schedules.
The Exhibits and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
XXXXXX INCORPORATED, a Nevada corporation
By: /s/ Xxxxx X. Xxxxxx
----------------------------------
Xxxxx X. Xxxxxx, President
-27-
32
MAXIM HOMES, INC., an Arizona corporation
By: /s/ Xxxxx X. Xxxxx
----------------------------------------
Xxxxx X. Xxxxx, President
MIKA MAX, INC., an Arizona corporation
By: /s/ Xxxxx X. Xxxxxx
----------------------------------------
Xxxxx X. Xxxxxx, Chief Executive Officer
/s/ Xxxxx X. Xxxxx
----------------------------------------
XXXXX X. XXXXX, individually
-28-
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EXHIBIT "A"
ARTICLES OF AMENDMENT AND MERGER
MERGING
MAXIM HOMES, INC.,
(AN ARIZONA CORPORATION)
INTO
MIKA MAX, INC.,
(AN ARIZONA CORPORATION)
These Articles of Merger are executed pursuant to the provisions of
A.R.S. Section 10-1101 et seq.
FIRST: MAXIM HOMES, INC., an Arizona corporation (hereinafter sometimes
referred to as the "Merged Corporation") and MIKA MAX, INC., an Arizona
corporation (hereinafter sometimes referred to as the "Surviving Corporation"),
hereby agree to merge upon the terms and conditions as set forth in these
Articles of Merger and in the Plan of Merger is attached as Exhibit "A."
SECOND:
A. The address of Mika Max, Inc. is 0000 Xxxx Xxxxxxxxx, Xxxxx
0000, Xxxxxxxxxx, Xxxxxxx 00000.
B. The statutory agent for Mika Max, Inc. is Xxxxxx X. Xxxxxx, 0000
Xxxx Xxxxxxxxx, Xxxxx 0000, Xxxxxxxxxx, Xxxxxxx 00000.
C. Amendments to the Articles of Incorporation of the surviving
corporation:
Article 1. of the Articles of Incorporation of Mika Max, Inc. is
amended to read as follows:
34
The name of the corporation is changed from Mika Max, Inc. to
Maxim Homes, Inc.
D. Consent by the sole shareholder of Maxim Homes, Inc. has been
obtained.
THIRD:
A The total number of shares of stock of all classes which the
Merged Corporation has authority to issue is one million (1,000,000) with no par
value, of which one thousand (1,000) shares are issued and outstanding.
B The total number of shares of stock of all classes which the
Surviving Corporation has authority to issue is twenty five thousand (25,000),
with no par value per share (none of which is divided into classes), of which
one thousand (1,000) shares are issued and outstanding and are held 100% by
Xxxxxx Incorporated, a Nevada Corporation ("Parent Company"). The shares of the
merged corporation are to be exchanged for shares of the Parent Company or at
the option of shareholder a limited number of shares may be exchanged for cash.
The number of shares and cash to be paid are described in a document held at the
office of the merged corporation.
FOURTH:
All of the shares of both corporations were voted in favor of the Plan
of Merger.
IN WITNESS WHEREOF, each of the corporations a party to these Articles
of Merger has caused these Articles of Merger to be signed in its respective
corporate name and on its
-2-
35
behalf by its President and its corporate seal affixed hereto and attested by
its Secretary, effective as of the _____ day of March, 1998.
Mika Max, Inc.,
an Arizona corporation
By:
--------------------------------------------
Xxxxx X. Xxxxx
Its: President
ATTEST:
------------------------------
Xxxxxxx X. Xxxxx, Secretary
Maxim Homes, Inc.,
an Arizona corporation
By:
-------------------------------------------
Xxxxx X. Xxxxx
Its: President
ATTEST:
------------------------------
Xxxxx X. Xxxxx, Secretary
-3-
36
EXHIBIT "A"
PLAN OF MERGER
BETWEEN
MIKA MAX, INC., an Arizona corporation
AND
MAXIM HOMES, INC., an Arizona corporation
PURPOSE: The purpose of this Plan of Merger is to outline the terms and
conditions under which Maxim Homes, Inc., an Arizona corporation ("Maxim"),
shall be merged into Mika Max Inc., an Arizona corporation ("Mika"). The Plan of
Merger is set forth as follows:
1. The names of the corporations proposing to merge are (i) Mika
Max, Inc. and (ii) Maxim Homes, Inc. both Arizona corporations. The surviving
corporation shall be Mika Max, Inc., who shall simultaneously file an Amendment
to its Articles of Incorporation to change its name to Maxim Homes, Inc.
2. Both parties to the merger are Arizona corporations and such a
merger is authorized by the laws of the State of Arizona, A.R.S. Section
10-1101, et seq.
3. Prior to the effective date of the merger, Xxxxx X. Xxxxx is the
sole shareholder of Maxim Homes, Inc. and Xxxxxx Incorporated (the "Parent
Company") owned 100% of the issued and outstanding shares of Mika. Immediately
upon the effective date of the merger, such shares of the merged corporation are
to be exchanged for shares of the Parent Company of Mika Max, Inc. or at the
option of the shareholder a limited number of shares may be exchanged for cash.
The number of shares and cash to be paid are described in a document held at the
office of the merged corporation.
4. The Articles of Incorporation of Mika shall be amended with this
merger to change the name of the corporation from Mika Max, Inc. to Maxim Homes,
Inc. However, Mika further reserves the right, after the effective date of the
merger, to alter, amend, change, or repeal any of the provisions contained in
its Articles of Incorporation in the manner now or hereafter prescribed by
statute and in its Articles of Incorporation and Bylaws.
5. The directors of Maxim as of the effective date of the merger
shall continue in office until the next annual meeting of Maxim's stockholders
or until their successors are duly elected and qualified. The officers of Maxim
as of the effective date of the merger shall continue in office until the next
annual meeting of Maxim's Board of Directors or until their successors are duly
elected and qualified.
