<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SAXTON INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 6552 88-0223654
(State of Incorporation) (Primary Standard Industrial (IRS Employer Identification Number)
Classification Code Number)
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5440 WEST SAHARA AVENUE, THIRD FLOOR, LAS VEGAS, NEVADA 89102
(702) 221-1111
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
JAMES C. SAXTON
5440 WEST SAHARA AVENUE, THIRD FLOOR
LAS VEGAS, NEVADA 89102
(702) 221-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------------
PLEASE SEND COPIES OF ALL CORRESPONDENCE TO:
THEODORE H. LATTY, ESQ. WILLIAM N. DYE, ESQ.
ANDREA H. BRICKER, ESQ. WILLKIE FARR & GALLAGHER
HUGHES HUBBARD & REED LLP ONE CITICORP CENTER
350 SOUTH GRAND AVENUE, SUITE 3600 153 EAST 53RD STREET
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10022
(213) 613-2800 (212) 821-8000
-----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
-----------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box: |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
-----------------------------
CALCULATION OF REGISTRATION FEE
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- ------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) FEE
- ------------------------------------------------------------------------------------------------------------
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Common Stock, par value $0.001 per share 2,616,250 Shares $10.00 $26,162,500 $7,928
============================================================================================================
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(1) Includes 341,250 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act.
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 25, 1997
PROSPECTUS
2,275,000 SHARES
[LOGO]
COMMON STOCK
--------------------------
All of the shares of Common Stock offered hereby (the "Offering") are
being issued and sold by Saxton Incorporated (the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$9.00 and $10.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the trading symbol "SXTN."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share.............. $ $ $
Total (3).............. $ $ $
================================================================================
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(1) For information regarding indemnification of the Underwriters by the
Company and certain compensation payable to the Representatives of the
Underwriters, see "Underwriting."
(2) Before deducting expenses of the Offering estimated to be approximately
$ .
(3) The Underwriters have been granted a 30-day option to purchase up to an
additional 341,250 shares of Common Stock from the Company solely to
cover over-allotments, if any, on the same terms and conditions as the
shares offered hereby. If the Underwriters exercise such option in
full, the total "Price to Public," "Underwriting Discounts and
Commissions" and "Proceeds to Company" will be $ , $ and $ ,
respectively. See "Underwriting."
--------------------------
The shares of Common Stock are offered by the several Underwriters,
when, as and if delivered to and accepted by the Underwriters, subject to their
right to reject any order in whole or in part and to certain other conditions.
It is expected that delivery of the certificates representing the Common Stock
will be made on or about , 1997 at the offices of Ladenburg Thalmann &
Co. Inc., New York, New York.
LADENBURG THALMANN & CO. INC. STIFEL, NICOLAUS & COMPANY
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
[COLLAGE OF PHOTOGRAPHS OF COMPANY PROPERTIES AND
LOCATION MAP DEPICTING PROPERTY LOCATIONS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING MAINTAINING A MARKET IN THE COMMON STOCK ON BEHALF OF
THE UNDERWRITERS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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<PAGE> 4
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the more
detailed information and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. In this Prospectus, the term "Company"
includes Saxton Incorporated, its wholly owned subsidiaries and its
predecessors, including Jim Saxton, Inc. ("JSI"). Unless otherwise indicated or
the context otherwise requires, all information in this Prospectus (i) assumes
consummation of the Reorganization concurrently with the closing of the
Offering, (ii) gives effect to a 1-for-0.51312465 reverse split of the Common
Stock to be effected prior to the closing of the Offering, (iii) assumes no
exercise of the Underwriters' over-allotment option and (iv) assumes no exercise
of outstanding options or warrants. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those set forth in the section entitled "Risk Factors"
and elsewhere in this Prospectus.
THE COMPANY
Saxton Incorporated is an integrated real estate company engaged in the
design, development, construction, operation, ownership and sale of residential,
commercial and industrial properties in the greater Las Vegas metropolitan area.
The Company's business is comprised of three components: (i) the design,
development, construction and sale of single-family homes and portfolio
properties; (ii) design-build services for third-party clients and (iii)
property operations and management. The Company's principal focus historically
has been the design and development of properties for third-party clients and
for its own portfolio. Since its inception in 1986, the Company has completed
over 125 projects, including professional office buildings, retail and
industrial facilities and apartment complexes.
The Company's development experience and expertise enable it to
identify and take advantage of market opportunities and to minimize the risk of
real estate cycles. In 1995, management recognized the need for affordable
housing in the Las Vegas market and began applying the Company's construction
expertise to the development of value-priced single-family detached homes. For
1996, the Company's initial home development was ranked fourth in number of
units sold out of over 400 home developments in Clark County (which includes Las
Vegas). Based on this strong response, management has made a commitment to
expand the Company's homebuilding activities and to make them a significant
component of its business operations. The Company strives to deliver superior
value to low and moderate income families and senior citizens by pricing its
homes competitively while providing innovative designs, quality construction and
features and amenities not usually found in affordable housing. Its two-, three-
and four-bedroom homes, which range from 950 square feet to 1,250 square feet,
are currently base priced from $69,950 to $79,990 to appeal to the growing
population of low and moderate income families and senior citizens in Las Vegas.
