FIRST AMENDMENT TO EARNOUT AGREEMENT
Exhibit
10.1
FIRST
AMENDMENT TO EARNOUT AGREEMENT
This
First Amendment dated November 19,
2007 (the “Amendment”), amends the Earnout Agreement dated as of January
18, 2006, by and between Xxxx Xxxxxxx Xxxxx, II, Xxxxxxx X. Xxxxxxxx, Xx.,
Xxxx
Xxxxxx Xxxxxx, Xxxxx Xxxxx Xxxx, Xxxxxxx Xxxxxx Xxxxxx, Xx., Xxxxx Xxx Xxxxxx,
Jr., Xxxxxxx Xxxxx Xxxx, and Xxxxx Xxx Xxxxxxx (individually, a "Seller"
and collectively, the “Sellers”), Deer Valley Homebuilders, Inc., an
Alabama corporation ("DVHB"), and Deer Valley Corporation, a Florida
corporation (“Deer Valley”), as successor to DeerValley Acquisitions
Corp., a Florida corporation (the “Earnout Agreement”).
RECITALS
A.
Pursuant to the Common Stock Purchase Agreement dated November 1, 2005 (the
"Purchase Agreement"), Sellers sold 100% of the issued and outstanding
capital stock of DVHB to Deer Valley.
B. The
Purchase Agreement provided that a portion of the Purchase Price (as defined
in
the Purchase Agreement) was to be calculated and paid as an earnout based upon
the net income before taxes of DVHB.
C. Pursuant
to the Earnout Agreement, the Sellers earned for the fourth quarter of 2005
and
for the twelve month period ending December 31, 2006 an aggregate Annual Price
Adjustment of $2,464,550, of which $1,232,275 was distributed to the Sellers
in
accordance with the terms of the Earnout Agreement, and $1,232,275 was recorded
as a liability to the PATA and remains undistributed to the Sellers (the
“2006 Undistributed PATA Accrual”).
D. Pursuant
to the Earnout Agreement, Sellers, DVHB, and Parent Company anticipate that
the
Annual Price Adjustment for the Earnout Year ending December 31, 2007 will
equal
approximately $1,535,450 (the “2007 Estimated PATA Accrual”), of which
$767,725 will be available for distribution to the Sellers pursuant to the
terms
of the Earnout Agreement, and $767,725 will be recorded as an additional
liability, increasing the PATA, and will remain undistributed to the
Sellers.
X. Xxxxxxx,
DVHB, and Deer Valley wish to amend the Earnout Agreement to, among other
matters, (a) provide for early release of $2,767,725, comprised of the 2006
Undistributed PATA Accrual and the 2007 Estimated PATA Accrual, in exchange
for
(b) the Sellers agreeing to accept, in lieu of cash, common stock of Deer Valley
(“Common Stock”) for any remaining Annual Price Adjustments accrued after
the Earnout Year ending December 31, 2007, subject to the price guarantee
described in Section 1.5 below and restrictions provided for in Sections 1.3,
1.4 and 1.6 below.
F. All
capitalized terms not otherwise defined herein have the meaning ascribed to
them
in the Earnout Agreement.
NOW,
THEREFORE, in consideration of the
premises and of the respective covenants and provisions herein contained, each
Seller, DVHB, and Deer Valley agree as follows:
1. Restated
Article I. Article I of the Earnout Agreement is hereby
deleted in its entirety and replaced with the following:
ARTICLE
I.
PRICE
ADJUSTMENT
1.1 Release
of Deferred Earnout Payments. No later than December 31, 0000,
Xxxx Xxxxxx shall make a $2,767,725 cash payment to the Sellers, comprised
of
the 2007 Estimated PATA Accrual and the 2006 Undistributed PATA
Accrual.
1.2 Shares
Deposits. No later than December 10, 0000, Xxxx Xxxxxx shall
issue to the Sellers, for deposit into escrow with Xxxx Xxxx, P.A. (the
“Escrow Agent”), 2,000,000 shares of Common Stock to be held and released
pursuant to Sections 1.4 and 1.6 below (the “Escrowed
Shares”). Contemporaneous with entering into this Amendment, the
parties shall enter into an Escrow Agreement with the Escrow
Agent. Prior to vesting pursuant to Section 1.3 below, the Escrowed
Shares may be voted by a majority of the Board of
Directors. Once Escrowed Shares vest, the Sellers may vote
such Vested Shares.