6. Upon the effective date of the merger, the separate existence of
Maxim shall cease, and any and all rights, privileges, powers, and franchises,
public or private, of Maxim, and all property, real, personal, and mixed, and
all debts due to Maxim on whatever account, as well
37
as all other choices or things in action, and all or every other interest of or
belonging to or due Maxim, shall be taken and deemed to be transferred to and
vested in Mika without further act or deed; and all property, rights,
privileges, powers, and franchises, and any and every other interest shall be
thereafter the property of Mika as they were of Maxim. All rights of creditors
and all liens on any property of Maxim shall be presented and unimpaired, and
all debts, liabilities, duties, and obligations of Maxim shall attach to Mika
and may be enforced against it to the same extent as if said rights, liens,
debts, liabilities, duties, or obligations had been incurred, contracted, or
assumed by Mika; and any claim or action or proceeding pending by or against
Mika may be prosecuted to judgment as if the merger had not taken place, or
Maxim may be substituted in place of Mika. Mika, from time to time as and when
requested by Maxim or by its successors or assigns, shall execute and deliver or
cause to be executed and delivered, by its proper officers, all such further
assignments, other instruments, or assurances in law, and shall take or cause to
be taken all such further or other action as Mika may deem necessary or
desirable in order to vest in and confirm to Mika, according to the terms
hereof, the title to and possession of all such property, rights, privileges,
powers, and franchises of Maxim and otherwise to carry out the intent and
purpose of this Plan of Merger.
7. The effective date of the merger shall be the _____ day of March,
1998.
8. It is the intention of Mika and Maxim that the transaction which
shall take place pursuant to the merger herein provided for shall qualify as a
corporate reorganization under Section 368 of the Internal Revenue Code of 1954,
as amended.
MIKA MAX, INC.,
an Arizona corporation
By:
---------------------------------------------
Xxxxx X. Xxxxx
Its: President
MAXIM HOMES, INC.,
an Arizona corporation
By:
---------------------------------------------
Xxxxx X. Xxxxx
Its: President
-2-
38
EXHIBIT "B-1"
PROMISSORY NOTE
$65,000.00 U.S. Salt Lake City, Utah March 20, 1998
FOR VALUE RECEIVED, XXXXX X. XXXXX, an individual ("Maker"), promises to
pay MAXIM HOMES, INC., an Arizona corporation, or order ("Holder"), the
principal sum of Sixty Five Thousand Dollars ($65,000.00), together with
interest thereon from the date hereof at the rate of twelve percent ( 12%) per
annum.
PAYMENTS. Payment shall be made in full upon demand by Holder. Maker may prepay
this Note at any time without premium or penalty.
ENFORCEMENT. Maker hereby waives presentment, protest and notice of dishonor. In
the event Maker fails to pay any sums due hereunder as and when the same are due
and payable, Holder shall have the right, at its option and without limiting any
other rights and remedies available to Holder, to declare the entire principal
amount hereof and any interest and late charges accrued hereunder, to be
immediately due and payable in full. In the event of any action to enforce the
provisions of this Note or to collect any sums due hereunder, the prevailing
party shall be entitled to recover its costs and reasonable attorneys therein.
MISCELLANEOUS. This Note shall be binding upon Maker and its successors and
assigns. This Note shall be governed under the laws of the State of Arizona. The
terms and provisions of this Note may not be amended except by written
instrument executed by Maker and Holder. If any provision hereof is declared
invalid or unenforceable by any court of competent jurisdiction, said
determination shall not affect the validity or enforceability of the remaining
provisions hereof.
MAKER:
----------------------------
Xxxxx X. Xxxxx
39
EXHIBIT "B-2"
PROMISSORY NOTE
$465,000.00 U.S. Phoenix, Arizona March 20, 1998
FOR VALUE RECEIVED, MAXIM HOMES, INC., an Arizona corporation ("Maker"),
promises to pay XXXXXX XXXX, an individual, or order ("Holder"), the principal
sum of Four Hundred Sixty Five Thousand Dollars ($465,000.00), together with
interest thereon from the date hereof at the rate of twelve percent (12%) per
annum.
PAYMENTS. Payment shall be made in full upon demand by Holder. Maker may prepay
this Note at any time without premium or penalty.
ENFORCEMENT. Maker hereby waives presentment, protest and notice of dishonor. In
the event Maker fails to pay any sums due hereunder as and when the same are due
and payable, Holder shall have the right, at its option and without limiting any
other rights and remedies available to Holder, to declare the entire principal
amount hereof and any interest and late charges accrued hereunder, to be
immediately due and payable in full. In the event of any action to enforce the
provisions of this Note or to collect any sums due hereunder, the prevailing
party shall be entitled to recover its costs and reasonable attorneys therein.
MISCELLANEOUS. This Note shall be binding upon Maker and its successors and
assigns. This Note shall be governed under the laws of the State of Arizona. The
terms and provisions of this Note may not be amended except by written
instrument executed by Maker and Holder. If any
40
provision hereof is declared invalid or unenforceable by any court of competent
jurisdiction, said determination shall not affect the validity or enforceability
of the remaining provisions hereof.
MAKER:
MAXIM HOMES, INC., an Arizona corporation
By:
------------------------------
Xxxxx X. Xxxxx
-2-
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EXHIBIT "B-3"
PROMISSORY NOTE
$104,765.83 U.S. Salt Lake City, Utah March 20, 1998
FOR VALUE RECEIVED, MAXIM HOMES, INC., an Arizona corporation ("Maker"),
promises to pay X.X. XXXXX, an individual, or odder ("Holder"), the principal
sum of One Hundred Four Thousand Seven Hundred Sixty Five and 83/100 Dollars
($104,765.83), together with interest thereon from the date hereof at the rate
of twelve percent (12%) per annum.
PAYMENTS. Payment shall be made in full upon demand by Holder. Maker may prepay
this Note at any time without premium or penalty.
ENFORCEMENT. Maker hereby waives presentment, protest and notice of dishonor. In
the event Maker fails to pay any sums due hereunder as and when the same are due
and payable, Holder shall have the right, at its option and without limiting any
other rights and remedies available to Holder, to declare the entire principal
amount hereof and any interest and late charges accrued hereunder, to be
immediately due and payable in full. In the event of any action to enforce the
provisions of this Note or to collect any sums due hereunder, the prevailing
party shall be entitled to recover its costs and reasonable attorneys therein.
MISCELLANEOUS. This Note shall be binding upon Maker and its successors and
assigns. This Note shall be governed under the laws of the State of Arizona. The
terms and provisions of this Note may not be amended except by written
instrument executed by Maker and Holder. If any provision hereof is declared
invalid or unenforceable by any court of competent jurisdiction, said
determination shall not affect the validity or enforceability of the remaining
provisions hereof.