Management believes that the Company is currently one of only two developers
offering single-family detached homes for sale under $70,000 in the greater Las
Vegas metropolitan area.
In 1996, the first year during which the Company began selling
single-family homes, the Company closed sales of 173 homes. On January 31, 1997,
the Company owned or had under option or contract approximately 247 acres of
land on which management expects to develop approximately 2,200 single-family
detached homes, condominiums, cluster homes and
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<PAGE> 5
townhouses, which management believes represents at least a three-year
inventory, based on the Company's current absorption rate.
The Company also provides design-build development services to clients
which have included large nationally recognized public companies as well as
smaller regional businesses. The Company benefits from a reputation for
delivering high quality projects on time and on budget. During the past year,
the Company has begun to perform many of the functions previously performed by
subcontractors, including concrete, masonry, wood framing, painting, drywall and
landscaping. Management believes that the Company's ability to perform these
construction services provides the Company with a competitive advantage by
enabling it to better control the costs, timing and, therefore, profitability of
its projects. In 1996, the Company completed nine design-build projects and had
total construction revenue of approximately $41.7 million. At January 31, 1997,
the Company had seven uncompleted design-build projects under contract,
representing approximately $19.4 million of backlog (the uncompleted portion of
work on signed fixed-price contracts), and an additional seven design-build
projects in the initial stages of development, but not yet under contract.
The Company currently owns and operates a portfolio of rental
properties which includes 14 properties comprised of approximately 332,090
square feet of office, retail and industrial space. The Company is currently
constructing two additional portfolio properties and has nine proposed portfolio
properties in the initial stages of development. Management monitors the market
for the Company's properties on an on-going basis to take advantage of
opportunities for strategic sales of its holdings when conditions are favorable.
The rapid economic growth of Las Vegas and the surrounding areas and
the positive demographic trends associated with such growth make Clark County a
favorable location for real estate investment and development. Clark County has
experienced increasing levels of business and employment over the past decade
which have helped drive large increases in population and demand for new
construction of both commercial and residential developments. The expansion of
gaming has led to population and employment increases that are among the highest
in the country. These increases have in turn driven increases in new home sales,
apartment rents and occupancy rates. Additionally, a favorable business
environment has led to growth of non-gaming businesses and the local population
growth has attracted additional retail and service businesses to Clark County
leading to increases in commercial rents and occupancy rates.
The Company's business and growth strategy includes the following key
elements:
Reducing the risk of economic and real estate cycles through operating
diversification. The Company seeks to enhance its financial stability
and reduce the potential impact of economic and real estate cycles by
operating in three components of the real estate business: (i) the
design, development, construction and sale of single-family homes and
portfolio properties; (ii) design-build services for third-party clients
and (iii) property operations and management.
Enhancing profitability through an opportunistic approach to
development. The Company seeks to take advantage of market opportunities
by employing its experience and expertise to identify and enter new
markets. Most recently, in response to the identified
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<PAGE> 6
shortage of affordable housing, the Company expanded its development
operations to include value-priced homes and increased its development
of apartments for low and middle income families and senior citizens.
Increasing profit margins through vertical integration. The Company's
real estate and construction expertise allows the integration of most
aspects of development and construction thereby enabling the Company to
provide one-stop shopping to its customers, maintain greater control
over its projects and generate higher operating margins. The Company
intends to integrate certain additional construction trades to further
increase its profitability and strengthen its competitive position.
Reducing development risks through conservative land policies. The
Company seeks to maximize its return on capital by limiting its
investment in land while maintaining an inventory of owned and
controlled sites sufficient to accommodate demand for its homes and
other development requirements. The Company seeks to further maximize
its return by acquiring undeveloped land and using its expertise to
obtain all entitlements and develop the land. To implement this strategy
and to reduce the risks associated with investments in land, the Company
uses options or conditional land sales contracts to control land
whenever possible and seeks to purchase land only for specific
developments.
Expanding business opportunities by taking advantage of
government-sponsored programs. The Company has expanded its business
opportunities by building projects which are eligible for various
government-sponsored programs that provide down payment assistance or
lower cost financing. These government-sponsored programs include
private activity revenue bonds, small business loans and mortgage loan
programs of federal agencies. By building properties which are eligible
for such programs, the Company is able to expand the pool of qualified
purchasers of its homes and other properties.
Pursuing geographic expansion. While the Company believes that the
outlook for the Las Vegas market is favorable, geographic expansion is a
key element in achieving long-term stability and growth. The Company
intends to capitalize on its experience and demonstrated capabilities in
real estate by targeting other viable geographic markets, including
other areas of Nevada and selected markets in the southwestern United
States.
Pursuing growth through strategic acquisitions. The Company believes
that there are significant opportunities to acquire existing
homebuilding companies, particularly in and around the Las Vegas area
and selected markets in the southwestern United States. The Company
intends to pursue strategic acquisitions to provide the Company with
additional market share, desirable land or expertise. The Company has no
agreements, understandings or arrangements with respect to any such
acquisition and there can be no assurance that the Company will be able
to consummate such an acquisition.