1.3 Annual
Price Adjustment. For each Earnout Year ending after December 31,
2007, the Sellers shall be entitled to a price adjustment in an amount equal
to:
(a) the Net Income Before Taxes of DVHB for such Earnout Year minus
$1,000,000; multiplied by (b) fifty (50%)
percent (the “Annual Price Adjustment”). The Annual Price
Adjustment shall be determined annually on or before the earlier of: (y)
twenty days (20) after the completion of the audit of Deer Valley’s financial
statements for such Earnout Year; or (z) ninety days following the end of
such Earnout Year. The Sellers shall vest in that number of Escrowed
Shares equal to the Annual Price Adjustment, divided by $1 (the “Vested
Shares”). For example, if the Net Income Before Taxes for a
particular Earnout Year after 2007 is $3,000,000, then the Annual Price
Adjustment for such Earnout Year will be $1,000,000, and the number of Escrowed
Shares that will vest for such Earnout Year will be 1,000,000 shares of Common
Stock. Prior to the Distribution Date (as defined below), all Vested
Shares will continue to be subject to forfeiture provisions in Section 1.6
below.
1.4 Release
and Payments on the Distribution Date. Within forty-five (45)
days after the earlier of: (a) the determination of the Annual Price
Adjustment for the 2013 fiscal year; or (b) the date that both (i)
cumulative Annual Price Adjustments after 2007 equal $2,000,000 and (ii)
the five (5) year term of each Employment Agreement has expired (the
“Distribution Date”), DVHB shall release to each Seller an amount equal
to the Vested Shares multiplied by the percentage (%) set forth
next to such Seller’s name on Exhibit “A” attached hereto, as may be
amended from time to time. Any Escrowed Shares which have not vested
by the Distribution Date shall be returned to Deer Valley for
cancellation. In no event shall cumulative Annual Price Adjustments
accrued after 2007 exceed $2,000,000.
1.5 Price
Guarantee. If the Trading Price (as defined below) on the Distribution Date
is less than $1.00, then Deer Valley shall be obligated to pay to the Sellers
an
amount equal to $1.00 minus the Trading Price, multiplied by
the number of Vested Shares (the “Price Guarantee
Payment”). The Price Guarantee Payment may be paid in cash or
with shares of Common Stock, at Deer Valley’s option. For example, if
the Trading Price on the Distribution Date is $0.75, and there are 1,500,000
Vested Shares, then the Price Guarantee Payment would equal $375,000, which
may
be satisfied by the Company by issuing 500,000 shares of Common Stock or making
a cash payment.
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1.6 Forfeiture.
If, before the Distribution Date, (a) Deer Valley or DVHB terminates a
Seller’s employment for Cause (as defined in each Employment Agreement),
(b) a Seller terminates his employment with DVHB prior to the five (5)
year term of each Employment Agreement, or (c) a Seller breaches the
terms of a Non-Competition Agreement (in each case, a “Forfeiture
Event”), then, upon written notice by Deer Valley or DVHB to such Seller,
such Seller (a “Forfeiting Seller”) shall have forfeited his interest in
the Escrowed Shares and related Price Guarantee Payment, if any (the
“Forfeited PATA Interest”). Upon a Forfeiture Event, (y) fifty
(50%) percent of the Forfeited PATA Interest shall be immediately released
from
the Price Adjustment Target Account to Deer Valley, and (z) the remaining
fifty (50%) percent of the Forfeited PATA Interest (including the Price
Guarantee Payment, if any) shall be allocated to the remaining Seller’s pro-rata
according to Exhibit “A”, as amended, and distributed accordingly on the
Distribution Date. Upon a Forfeiture Event, Exhibit “A” shall
be deemed amended to reflect that the Forfeiting Seller’s interest has been
allocated to the remaining Sellers, as follows: each remaining Seller’s
percentage interest shall equal (i) the number of shares stated next to such
Seller’s name on Exhibit “A,” divided by (ii) the total number
of shares held by all Sellers less the shares held by the Forfeiting
Seller. Notwithstanding anything to the contrary, a Forfeiture Event
shall not affect any cash distributions made prior to the date of the Forfeiture
Event.