42
MAKER:
MAXIM HOMES, INC., an Arizona corporation
By:
----------------------------------
Xxxxx X. Xxxxx
-2-
43
EXHIBIT "C"
XXXXXXXXXX XXXXXXX X. XXXXXXXXXX
& XXXXXX, CPA, PLLC CPA, PC
Certified Public Accountants
XXXXXX X. XXXXXX
CPA
To the Officers and Directors
Maxim Homes, Inc.
Salt Lake City, Utah
We have compiled the accompanying statement of assets and liabilities - income
tax basis of Maxim Homes, Inc. as of September 30, 1997, and the related
statement of revenues and expenses - income tax basis for the year then ended,
in accordance with the Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. The
financial statements have been prepared on the accounting basis used by the
Company for Federal income tax purposes, which is a comprehensive basis of
accounting other than generally accepted accounting principles.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures ordinarily
included in financial statements prepared on the income tax basis of accounting.
If the omitted disclosures were included in the financial statements, they might
influence the user's conclusions about the Company's assets, liabilities,
equity, revenues and expenses. Accordingly, these financial statements are not
designed for those who are not informed about such matters.
We are not independent with respect to Maxim Homes, Inc.
Xxxxxxxxxx & Xxxxxx, CPA, PLLC
February 25, 1998
0000 Xxxx Xxxxxxxxx Xxxx
Xxxxx 0000
Xxxxxxxxxx, Xxxxxxx 00000
000-000-0000
44
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
SEPTEMBER 30, 1997
ASSETS
--------
CURRENT ASSETS
Cash - Chking - Payroll $ 35
Cash - Chking - Trust 89
Employee Advances 8,218
Due from Officer 47,123
Due from Elite Carpentry 20,348
Rcvbl - Meridian Title 4,500
Work in Progress 704,718
Prepaid Expenses 1,500
Captlzd Costs-Wood Ranch 37,259
------------------
TOTAL CURRENT ASSETS $ 823,790
PROPERTY & EQUIPMENT
Architectural & Site Plan 22,610
Less Accum Amortization (1,508)
Furniture & Fixtures 73,069
Furniture - Sales Office 7,404
Less Accumulated Deprec (25,173)
------------------
TOTAL PROPERTY & EQUIP. 76,402
OTHER ASSETS
Organization Costs 450
Less Accum Amortization (90)
------------------
TOTAL OTHER ASSETS 360
----------------
TOTAL ASSETS $ 900,552
===============
See Accountants' Compilation Report Attached
-2-
45
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
SEPTEMBER 30, 1997
LIABILITIES AND EQUITY
-----------------------
CURRENT LIABILTITIES
Bank Overdraft $ 48,470
Accounts Payable 111,653
American Express Payable 2,653
Note Payable - SCL-Lot 122 8,750
Note Payable - XXX-Xxx 000 0,000
Xxxx Xxxxxxx - XXX-Xxx 000 8,750
Note Payable - SCL-Lot 138 8,750
Note Payable - X.X. Xxxxx 51,616
Accrued Income Taxes 150
Accrued Interest 1,844
Due to Floors by Design 33,436
Construction Loans 547,434
------------------
TOTAL CURRENT LIABILITIES $ 832,257
LONG-TERM LIABITITIES
Note Payable-Xxxx 397,700
------------------
TOTAL LONG TERM LIABILITIES 397,700
SHAREHOLDER'S EQUITY
Common Stock No Par; Auth
1,000,000 Sh; Issued and
Outstanding 1,000 Shares 1,000
Current Income/(Loss) (330,405)
------------------
TOTAL SHAREHOLDER'S EQUITY (329,405)
----------------
TOTAL LIABILITIES AND EQUITY $ 900,552
===============
See Accountants' Compilation Report Attached
-3-
46
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
SUBSIDIARY SCHEDULE
SEPTEMBER 30, 1997
Employee Advances
Advance - Dominique Main $ 1,900
Advance - Xxx Xxxxx 6,318
---------------
TOTAL $ 8,218
===============
Work in Progress
WIP - Lot 122 $ 83,082
WIP - Xxx 000 00,000
XXX - Xxx 000 00,000
XXX - Xxx 126 41,505
WIP - Lot 127 47,242
WIP - Xxx 000 000,000
XXX - Xxx 000 00,000
XXX - Xxx 130 36,522
WIP - Xxx 000 00,000
XXX - Xxx 000 00,000
XXX - Xxx 133 46,103
WIP - Lot 138 55,749
WIP - Lot 211 47,523
---------------
TOTAL $ 704,718
===============
Construction Loans
Draw-Constr Fund-Lot 122 $ 76,820
Draw-Constr Fund-Lot 123 46,885
Draw-Delcon-Lot 124 28,295
Draw-Constr Fund-Lot 126 37,394
Draw-Constr Lend-Lot 127 28,417
Draw-Constr Fund-lot 128 90,551
Draw-Xxxxxx Xx-Lot 129 34,502
Draw-Delcon-Lot 130 28,230
Draw-Delcon-Lot 131 28,230
Draw-Delcon-Lot 132 28,295
Draw-Xxxxxx Xx-Lot 133 35,498
Draw-Constr Lend-Lot 138 45,961
Draw-Constr Lend-Lot 211 38,358
---------------
TOTAL $ 547,434
===============
See Accountants' Compilation Report Attached
-4-
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MAXIM HOMES, INC.
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
--- Year to Date ---
Actual Percent
================== ===============
REVENUES
Sales $ 1,168,987 100.0
------------------ ---------------
* TOTAL REVENUES 1,168,987 100.0
COST OF GOODS SOLD
Cost of Homes Sold 1,104,099 94.4
------------------ ---------------
* TOTAL COSTS OF GOODS SOLD 1,104,099 94.4
------------------ ---------------
* GROSS PROFIT 64,888 5.6
OPERATING EXPENSES
Salaries - Officer 104,800 9.0
Salaries & Wages - Other 64,850 5.5
Payroll Taxes 15,559 1.3
Advertising & Promotion 31,543 2.7
Auto & Truck Expense 11,722 1.0
Amortization Expense 1,598 0.1
Bank Charges 527 0.0
Business Gifts 23 0.0
Consulting Fees 550 0.0
Deprec. Exp. - Regular 7,673 0.7
Deprec. Exp. - Sec 179 17,500 1.5
Dues & Publications 1,017 0.1
Education & Seminars 612 0.1
Entertainment & Bus Meals 4,086 0.3
Insurance - General 7,039 0.6
Insurance - Workers' Comp 2,336 0.2
Insurance - Group 5,483 0.5
Interest Expense 9,713 0.8
Licenses & Permits 1,725 0.1
Office Overhead Expenses 7,583 0.6
Postage & Delivery 1,108 0.1
Professional Fees 20,544 1.8
Printing & Reproduction 241 0.0
Rent - Office 2,400 0.2
Rent - Models 4,500 0.4
Rent - Equipment 8,416 0.7
Rent - Signs 840 0.1
Repairs & Maint - Bldg 2,138 0.2
Reparis & Maint - Equip 160 0.0
Security 3,454 0.3
Sales Office Expense 11,655 1.0
Small Tools & Supplies 4,960 0.4
Supplies - Office 7,662 0.7
Telephone 17,310 1.5
See Accountants' Compilation Report Attached
-5-
48
MAXIM HOMES, INC.