The Company was incorporated under the laws of the State of Nevada on
December 21, 1995, as the successor to JSI, a diversified real estate company
founded by James C. Saxton in 1986. The Company's principal executive offices
are located at 5440 West Sahara Avenue, Third Floor, Las Vegas, Nevada 89102,
and its telephone number is (702) 221-1111.
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<PAGE> 7
THE OFFERING
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Common Stock offered hereby.................. 2,275,000 shares
Common Stock to be outstanding after the
Offering(1)............................ 7,619,142 shares
Use of proceeds.............................. To repay certain indebtedness,
including indebtedness to existing
stockholders and other related
parties, to acquire the interests of
various parties in certain properties
in connection with the
Reorganization, to fund the
Company's development activities
and for general corporate
purposes, which may include
strategic acquisitions.
Proposed Nasdaq National Market symbol....... SXTN
</TABLE>
- ----------
(1) Excludes (i) 104,410 shares issuable upon the exercise of options
granted by the Company to certain employees and others in December 1994,
(ii) 500,000 shares reserved for issuance upon the exercise of options
issuable under the Company's Management Stock Option Incentive Plan,
(iii) 50,000 shares reserved for issuance upon the exercise of options
issuable under the Company's Non-Employee Director Stock Option Plan,
(iv) 400,000 shares reserved for issuance upon the exercise of warrants
to be purchased as part of the Reorganization, exercisable at 120% of
the initial public offering price if the Company achieves specified
levels of after tax net income in 1997 and 1998 (the "Saxton Warrants"),
and (v) 227,500 shares reserved for issuance upon the exercise of
warrants to be granted to the Representatives of the Underwriters,
exercisable at 120% of the initial public offering price (the
"Representatives' Warrants"). See "The Reorganization," "Management --
Individual Stock Option Agreements," "Management -- Stock Option Plans,"
"Description of Capital Stock" and "Underwriting."
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<PAGE> 8
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected financial and other information
for the Company on a combined historical basis, on a pro forma basis to reflect
the Reorganization and on a pro forma basis as adjusted to reflect the
Reorganization and the Offering. The combined historical financial statements of
the Company are comprised of the operations, assets and liabilities of the
Company and of certain properties which were owned and operated by entities
affiliated with and controlled by the Company during the periods presented.
These operations and properties will be acquired by the Company in connection
with the Reorganization. The following information is qualified in its entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements, including the notes thereto, and other financial information
appearing elsewhere in this Prospectus.
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YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996
---------------------------
PRO
FORMA
AS AD-
PRO JUSTED
1992 1993 1994 1995 ACTUAL FORMA(1) (2)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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INCOME STATEMENT DATA(3):
Total revenue....................... $21,921 $23,372 $22,360 $35,570 $63,847 $63,847 $63,847
Gross profit........................ 5,235 4,584 4,985 7,372 15,773 15,773 15,773
General and administrative expenses. 2,004 1,805 2,481 2,679 4,482 4,533 4,411
Interest expense (net).............. 2,202 1,628 1,475 2,127 2,748 2,748 1,390
Income before provision for
income taxes...................... 1,003 1,215 1,035 3,697 8,500 8,449 9,929
Pro forma income taxes (4).......... 341 413 352 1,257 2,890 2,873 3,376
Pro forma net income................ 662 802 683 2,440 5,610 5,576 6,553
Pro forma net income per share...... $1.04 $ 0.86
Number of shares outstanding........ 5,344 7,619
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YEARS ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
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OPERATING DATA:
EBITDA (in thousands)(5)................ $ 4,174 $ 3,753 $ 3,752 $ 6,812 $12,474
Single-family homes:
New contracts,
net of cancellations.............. -- -- -- -- 210
Closings............................. -- -- -- -- 173
Backlog (at period end) (6).......... -- -- -- -- 37
Homes remaining for sale (at
period end)....................... -- -- -- -- 9
Aggregate sales value of backlog
(in thousands).................... -- -- -- -- $ 2,970
Average sales price per home
closed............................ -- -- -- -- $74,930
Design-build projects:
Number of contracts awarded.......... 17 13 10 4 6
Backlog (at period end)
(in thousands) (7)................ $30,157 $30,826 $31,464 $52,075 $21,130
Portfolio properties:
Number of properties developed....... 3 3 5 3 5
Number of properties sold............ 2 2 7 3 3
Number of properties owned
(at period end).................... 15 16 14 14 16
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DECEMBER 31, 1996
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PRO FORMA AS
ACTUAL PRO FORMA (8) ADJUSTED (9)
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BALANCE SHEET DATA: (IN THOUSANDS)
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Cash and cash equivalents........ $ 1,590 $ 1,473 $ 3,237
Real estate properties, net...... 39,030 41,067 41,067
Total assets..................... 67,957 69,267 69,840
Total debt....................... 49,710 44,333 29,521
Stockholders' equity............. 6,291 10,168 28,667
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(1) Pro Forma Income Statement Data for the year ended December 31, 1996
give effect to the Reorganization as if it had occurred on January 1,
1996. See "The Reorganization."
(2) Pro Forma As Adjusted Income Statement Data for the year ended December
31, 1996 give effect to (i) the Reorganization, as if it had occurred
on January 1, 1996, (ii) the reduction in interest expense resulting
from the assumed repayment of debt with a portion of the net proceeds
of the Offering, as if such repayment had occurred on January 1, 1996,
and (iii) the additional number of shares to be outstanding after the
Offering.