2. Additional
Definition. The following definition is added to Section
4.1 of the Earnout Agreement:
“Trading
Price” for a particular date (the “Determination Date”) shall mean
the price determined by the first of the following clauses that applies: (a)
if
shares of Common Stock are traded on a national securities exchange (an
“Exchange”), the weighted average of the closing sale price of a share of the
Common Stock of the Company on the last five (5) trading days prior to the
Determination Date reported on such Exchange as reported in The Wall Street
Journal (weighted with respect to the trading volume with respect to each such
day); (b) if shares of Common Stock are not traded on an Exchange but trade
in
the over-the-counter market and such shares are quoted on the National
Association of Securities Dealers Automated Quotations System (“NASDAQ”),
the weighted average of the closing sale price of a share of the Common Stock
of
the Company on the last five (5) trading days prior to the Determination Date
reported on NASDAQ as reported in The Wall Street Journal (weighted with respect
to the trading volume with respect to each such day); (c) if such shares are
an
issue for which last sale prices are not reported on NASDAQ, the average of
the
closing sale price, in each case on the last five (5) trading days (or if the
relevant price or quotation did not exist on any of such days, the relevant
price or quotation on the next preceding Business Day on which there was such
a
price or quotation) prior to the Determination Date as reported by the Over
the
Counter Bulletin Board (the “OTCBB”), or any other successor
organization; (d) if no closing sales price is reported for the Common Stock
by
the OTCBB or any other successor organization for such day, the average of
the
closing sale price, in each case on the last five (5) trading days (or if the
relevant price or quotation did not exist on any of such days, the relevant
price or quotation on the next preceding business day on which there was such
a
price or quotation) prior to the Determination Date as reported
by the "pink sheets" by the Pink Sheets, LLC, or any successor
organization, (e) if no closing sales price is reported for the Common Stock
by
the OTCBB or any other successor organization for such day, then the average
of
the high and low bid and asked price of any of the market makers for the Common
Stock as reported on the OTCBB or in the "pink sheets" by the Pink
Sheets, LLC on the last five (5) trading days; or (e) in all other cases, the
fair market value of a share of Common Stock
as
determined, in good faith, by a majority of the Board of Directors of the
Company.
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3. Counterparts.
This Amendment may be executed simultaneously in two or more counterparts,
each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4. Ratification. The
terms and conditions of the Earnout Agreement that have not been modified by
this Amendment shall remain in full force and effect.
IN
WITNESS WHEREOF, the parties have
hereunto caused this Amendment to be executed in multiple original counterparts
as of the date set forth above.
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Deer
Valley Corporation, a Florida corporation
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By:
/s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx
X. Xxxxxxx, President & CEO
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Deer
Valley Homebuilders, Inc., an Alabama corporation
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By:
/s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx
X. Xxxxxxx, Chairman of the Board
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“Sellers”
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/s/
Xxxx Xxxxxxx Xxxxx, II
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Xxxx
Xxxxxxx Xxxxx, II
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/s/
Xxxxxxx X. Xxxxxxxx, Xx.
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Xxxxxxx
X. Xxxxxxxx, Xx.
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/s/
Xxxx Xxxxxx Xxxxxx
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Xxxx
Xxxxxx Xxxxxx
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/s/
Xxxxx Xxxxx Xxxx
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Xxxxx
Xxxxx Xxxx
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/s/
Xxxxxxx Xxxxxx Xxxxxx, Xx.
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Xxxxxxx
Xxxxxx Xxxxxx, Xx.
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/s/
Xxxxx Xxx Xxxxxx, Jr.
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Xxxxx
Xxx Xxxxxx, Jr.
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/s/
Xxxxxxx Xxxxx Xxxx
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Xxxxxxx
Xxxxx Xxxx
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/s/
Xxxxx Xxx Xxxxxxx
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Xxxxx
Xxx Xxxxxxx
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