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
--- Year to Date ---
Actual Percent
============ ==========
Travel 9,387 0.8
Utilities 4,613 0.4
------------ ----------
* TOTAL OPERATING EXPENSES 395,328 33.8
------------ ----------
* OPERATING INCOME/(LOSS) (330,440) (28.3)
OTHER INCOME/(EXP)
Miscellaneous Income 185 0.0
------------ ----------
* TOTAL OTHER INCOME/(EXP) 185 0.0
------------ - - ---------
* INCOME BEFORE TAXES (330,255) (28.3)
Income Taxes - Arizona (50) (0.0)
Income Taxes - Utah (100) (0.0)
------------ ----------
* NET INCOME/(LOSS) $ (330,405) (28.3)
============ ==========
See Accountants' Compilation Report Attached
-6-
49
MAXIM HOMES, INC.
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
SUBSIDIARY SCHEDULE
FOR THE YEAR ENDED SEPTEMBER 30, 1997
--- Year to Date ---
Actual Percent
=============== ===========
Sales $ 192,598 16.5
Sales - Lot 121 186,590 16.0
Sales - Lot 125 191,250 16.4
Sales - Lot 134 214,631 18.4
Sales - Lot 135 160,826 13.8
Sales - Xxx 000 000,000 00.0
Xxxxx - Xxx 137 15,765 1.3
--------------- -----------
* TOTAL $ 1,168,987 100.0
=============== ===========
Cost of Homes Sold
WIP - Lot 121 $ 179,471 15.4
WIP - Xxx 000 000,000 00.0
XXX - Xxx 137 182,328 15.6
WIP - Xxx 000 - Xxxxx 000,000 00.0
XXX - Xxx 000 - Model 211,005 18.1
WIP - Lot 136 - Model 164,369 14.1
--------------- -----------
* TOTAL $ 1,104,099 94.4
=============== ===========
See Accountants' Compilation Report Attached
-7-
50
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
DECEMBER 31, 1997
ASSETS
--------
CURRENT ASSETS
Cash - Chking - Trust $ 89
Employee Advances 10,959
Due from Officer 61,130
Due from Elite Carpentry 20,348
Work in Progress 1,335,789
Prepaid Expenses 1,506
Captlzd Costs - Wood Ranch 64,894
Captlzd Costs - River Wk 250,168
------------------
TOTAL CURRENT ASSETS $ 1,744,883
PROPERTY & EQUIPMENT
Furniture & Fixtures 77,266
Furniture - Sales Office 23,268
Transportation Equipment 19,303
Less Accumulated Deprec (34,507)
------------------
TOTAL PROPERTY & EQUIP. 85,331
OTHER ASSETS
EM Dep-Corner Creek Cove 100
Organization Costs 450
Less Accum Amortization (113)
Architectural & Site Plans 31,130
Less Accum Amortization (3,094)
------------------
TOTAL OTHER ASSETS 28,473
----------------
TOTAL ASSETS $ 1,858,687
===============
See Accountants' Compilation Report Attached
-8-
51
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
DECEMBER 31, 1997
LIABILITIES AND EQUITY
-----------------------
CURRENT LIABILITIES
Bank Overdraft $ 109,343
Accounts Payable 232,995
American Express Payable 5,771
Note - X.X. Xxxxx 100,000
Note - EcoWest 30,000
Accrued Interest 52,129
Due to Floors by Design 27,554
Construction Loans 1,126,698
------------------
TOTAL CURRENT LIABILITIES $ 1,684,490
LONG-TERM LIABILITIES
Note - Xxxx 397,700
Note - Xxxxxx Bank 19,600
Note - 1st Security Bk 180,000
Note - AMEX Capital #1 1,383
Note - Amex Capital #2 4,264
------------------
TOTAL LONG-TERM LIABILITIES 602,947
SHAREHOLDER'S EQUITY
Common stock No Par; Auth
1,000,000 Sh; Issued and
Outstanding 1,000 Shares 1,000
Retained Earnings - Beg (330,405)
Current Income/(Loss) (99,345)
------------------
TOTAL SHAREHOLDER'S EQUITY (428,751)
----------------
TOTAL LIABILITIES AND EQUITY $ 1,858,687
===============
See Accountants' Compilation Report Attached
-9-
52
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
SUBSIDIARY SCHEDULE
DECEMBER 31, 1997
Employee Advances
Advance - Dominique Main $ 1,900
Advance - Xxx Xxxxx 9,059
---------------
TOTAL $ 10,959
===============
Work in Progress
WIP - Lot 124 37,766
WIP - Xxx 000 000,000
XXX - Xxx 000 00,000
XXX - Xxx 129 91,235
WIP - Lot 130 38,257
WIP - Lot 131 60,850
WIP - Xxx 000 00,000
XXX - Xxx 000 00,000
XXX - Xxx 210 97,511
WIP - Xxx 000 000,000
XXX - Xxx 000 00,000
XXX - Xxx 213 76,485
WIP - Lot 221 77,544
WIP - Lot 222 75,259
WIP - Xxx 000 00,000
XXX - Xxx 000 00,000
XXX - Xxx 225 37,643
WIP - Lot 338 59,082
---------------
TOTAL $ 1,335,789
===============
Construction Loans
Draw-Delcon-Lot 124 29,151
Draw-Constr Fund-Lot 126 94,942
Draw-Constr Lend-Lot 127 94,493
Draw-Xxxxxx Xx-Lot 129 92,120
Draw-Delcon-Lot 130 29,151
Draw-Constr Lend-Lot 131 57,726
Draw-Constr Lend-Lot 132 55,005
Draw-Xxxxxx Xx-Lot 133 93,075
Draw-Constr Lend-Lot 210 91,938
Draw-Constr Lend-Lot 211 104,699
Draw-Delcon-Lot 212 28,814
Draw-Constr Lend-Lot 213 38,683
Draw-Constr Lend-Lot 221 70,330
Draw-Constr Lend-Lot 222 67,773
Draw-Constr Lend-Lot 223 38,930
Draw-Constr Lend-Lot 224 59,361
See Accountants' Compilation Report Attached
-10-
53
MAXIM HOMES, INC.