(3) In accordance with generally accepted accounting principles ("GAAP"),
the income statement does not include construction revenue and costs
incurred in connection with the construction of property for the
Company's own portfolio or for any combined or consolidated entity
("Portfolio Construction"), but does include construction revenue and
costs incurred in connection with the construction for entities which
the Company does not control. Costs of Portfolio Construction are
capitalized as improvements on the Company's balance sheet and profit,
if any, in connection with such activities is recognized only upon sale
of the property.
(4) The combined historical financial statements of the Company are
comprised of the operations, assets and liabilities of the Company, JSI
and certain other affiliated entities (the "Combined Entities"). Prior
to October 1, 1995, JSI operated as an S corporation for income tax
purposes and was, therefore, subject to no income taxes until October
1, 1995. In addition, certain of the Combined Entities are partnerships
for federal income tax purposes and were, therefore, subject to no
income taxes. Pro forma income tax, computed at a marginal effective
rate of 34%, has been calculated for all periods as if the Company had
been subject to income taxes as a C corporation during such periods.
(5) EBITDA, or earnings before interest, income taxes, depreciation and
amortization, is a supplemental financial measurement used by the
Company in the evaluation of its business. EBITDA is calculated by
adding interest, income taxes, depreciation and amortization expense to
net income. EBITDA should not be construed as an alternative to income
from operations or cash flows from operating activities (as determined
in accordance with GAAP).
(6) Represents the number of homes subject to pending sales contracts which
have not closed.
(7) Represents the uncompleted portion of design-build construction under
fixed-price contracts.
(8) Pro Forma Balance Sheet Data give effect to the Reorganization as if
it had occurred on December 31, 1996.
(9) Pro Forma As Adjusted Balance Sheet Data give effect to (i) the
Reorganization and (ii) the Offering and the application of the net
proceeds therefrom, as if each had occurred on December 31, 1996.
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<PAGE> 10
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered before investing in the
Common Stock. Except for historical information contained herein, the
information in this Prospectus contains forward-looking statements that involve
risks and uncertainties, such as statements concerning the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed in the Prospectus. Factors that
could cause or contribute to such differences include those discussed below, as
well as those discussed elsewhere herein.
DEPENDENCE ON GREATER LAS VEGAS AREA
The Company has conducted all of its business to date in the greater
Las Vegas metropolitan area. Although management has identified certain
additional markets into which the Company intends to expand, management
currently anticipates that, for the foreseeable future, the Company will
continue to conduct substantially all of its business in the greater Las Vegas
metropolitan area. The Company's performance will, therefore, be dependent on
the economic conditions and population growth in this area. A decline in the
economy or in the rate of population growth in this area could have a material
adverse effect on the Company. See "Business -- Las Vegas Market."
RISKS OF HOMEBUILDING AND OTHER REAL ESTATE DEVELOPMENT
General. All components of the Company's real estate development
business (homebuilding, design-build services for third parties and portfolio
property development) are subject to various risks including, without
limitation, risks relating to the ability to locate and consummate the
acquisition of suitable parcels of land, the availability and timely receipt of
zoning, land-use, building, occupancy and other required regulatory permits or
approvals, the cost and timely completion of construction (including risks from
causes beyond the Company's control, such as weather, labor conditions or
material costs and shortages) and the availability of financing on favorable
terms. These risks could result in substantial unanticipated delays or expense
and, under certain circumstances, could prevent completion of development
activities, any of which could have a material adverse effect on the Company.
Fixed-Price Contracts. The Company undertakes its third-party
design-build projects under fixed-price contracts, subject to adjustment for
agreed upon change orders. As a result, the Company bears fully the risk of cost
overruns.
Liability. The Company acts as general contractor on its construction
projects. Construction services are performed by the Company and by unaffiliated
subcontractors. As general contractor, the Company is responsible for the
performance of the entire contract, including work assigned to unaffiliated
subcontractors, and may be liable for personal injury or property damage caused
by the subcontractors. Should an uninsured loss or a loss in excess of insured
limits under its general liability, excess liability insurance or workers
compensation insurance occur, such loss could have a material adverse effect on
the Company.
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<PAGE> 11
Interest Rates; Mortgage Financing. The Company's ability to sell homes
and portfolio properties may be adversely affected by increases in interest
rates or the unavailability of mortgage financing, including home mortgages
insured by the Federal Housing Administration (the "FHA") or guaranteed by the
Department of Veterans Affairs (the "VA"). Mortgage interest rate increases and
other factors which adversely affect the ability of prospective buyers to
finance home or other property purchases could have a material adverse effect on
the Company.
Risks Relating to Tax Credit Projects. In each of its last three fiscal
years, the Company derived a significant portion of its construction revenue
from the development of apartment complexes ("Tax Credit Projects") for limited
partnerships ("Tax Credit Partnerships") organized to take advantage of the low
income housing tax credit provided by Section 42 of the Internal Revenue Code
("Housing Tax Credit"). The continued demand for Tax Credit Projects is
dependent on the continued availability of the Housing Tax Credit. There can be
no assurance that the Housing Tax Credit will not be reduced or eliminated in
the future and any such reduction or elimination could have a material adverse
effect on the Company.
Tax Credit Projects are also structured to be eligible for financing
through one or more of the tax-exempt private activity revenue bond programs
sponsored by the Nevada Housing Division. The programs of the Nevada Housing
Division are intended to provide incentives for the construction, ownership and
financing of housing for low and middle income families. These incentives may
include lower interest rates on construction and permanent financing with
respect to the eligible project. The Company, as a sponsor of the Tax Credit
Projects, must obtain a private activity bond allocation from both the state and
the local government within whose jurisdiction the project will be located.
Private activity bond financing by the states is limited by the Internal Revenue
Code. Nevada has a total annual allocation of $150 million, of which one-half is
managed by the local governments. The Company generally makes concurrent
applications to the state and local governments for allocations in matching
amounts. The allocations are made by the state and local governments based on
established criteria. There can be no assurance that the Company will continue
to be able to obtain allocations of the private activity revenue bonds for its
Tax Credit Projects.
At December 31, 1996, the Tax Credit Partnerships were indebted to the
Company in the aggregate amount of approximately $16.2 million, representing
developer fees and land and construction costs. Of such amount, approximately
$4.8 million is payable out of loan proceeds or partner contributions and is
expected to be paid in the ordinary course from such sources. The approximate
$11.4 million balance is payable by the Tax Credit Partnerships from cash
flow received from the operations of their respective Tax Credit Projects.
While management believes that the Tax Credit Projects will generate sufficient
cash flow to pay the amounts due, there can be no assurance that the receivables
will be paid in full or at all.
REAL ESTATE INVESTMENT RISKS
General. The Company's portfolio property investments are subject to
varying degrees of risk. Revenue from the Company's portfolio properties and
their values may be adversely affected by general economic conditions (including
business levels and unemployment rates), local real estate conditions (such as
oversupply of or a reduction in demand for similar properties), the
affordability of competitive alternative properties, increased operating costs
(including real estate taxes), governmental regulations and applicable laws
(including zoning,
-10-
<PAGE> 12
tax laws and rent control, although rent control does not currently exist in Las
Vegas), interest rate levels and the availability of financing.
Illiquidity of Real Estate. Real estate investments are relatively
illiquid and, therefore, the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions will be limited.
Dependence on Rental Income from Real Property. All of the Company's
operating rental properties are subject to the risks associated with the
inability to rent unleased space, both in connection with the initial lease-up
of newly completed properties and upon the expiration of tenant leases. There
can be no assurance that the Company's portfolio properties will achieve or
maintain occupancy levels sufficient to generate income in excess of their
respective operating expenses. In addition, certain significant expenditures
associated with an investment in real estate (such as mortgage payments, real
estate taxes and maintenance costs) generally are not reduced when circumstances
cause a reduction in income from the investment. If the Company's portfolio
properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, the Company's results of
operations will be adversely affected.
The Company may be adversely affected by the financial difficulties
experienced by its significant tenants, including a bankruptcy, insolvency or
general downturn in the business of such a tenant. At any time, a tenant may
seek the protection of applicable bankruptcy laws, which could result in the
rejection and termination of such tenant's lease and thereby cause a reduction
in the Company's cash flow. No assurance can be given that any tenants will not
seek bankruptcy protection in the future or, if any tenants seek bankruptcy
protection, that they will affirm their leases and continue to make rental
payments in a timely manner.
Uninsured Loss. The Company carries comprehensive liability, rental
loss and all-risk (at full replacement cost) insurance with respect to all of
the property it owns, with policy specifications, insured limits and deductibles
customarily carried for similar properties by carriers deemed capable of
providing such coverage. An uninsured loss or a loss in excess of insured limits
could have a material adverse effect on the Company.
FINANCING; FUTURE CAPITAL REQUIREMENTS
The real estate development business is capital intensive and requires
significant up-front expenditures to acquire and entitle land and commence
development. The Company has incurred substantial indebtedness to finance its
development activities and to invest in its portfolio properties. As a result,
the Company is subject to the risks generally associated with debt financing,
including the risk that its cash available for debt service will be insufficient
to meet required payments of principal and interest, the risk of increased
payments or negative amortization as a result of increases in interest rates in
the case of indebtedness which bears interest at a variable rate and the risk
that indebtedness requiring balloon principal payments may not be able to be
repaid or refinanced when due. Furthermore, in the case of indebtedness secured
by the Company's real property, upon a default by the Company in its payment
obligations, the property could be foreclosed with a consequent loss of income
and asset value to the Company. The Company's indebtedness is generally fully
recourse to the Company. Accordingly, in the event of a default by the Company
under its indebtedness, the
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<PAGE> 13
lender may proceed against all Company assets to satisfy its debt and is not
limited to the specific real property pledged as security therefor.
At December 31, 1996, on a pro forma basis after giving effect to the
anticipated use of net proceeds of the Offering, total indebtedness of the
Company would have been approximately $29.5 million. In addition, the Tax Credit
Partnerships had approximately $40.4 million principal amount of indebtedness,
of which approximately $28.6 million represents construction financing which is
made on a recourse basis to the partnerships (and, therefore, to the Company as
general partner). There can be no assurance that the Company will be able to
repay or refinance its indebtedness (on acceptable terms or at all) as it
becomes due.