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
SUBSIDIARY SCHEDULE
DECEMBER 31, 1997
Draw-Delcon-Lot 225 28,842
Draw-Constr Lend-Lot 338 51,666
---------------
TOTAL $ 1,126,698
===============
See Accountants' Compilation Report Attached
-11-
54
MAXIM HOMES, INC.
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
FOR THE YEAR ENDED DECEMBER 31, 1997
--- Year to Date ---
Actual Percent
------------ ----------
REVENUES
Sales $ 735,158 100.0
------------ ----------
* TOTAL REVENUES 735,158 100.0
COST OF GOODS SOLD
Cost of Homes Sold 650,081 88.4
------------ ----------
* TOTAL COSTS OF GOODS SOLD 650,081 88.4
------------ ----------
* GROSS PROFIT 85,077 11.6
OPERATING EXPENSES
Salaries - Officer 48,600 6.6
Salaries & Wages - Other 43,650 5.9
Payroll Taxes 8,787 1.2
Advertising & Promotion 6,640 0.9
Auto & Truck Expense 8,147 1.1
Amortization Expense 1,609 0.2
Bank Charges 169 0.0
Business Gifts 51 0.0
Deprec. Exp. - Regular 4,834 0.7
Deprec. Exp. - Sec 179 4,500 0.6
Dues & Publications 100 0.0
Education & Seminars 5,048 0.7
Entertainment & Bus Meals 2,394 0.3
Equipment Rental 1,000 0.1
Insurance - General 2,771 0.4
Insurance - Workers' Comp 557 0.1
Insurance - Group 2,017 0.3
Interest Expense 1,259 0.2
Licenses & Permits 1,537 0.2
Penalties & Fines 400 0.1
Postage & Delivery 601 0.1
Professional Fees 11,003 1.5
Printing & Reproduction 517 0.1
Rent - Office 740 0.1
Rent - Models 11,082 1.5
Rent - Equipment 591 0.1
Repairs & Maint - Bldg 5,250 0.7
Reparis & Maint - Equip 261 0.0
Security 132 0.0
Small Tools & Supplies 4,572 0.6
Supplies - Office 5,225 0.7
Telephone 4,467 0.6
Travel 775 0.1
Utilities 2,562 0.3
See Accountants' Compilation Report Attached
-12-
55
MAXIM HOMES, INC.
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
FOR THE YEAR ENDED DECEMBER 31, 1997
--- Year to Date ---
Actual Percent
===================== ============
* TOTAL OPERATING EXPENSES $ 191,846 26.1
------------------- ------------
* OPERATING INCOME/(LOSS) (106,769) (14.5)
OTHER INCOME/(EXP)
Miscellaneous Income 7,423 1.0
------------------- ------------
* TOTAL OTHER INCOME/(EXP) 7,423 1.0
------------------- ------------
* INCOME BEFORE TAXES (99,345) (13.5)
------------------- ------------
* NET INCOME/(LOSS) $ (99,345) (13.5)
=================== ============
See Accountants' Compilation Report Attached
-13-
56
MAXIM HOMES, INC.
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
FOR THE YEAR ENDED DECEMBER 31, 1997
--- Year to Date ---
Actual Percent
================== ============
Sales $ 165,605 22.5
Sales - Lot 122 149,635 20.4
Sales - Lot 123 189,623 25.8
Sales - Xxx 000 000,000 00.0
Xxxxx - Xxx 138 9,881 1.3
------------------ ------------
* TOTAL $ 735,158 100.0
================== ============
Cost of Homes Sold
WIP - Lot 122 $ 157,191 21.4
WIP - Lot 123 140,058 19.1
WIP - Xxx 000 000,000 00.0
XXX - Xxx 138 188,300 25.6
------------------ ------------
* TOTAL $ 650,081 88.4
================== ============
See Accountants' Compilation Report Attached
-14-
57
EXHIBIT "D"
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT by and between Maxim Homes, Inc., an Arizona
corporation (the "Company"), and Xxxxx X. Xxxxx ("Executive") is made and
entered into as of March 20, 1998, but shall take effect as of January 1, 1998.
RECITALS:
WHEREAS the Company desires to retain the services of Executive as
president of the Company, subject to the terms and conditions hereof; and
WHEREAS Executive desires to serve as such, subject to the terms and conditions
hereof;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, receipt and sufficiency of which are hereby
acknowledged, Executive and the Company agree as follows:
1. Term. The Company hereby agrees to employ Executive, and
Executive hereby agrees to serve the Company, on the terms and conditions of
this Agreement for a five (5) year period commencing January 1, 1998 (such
period, subject to earlier termination or extension as provided herein, being
referred to as the "Period of Employment"). Commencing on the date five (5)
years after January 1, 1998, and on each annual anniversary of such date (each
such date being referred to as a "Renewal Date"), the Period of Employment shall
be automatically extended so as to terminate one year from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give written
notice to Executive or Executive shall give written notice to the Company that
the Period of Employment shall not be so extended.
2. Duties and Services. During the Period of Employment,
Executive agrees to serve the Company as President, and to perform such other
reasonable and appropriate duties as may be requested of him by the board of
directors of the Company (the "Board of Directors"), in accordance with the
terms herein set forth. Additionally, Executive may elect to serve in such other
offices and directorships of the Company and of its subsidiaries and related
companies (collectively, "Affiliates") to which he may be elected or appointed.
In performance of his duties, Executive shall be subject to the direction of the
Board of Directors. Excluding periods of vacation and sick leave to which
Executive is entitled, Executive shall devote his full time, energy and skill
during regular business hours to the business and affairs of the Company and its
Affiliates and to the promotion of their interests. The principal places of
performance by Executive of his duties hereunder shall be in Salt Lake City,
Utah and Phoenix, Arizona, or at such other location as may be mutually agreed
upon by the Company and the Executive, but Executive may be reasonably required
to travel outside those areas.