Future growth of the Company will depend on the Company's borrowing
capacity and its ability to raise capital. There can be no assurance that the
Company will continue to have access to funds sufficient to finance future
growth or, if available, that funds will be available on terms acceptable to the
Company. In addition, substantially all of the Company's existing indebtedness
is personally guaranteed by James C. Saxton, the Company's Chairman, Chief
Executive Officer and President, and his wife. Consistent with the Company's
status as a publicly traded corporation, Mr. Saxton has indicated to the Company
that he and his wife do not intend to provide personal guarantees for any future
indebtedness of the Company and the Company is seeking to obtain releases of the
Saxtons' guarantees of all existing indebtedness of the Company. The absence of
such personal guarantees may adversely affect the ability of the Company to
obtain additional financing on terms acceptable to the Company. In addition, the
Company has agreed to indemnify the guarantors for all amounts they are required
to pay under any personal guarantee of the Company's (or any Tax Credit
Partnership's) indebtedness.
VARIABILITY OF RESULTS
The Company historically has experienced, and in the future expects to
continue to experience, variability in revenue on a quarterly basis. Factors
expected to contribute to this variability include, among others, (i) the timing
of home and other property sale closings, (ii) the Company's ability to continue
to acquire land and options thereon on acceptable terms, (iii) the timing of
receipt of regulatory approvals for the construction of homes and other
development projects, (iv) the condition of the real estate market and the
general economic conditions in the greater Las Vegas metropolitan area, (v) the
prevailing interest rates and the availability of financing, both for the
Company and for the purchasers of the Company's homes and other properties, (vi)
the timing of the completion of construction of the Company's homes and other
portfolio properties and (vii) the cost and availability of materials and
labor. The Company's historical financial performance is not necessarily a
meaningful indicator of future results and, in particular, the Company expects
its financial results to vary from project to project and from quarter to
quarter. In addition, although the Company has not previously experienced
significant seasonality in its business, management expects that the Company's
increased focus on homebuilding activities may cause it to experience seasonal
variations in its home sales as a result of the preference of home buyers to
close new home purchases either prior to the start of a new school year or
prior to the end of year holiday season.
-12-
<PAGE> 14
REGULATORY AND ENVIRONMENTAL RISKS
Building Regulation and Controls. The Company is subject to a variety
of statutes, ordinances, rules and regulations governing certain developmental
matters, building and site design. In particular, the Company may be required to
obtain the approval of numerous governmental authorities regulating such matters
as permitted land uses, levels of density and the installation of utility
services such as gas, electric, water and waste disposal. In addition, certain
fees, some of which may be substantial, may be imposed to defray the cost of
providing certain governmental services and improvements. The Company may be
subject to additional costs or delays or may be precluded from building a
project entirely because of "no growth" or "slow growth" initiatives, building
permit allocation ordinances, building moratoriums or similar governmental
regulations that could be imposed in the future. Such ordinances or moratoriums,
if imposed in the greater Las Vegas metropolitan area in the future, could have
a material adverse effect on the Company.
Potential Environmental Liability. The Company and its competitors are
subject to a variety of local, state and federal statutes, ordinances, rules and
regulations concerning the protection of health and the environment. The
particular environmental laws which apply to any given property vary greatly
according to the property, its environmental condition and its present and
former use. Environmental laws may result in delays, cause the Company to incur
substantial compliance or other costs or prohibit or severely restrict
development in certain environmentally sensitive regions or areas. In addition,
environmental regulations can have an adverse impact on the availability and
price of certain raw materials such as lumber. See "Business -- Regulatory and
Environmental Matters."
Laws to Protect Disabled Persons. Certain federal and state laws
require that certain types of properties be accessible to disabled persons.
Although the Company believes that its properties are in substantial compliance
with such laws, noncompliance with such laws could result in imposition of
fines, costs associated with remedial construction and the award of damages to
private litigants. The Company intends to construct all future properties in
compliance with any then-existing requirements of laws to protect disabled
persons.
Resident Income and Other Limitations. The Company is a general partner
of three Tax Credit Partnerships which own and operate Tax Credit Projects and
two other Tax Credit Partnerships which own and, upon completion of
construction, will operate Tax Credit Projects. The Company intends in the
future to act as a general partner of additional Tax Credit Partnerships which
will own Tax Credit Projects. Tax Credit Projects are subject to restrictions
that require that a specified percentage of the apartments be rented to persons
with incomes below a certain percentage of the local median income and limit the
amount of rent which may be charged for such apartments. The Company, as general
partner and property manager, is responsible for ensuring compliance with any
applicable tenant and rent restrictions. The Company may be liable to the
investor limited partners of the Tax Credit Partnerships or others for certain
losses resulting from any failure to comply with the applicable restrictions and
any such liability may be substantial. See "Business -- Regulatory and
Environmental Matters -- Resident Income and Other Limitations."
-13-
<PAGE> 15
EXPANSION INTO NEW MARKETS
The Company has conducted all of its business to date in the greater
Las Vegas metropolitan area. However, the Company's business and growth strategy
contemplates geographic expansion. The Company has had no experience
effectuating geographic expansion or managing operations which are
geographically diverse. The risks of such expansion include those associated
with a lack of knowledge of the local market and government regulations and
procedures, the absence of an established local customer base and reputation,
and the inability to identify and retain qualified employees and subcontractors.
The Company may seek to expand its operations geographically by
acquiring local developers that provide similar or compatible services to those
offered by the Company or by entering into joint venture arrangements with such
developers on a project-by-project or other basis. The Company is seeking to
identify and evaluate opportunities for acquisitions and joint ventures, but has
no agreements, understandings or arrangements with respect to any acquisition or
joint venture. In addition, the Company has not established any specific
criteria for any such acquisition or joint venture arrangement and management
will have complete discretion in determining the terms thereof.
Identifying potential acquisitions and joint venture partners can be
expensive and time consuming and there can be no assurance that the Company will
be able to effect any acquisition or joint venture. Furthermore, acquisitions
involve numerous risks, including difficulties in the assimilation of the
acquired entity's employees, operations and products, uncertainties associated
with operating in new markets and working with new customers, the potential loss
of the acquired entity's key employees and the costs associated with completing
the acquisition and integrating the acquired entity. Moreover, any future
acquisitions may result in potentially dilutive issuances of equity securities,
increased debt, cash payments and contingent liabilities or amortization expense
related to intangible assets acquired, any of which could have a material
adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent upon the efforts and skills of
its executive officers, particularly James C. Saxton, the Company's Chairman,
Chief Executive Officer and President. The loss of the services of Mr. Saxton or
other executive officers could have a material adverse effect on the Company.
The Company has entered into an employment agreement with Mr. Saxton and
maintains key man life insurance on Mr. Saxton in the amount of $5.0 million.
See "Management."
CONTROL BY CURRENT STOCKHOLDERS
After the consummation of the Offering, Mr. Saxton and members of his
immediate family will own an aggregate of approximately 70% of the outstanding
shares of Common Stock of the Company. As a result, Mr. Saxton and members of
his immediate family will be able to control the outcome of all matters
requiring stockholder approval and will be able to elect all of the directors of
the Company. Such control, which may have the effect of delaying, deferring or
preventing a change of control of the Company, is likely to continue for the
foreseeable future and significantly diminishes control and influence which
future stockholders may have in the Company. See "Principal Stockholders."
-14-
<PAGE> 16
COMPETITION
The real estate industry is highly competitive. The Company competes
for desirable properties, financing, raw materials and skilled labor. In each of
its business components, the Company competes against numerous developers and
others in the real estate business, many of which are larger and have greater
financial resources and better access to capital markets than the Company. The
Company competes on the basis of a complete package of real estate services it
offers its clients, as well as its reputation for fair pricing and quality
construction. The Company also competes with other owners and operators of real
properties for tenants and buyers of the portfolio properties it owns and
operates.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF OFFERING PRICE;
VOLATILITY
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied for quotation of the Common Stock on the
Nasdaq National Market, there can be no assurance that, even if the Common Stock
is approved for quotation, an active trading market for the Common Stock will
develop or be sustained. The initial public offering price of the Common Stock
offered hereby has been determined by negotiations between the Company and the
Representatives of the Underwriters. There can be no assurance that the price at
which the Common Stock will trade in the public market after the Offering will
not be lower than the initial public offering price. The market price of the
Common Stock could be subject to significant fluctuations in response to such
factors as, among others, variations in the Company's anticipated or actual
results of operations, limited trading volume in the Common Stock, general
market conditions or the real estate industry in general. See "Underwriting."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate
and substantial dilution in net tangible book value per share of Common Stock.
See "Dilution."
AUTHORIZATION OF PREFERRED STOCK
The Board of Directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the rights of
holders of Common Stock and under certain circumstances make it more difficult
for a third party to gain control of the Company. No shares of preferred stock
are outstanding and the Company has no current plans to issue any shares of
preferred stock. See "Description of Capital Stock -- Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
the Offering, or the perception that such sales could occur, could adversely
affect the market price for the Common Stock. In addition to the 2,275,000
shares offered hereby which will be freely tradable in the public market,
4,915,744 shares of Common Stock held by the existing stockholders will
-15-
<PAGE> 17
be immediately eligible for sale in the public market in the quantities and
manner permitted by Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Each officer, director and holder of 5% or more
of the Company's Common Stock has agreed with the Underwriters not to offer,
sell or otherwise dispose of any shares of Common Stock for 180 days after the
date of this Prospectus without the prior written consent of Ladenburg Thalmann
& Co. Inc., on behalf of the Representatives. In addition, 384,256 additional
shares of Common Stock held by the existing stockholders, the 44,142 shares of
Common Stock held by the Company's Employee Stock Ownership Plan and an
aggregate of 104,410 shares of Common Stock reserved for issuance pursuant to
outstanding options will be available for sale in the public market from time to
time pursuant to exemptions from registration requirements or upon registration.