3. Compensation.
(a) Salary, Bonuses and Stock Options. As compensation for his
services hereunder, the Company shall pay Executive, during the
Period of Employment, annual base salary
58
in the amount of One Hundred Thousand Dollars ($100,000.00),
payable in 24 equal installments on the first and sixteenth of
each month, or at such other times as may mutually be agreed
upon by the Company and Executive. On each anniversary of the
date of this Agreement, the annual base salary payable hereunder
shall be increased by the amount of any increase during the
immediately preceding 12 month period in the United States All
Cities Average Consumer Price Index for Urban Wage Earners and
Clerical Workers for all items (1982-84=100), published by the
Bureau of Labor Statistics of the U.S. Department of Labor.
Executive shall be entitled to such bonuses and other benefits
as the Board of Directors may periodically award in its
discretion. Nothing contained herein shall preclude Executive
from participating in the present or future employee benefit
plans of the Company or of any Affiliate, including without
limitation any employee stock ownership plan, pension plan,
profit-sharing plan, savings plan, deferred compensation plan,
stock option plan and health-and-accident plan or arrangement,
if he meets the eligibility requirements therefor. Without
limiting the foregoing, Executive shall be entitled to
participate in Xxxxxx Incorporated's incentive stock option
plan, with a grant of options for fifteen thousand (15,000)
shares of Xxxxxx Stock, vesting equally over five (5) years
commencing January 1, 1998, and exerciseable within ten (10)
years at an exercise price equal to the market price of Xxxxxx
Stock as of close of trading on March 19, 1998.
(b) Non-Compete Fee. In addition, during each of the five (5)
initial years of the Period of Employment, the Company shall pay
Executive the sum of Forty Thousand Dollars ($40,000.00) per
year, payable in 24 equal installments on the first and
sixteenth of each month, or at such other times as may mutually
be agreed upon by the Company and Executive. Said sum shall be
deemed additional consideration for the non-compete covenants of
Executive provided hereinbelow.
(c) Earn-Out Bonus. In addition, Executive shall be entitled to earn
a bonus ("Earn-Out Payments") in each of the years 1998, 1999,
2000, 2001 and 2002, on the terms and conditions provided
herein. Each Earn-Out Payment shall be equal to a percentage
(the "Applicable Percentage") of, respectively, (i) the
Company's net (after tax) income(1) (herein "Company Income"),
and (ii) Xxxxxx Incorporated's net (after tax) income(2) from
Xxxxxx Incorporated's operations(3) for which the Company is
general contractor or project manager (herein "Eligible Xxxxxx
Income"(4)), in each case with
--------
1 (as determined in accordance with generally accepted accounting
principles, or "GAAP" and with all goodwill amortized over the first
twenty years following the Closing)
2 (as determined in accordance with GAAP)
3 (excluding income of the Company)
-2-
59
respect to the applicable calendar year (herein a "Reference
Period"). The Applicable Percentage with respect to Company
Income for each Reference Period shall be as follows:
Reference Period: 1998 1999 2000 2001 2002
----------------- ---- ---- ---- ---- ----
Applicable Percentage: 25% 20% 15% 10% 5%
The Applicable Percentage for Eligible Xxxxxx Income for each Reference Period
shall be as follows:
Reference Period: 1998 1999 2000 2001 2002
----------------- ---- ---- ---- ---- ----
Applicable Percentage: 10% 8% 6% 4% 4%
Earn-Out Payments shall be calculated and paid as follows:
A. Company Income and Eligible Xxxxxx Income shall be multiplied
by the respective Applicable Percentages indicated above. Fifty percent of the
aggregate product shall be paid to Executive in cash. The remaining fifty
percent shall be divided by a number equal to the average market price of Xxxxxx
Stock as of close of trading on each of the last twenty (20) trading days of the
calendar year immediately preceding the applicable Reference Period (except with
respect to the Earn-Out Payment for Reference Period 1998, for which said number
will be $8.00). Executive shall receive a number of shares of Xxxxxx Stock equal
to the result of said division.
-----------------------------------------------
[Footnote Continued From Previous Page]
4 As used herein, Company Income shall be limited to income derived from
the construction and sale of single family detached residences with a
gross sales price in excess of $135,000.00 (adjusted for cost of living
increases from the date hereof) and the sale of developed lots, which
are considered the historical product lines of the Company. Any and all
other income derived from the operations of the Company and/or from
Xxxxxx Incorporated shall be deemed Eligible Xxxxxx Income including,
but not limited to, income derived from (i) the construction and sale of
single family detached residences with a gross sales price less than or
equal to $ 135,000.00 (adjusted for cost of living increases from the
date hereof), (ii) the construction and sale of attached residences,
including but not limited to condominiums, apartments and townhouses,
and (iii) the construction and sale of commercial and industrial
projects. In some instances, a Maxim product may be constructed on
Xxxxxx land, in which event income allocable to the land shall be
Eligible Xxxxxx Income and income allocable to the improvements shall be
Company Income.
-3-
60
B. Anything to the contrary herein notwithstanding, to the extent
the aggregate value of all Earn-Out Payments would result in the issuance of
more than 375,000 shares of Xxxxxx Stock, all such excess must be paid only in
cash.
C. The cash portion of each Earn-Out Payment shall be paid in
quarterly installments, with the first three installments paid on or about
thirty (30) days after close of each of the first three calendar quarters, based
upon determination of income for such quarter. The stock portion of each
Earn-Out Payment shall accrue quarterly but, together with the final installment
of the cash portion, shall be issued and paid on or about each March 31
following the close of the applicable Reference Period. Said final installment
shall be subject to adjustment as necessary to reconcile the aggregate Earn-Out
Payment to which Executive is actually entitled for the applicable Reference
Period against any shortage or overage of quarterly installments previously paid
to Executive.
D. Anything to the contrary herein notwithstanding, in the event
Executive's employment with the Company is terminated for any reason other than
"for good reason" (as such term is defined in Section 4(d) hereof), Executive
shall be entitled to no further Earn-Out Payments other than any received by
Executive prior to such termination.
(i) Federal Securities Laws. Executive represents and
warrants that he is acquiring the Xxxxxx Stock be issued pursuant to this
employment agreement for investment and not with a view toward any distribution
thereof, and Executive understands that such Xxxxxx Stock will not be registered
under the Securities Act and Rules and Regulations promulgated thereunder by the
SEC.
(ii) Restrictions on Transfer. Executive understands,
acknowledges and agrees that unless and until the Xxxxxx Stock is registered
under the Securities Act, the Xxxxxx Stock will be subject to Rule 144 of the
Securities and Exchange Commission, and Executive will not be permitted to sell
or otherwise transfer or dispose of any of the Xxxxxx Stock or any interest
therein except in accordance with said Rule 144 or any other applicable
exemption from registration thereunder. In addition, Executive shall not dispose
of any Xxxxxx Stock without first having complied with each of the following
conditions, unless Xxxxxx Incorporated waives such conditions in writing:
(1) Xxxxxx Incorporated shall have received written notice of the
proposed sale or transfer, setting forth the circumstances and
details thereof;
(2) Xxxxxx Incorporated shall have received a written opinion from a
law firm satisfactory to Xxxxxx Incorporated specifying the
nature and circumstances of the proposed sale or transfer and
indicating that the proposed sale or transfer will not be in
violation of any of the provisions of the Securities Act and the
Rules and Regulations promulgated thereunder; and
(3) Xxxxxx Incorporated shall have received an opinion from its own
counsel concurring in the opinion that the proposed sale or
transfer will not be in violation
-4-
61
of any of the provisions of the Securities Act and the Rules and
Regulations promulgated thereunder.
(d) Fringe Benefits. Executive shall receive employment fringe benefits
not less favorable than those made available to the Company's most
senior executives. To the extent the value of said fringe benefits is
less than $50,000.00 (non-cumulative) in any given year, Executive
shall be entitled to an amount equal to the difference. in cash.
(e) Expenses. Subject to existing Company policies established from time
to time, all travel and other expenses incident to the rendering of
services by Executive hereunder shall be paid by the Company. If any
such expenses are paid in the first instance by Executive, the
Company shall reimburse him therefor on presentation of the
appropriate documentation required by the Internal Revenue Code of
1986, as amended, and Treasury Regulations or otherwise required
under the Company policy in connection with such expenses.
(f) Vacation. Executive shall be entitled to paid vacation, to be taken
at time or times mutually satisfactory to Executive and the Company,
in accordance with the Company's vacation policy in effect from time
to time for its most senior executives.
4. Early Termination.
(a) Notwithstanding the provisions of Section 1 hereof, Executive may be
discharged by the Company for Cause (as defined in Section 4(c) hereof), in
which event the Period of Employment hereunder shall cease and terminate and the
Company shall have no further obligation or duties under this Agreement, except
for obligations accrued under Section 3 at the date of termination. In addition,
the Period of Employment hereunder shall cease and terminate upon the earliest
to occur of the following events: (i) the death of Executive; or (ii) at the
election of the Board of Directors (subject to the Americans With Disabilities
Act), the inability of Executive by reason of physical or mental disability to
continue the proper performance of his duties hereunder for a period of 180
consecutive days, and the Company shall have no further obligation or duties
under this Agreement, except for obligations accrued under Section 3 at the date
of termination.
(b) In the event that (i) Executive is discharged by the Company other
than for Cause or other than pursuant to Section 4(a) hereof by reason of
physical or mental disability, or (ii) Executive terminates employment with the
Company for good reason (as defined in Section 4(d) hereof), Executive shall
have no further obligations or duties under this Agreement; provided, however,
that Executive shall continue to be bound by the provisions of Section 5 hereof
if the Company performs its obligations under this Section 4(b). In the event of
termination of the Period of Employment pursuant to the preceding sentence, the
Company shall, in addition to paying the obligations accrued under Section 3 at
the date of termination, pay Executive, with no duty by Executive to mitigate,
an amount equal to the entire compensation otherwise payable to him under
Sections 3(a) and (b) hereof for the lesser of two years or the remaining Period
of Employment (without giving effect to any future available renewals of the
term hereof). At the Company's option, said payment may be (x) in the form of a
cash severance payment, in which
-5-
62
event the amount of said payment shall be discounted to net present value and
payable within 30 days of termination, or (y) in the form of equal installments
payable on the first and sixteenth of each month as provided under Sections 3(a)
and (b) hereof.
(c) For purposes of this Agreement, cause ("Cause") shall be deemed to
exist only (i) upon Executive's consistent, unexcused refusal to substantially
perform, or willful misconduct in the substantial performance of, his duties and
obligations hereunder; provided such duties and obligations are consistent with
the duties and obligations imposed on Executive by this Agreement and are
clearly communicated to Executive or (ii) Executive's conviction of a felony.
(d) For purposes of this Agreement, the term "for good reason" shall
mean (i) the Company's requiring relocation of Executive, without his prior
written consent, to a place of employment other than Salt Lake City, Utah,
except for travel reasonably required in the performance of Executive's
responsibilities; or (ii) the Company's failure to substantially comply with the
provisions of Section 3 of this Agreement or other material breach by the
Company of this Agreement; provided, however, that prior to termination of this
Agreement pursuant to this subsection 4(d), Executive shall have given the
Company not less than twenty (20) days prior written notice of the condition
upon which such termination is purportedly based, and the Company shall not have
cured such condition within said twenty (20) days.
5. Confidentiality, Non-Competition and Nepotism.
(a) The Company and Executive acknowledge that the services to be
performed by Executive under this Agreement are unique and extraordinary and, as
a result of such employment, Executive will be in possession of confidential
information, proprietary information and trade secrets (collectively,
"Confidential Material") relating to the business practices of the Company and
its Affiliates. Executive agrees that he will not, directly or indirectly, (i)
disclose to any other person or entity either during or after his employment by
the Company or (ii) use, except during his employment by the Company in the
business and for the benefit of the Company or any of its Affiliates, any
Confidential Material acquired by Executive during his employment by the
Company, without the prior written consent of the Company. Upon termination of
his employment with the Company for any reason, Executive agrees to return to
the Company all tangible manifestations of Confidential Materials and all copies
thereof. All programs, ideas, strategies, approaches, practices or inventions
created, developed, obtained or conceived of by Executive prior to or during the
term thereof, and all business opportunities presented to Executive during the
term hereof by reason of his engagement by the Company, shall be owned by and
belong exclusively to the Company, provided that they are related in any manner
to its business or that of any of its Affiliates. Executive shall (i) promptly
disclose all such programs, ideas, strategies, approaches, practices, inventions
or business opportunities to the Company and (ii) execute and deliver to the
Company, without additional compensation, such instruments as the Company may
require from time to time to evidence its ownership of any such items.
(b) Executive agrees that during the Period of Employment, and for two
(2) years following the end of such Period of Employment if the termination of
employment results from (i) Executive's discharge by the Company for Cause; (ii)
Executive's written notice to the
-6-
63
Company of his decision not to extend the Period of Employment on any Renewal
Date as provided in Section 1 hereof, or (iii) Executive's decision to terminate
this Agreement other than "for good reason" within the meaning of Section 4(d)
hereof, he will not become a stockholder, director, officer, employee or agent
of or consultant to any corporation (other than an Affiliate), or member of or
consultant to any partnership or other entity, or engage in any business as a
sole proprietor or act as a consultant to any such entity, or otherwise engage,
directly or indirectly, in any enterprise, in each case which competes with any
business or activity engaged in, or known by Executive to be contemplated to be
engaged in, by the Company or any of its Affiliates within ninety (90) miles of
any location in which the Company, Xxxxxx Incorporated or any Affiliate does
business, including but not limited to the greater Salt Lake City, Utah area and
the greater Phoenix, Arizona area; provided, however, that competition shall not
include the ownership (solely as an investor and without any other participation
in or contact with the management of the business) of less than two percent (2%)
of the outstanding shares of stock of any corporation engaged in any such
business, which shares are regularly traded on a national securities exchange or
in an over-the-counter market. Executive agrees that during the noncompete
period referred to in this Section 5, neither Executive nor any person or
enterprise controlled by Executive will solicit for employment any person
employed the Company or any of its Affiliates at, or at any time within three
(3) months prior to, the time of the solicitation.
(c) Executive agrees that during the Period of Employment Executive
shall not own or hold any real estate related interest as a partner, member of a
limited liability company, shareholder, beneficiary of a trust, or any other
form of ownership or economic interest, in or to any real estate related entity,
except with respect to Executive's personal residence.
(d) During the Period of Employment, Executive shall develop and sell
the Company's real property known as Corner Creek Cove located at 00000 Xxxxx
Xxxx Xxxxxx, Xxxxxx, Xxxx. Executive shall be entitled to receive any and all
net profits from the development of Corner Creek Cove and shall indemnify and
hold Xxxxxx Incorporated and the Company harmless from any net loss incurred in
the development of Corner Creek Cove.
(e) Executive agrees that during the Period of Employment Executive
shall not enter into any transaction on behalf of the Company with any member of
Executive's family, without prior approval of the Board of Directors of the
Company.
(f) Executive agrees that the remedy at law for any breach by him ~f
this Section 5 may be inadequate and that the Company shall be entitled to
injunctive relief, in addition to any and all other rights and remedies
available to the Company.
6. Miscellaneous.
(a) Notices. Any notice or other communication required or permitted to
be given hereunder shall be made in writing and shall be delivered in person, by
facsimile transmission or mailed by prepaid registered or certified mail, return
receipt requested, addressed to the parties as follows:
-7-
64
If to the Company
c/x Xxxxxx Incorporated
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx Xxxxx
Xxx Xxxxx, Xxxxxx 00000
Attention: General Counsel
Facsimile No.: (000) 000-0000
If to Executive:
Xx. Xxxxx X. Xxxxx
Maxim Homes, Inc.
0000 Xxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No: 801-484-4333
or to such other address as the party shall have furnished in writing in
accordance with this Section. Such notices or communications shall be effective
upon delivery if delivered in person or by facsimile and either upon actual
receipt or three days after mailing, whichever is earlier, if delivered by mail.
(b) Parties In Interest. This Agreement shall be binding upon and inure
to the benefit of Executive, and it shall be binding upon and inure to the
benefit of the Company and any corporation succeeding to all or substantially
all of the business and assets of the Company' by merger, consolidation,
purchase of assets or otherwise.
(c) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Executive by the Company and contains all of the covenants
and agreements between the parties with respect to such employment in any manner
whatsoever. Any modification of this Agreement will be effective only if it is
in writing signed by the party to be charged
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, without giving effect to the
choice of law or conflicts of laws rules and laws of such jurisdiction.
(e) Severability. In the event that any term or condition contained in
this Agreement shall for any reason be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or condition of
this Agreement, but this Agreement shall be construed as if such invalid or
illegal or unenforceable term or condition had never been contained herein. If a
court of competent jurisdiction determines by final judgment that the scope,
time period or geographical limitations set forth in Section 5 are too broad to
be capable of enforcement, it may modify such covenants and enforce such
provisions as to scope, time and geographical area as it deems equitable.
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65
IN WITNESS WHEREOF the undersigned have executed this Agreement as of the date
first set forth above.
COMPANY: EXECUTIVE:
MAXIM HOMES, INC.,
an Arizona corporation -------------------------------
XXXXX X. XXXXX
By:
---------------------------------
Xxxxx X. Xxxxx, President
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66
ADDENDUM TO EMPLOYMENT AGREEMENT
THIS ADDENDUM is attached to and incorporated in that certain
Employment Agreement by and between Maxim Homes, Inc. (the "Company") and Xxxxx
X. Xxxxx ("Executive") dated as of March 20, 1998 (the "Employment Agreement").
Notwithstanding the provisions of the Employment Agreement, the
Company and Executive acknowledge and agree to the following:
1. On September 24, 1997, Executive entered into an oral
agreement with Xxxxxx Xxxxxx ("Xxxxxx") in which Executive agreed to share
equally with Xxxxxx any and all profits derived from the sale of homes
constructed on Wood Ranch lots 213 and 223 (the "Lots").
2. As of the date of this Addendum, homes have not been
constructed on the Lots and the profits to be derived from the sale of said
homes are uncertain.
3. Upon the sale each of the Lots and determination of the
profits derived therefrom, Company agrees to disburse one half of the net
profits to Xxxxxx. Executive agrees to a deduction of an amount equal to the
sum(s) disbursed to Xxxxxx from the first installment(s) of Earn-Out Payments
following the disbursement(s).
4. As of the date of this Addendum, Executive has taken an
advance on his compensation, as authorized under the terms of the Employment
Agreement, in the amount of $35,600.00 (the "Advance"). Executive agrees to
repay the Advance through a deduction of the sum of $35,6000.00 from his first
installment(s) of Earn-Out Payments.
Except as amended hereby, all other terms and conditions of the Employment
Agreement shall remain unchanged.
COMPANY: EXECUTIVE:
MAXIM HOMES, INC.,
an Arizona corporation -------------------------------
XXXXX X. XXXXX
By:
-------------------------------
Xxxxx X. Xxxxx, President
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