Following completion of the Offering, the Company intends to file a Registration
Statement on Form S-8 under the Securities Act to register the aggregate of
654,410 shares of Common Stock reserved for issuance under outstanding options,
the Company's Management Stock Option Incentive Plan and the Company's
Non-Employee Director Stock Option Plan. See "Management -- Stock Option Plans"
and "Shares Eligible for Future Sale."
-16-
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,275,000 shares
of Common Stock offered hereby (at the assumed initial public offering price of
$9.50 per share) are estimated to be approximately $18.5 million ($21.5 million
if the over-allotment option is exercised in full), after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company intends to use the net proceeds approximately as follows:
(i) to repay $14.8 million of indebtedness (of which $3.4 million represents
indebtedness to the existing stockholders and $1.1 million represents
indebtedness to other related parties); (ii) $2.8 million to acquire the
interests of various parties in certain properties in connection with the
Reorganization; and (iii) the balance, to fund the Company's development
activities and for general corporate purposes, which may include strategic
acquisitions. The Company has no agreements, understandings or arrangements with
respect to any such acquisition. Substantially all of the indebtedness to be
repaid with a portion of the net proceeds of the Offering, other than the
Subordinated Dividend Notes held by existing stockholders (see Note 12 of Notes
to Combined Financial Statements included elsewhere herein), matures in 1997 and
represents loans for general corporate purposes, including land acquisition. The
weighted average annual interest rate on such indebtedness was approximately
18.0% on the indebtedness other than indebtedness to the existing stockholders
which bears no interest.
Pending application, the Company intends to invest the net proceeds of
the Offering in investment-grade, short-term, interest-bearing securities or
instruments.
DIVIDEND POLICY
The Company currently intends to retain all future earnings for use in
the Company's business and therefore does not anticipate declaring or paying
dividends on the Common Stock in the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Board of Directors of the Company, and will depend on the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.
Because the Company was comprised of JSI, an S corporation until
October 1, 1995, and various limited and general partnerships, a portion of the
net income of such entities was distributed to the owners of such entities in
each of the past two years. See "Certain Transactions."
-17-
<PAGE> 19
THE REORGANIZATION
Concurrently with the closing of the Offering, the transactions
described below (collectively, the "Reorganization") will be consummated by the
Company and others for the principal purpose of transferring to the Company the
ownership of all investment properties and all interests in partnerships which
own properties which are currently owned by Mr. Saxton and his immediate family
(the "Contributing Stockholders"), alone or with one or more third parties.
The Reorganization will be comprised of the transactions summarized
below:
(i) The Company will acquire the noncontrolling partnership interests
of five third-party investors in four limited and general partnerships which own
an aggregate of six operating properties and approximately 3.3 acres of
undeveloped land, for an aggregate of approximately $2.8 million in cash from
the net proceeds of the Offering;
(ii) The Contributing Stockholders will contribute to the Company (a)
their interests in the partnerships described in the preceding paragraph and (b)
their interests in three additional limited and general partnerships which own
an aggregate of six additional operating properties, two properties under
construction and approximately 5.6 acres of undeveloped land. Upon completion of
the acquisitions and contributions of partnership interests described above, the
partnerships will be dissolved by operation of law and all assets, subject to
all liabilities, of such partnerships will be transferred to the Company;
(iii) Mr. Saxton will contribute (a) to a wholly-owned subsidiary of
the Company his direct or indirect general partner interest in five Tax Credit
Partnerships, subject to receiving all required lender, partner and other
consents to such contribution, and (b) to the Company an assignment of his 50%
economic interest in an unconsolidated general partnership which owns two small
retail properties (the "Retail Partnership"); and
(iv) Certain outstanding indebtedness between the Company and the
Contributing Stockholders will be satisfied as follows: (a) the approximately
$727,000 outstanding balance of loans by the Company to the Contributing
Stockholders will be offset against an equal amount of Subordinated Dividend
Notes; (b) the Contributing Stockholders will contribute approximately $3.7
million of the Subordinated Dividend Notes to the Company in exchange for
384,256 shares of Common Stock at a price of $9.50 per share; (c) the
Contributing Stockholders will contribute $1.0 million of the Subordinated
Dividend Notes to the Company in exchange for the Saxton Warrants for 400,000
shares of Common Stock, exercisable at 120% of the initial public offering price
if the Company achieves specified levels of after tax net income in 1997 and
1998; and (d) the Company will utilize a portion of the net proceeds of the
Offering to repay the $2.7 million balance of the Subordinated Dividend Notes
and $695,440 of other indebtedness. See "Use of Proceeds," "Certain
Transactions" and "Description of Capital Stock -- Saxton Warrants and
Registration Rights."
No third-party determination of the value was sought or obtained in
connection with the acquisition by the Company of the properties and interests
in properties as described above. In the case of partnership interests to be
acquired from third parties, the consideration to be paid was based on the value
of the partnerships' real property and other assets as determined by negotiation
between the Company and the third-party partners. All interests in partnerships
and properties to be acquired from Mr. Saxton and the other Contributing
Stockholders will be acquired by the Company as additional capital contributions
of such stockholders for which the
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<PAGE> 20
Company will neither pay any consideration nor issue any additional shares of
Common Stock, except as indicated above.
Upon consummation of the Reorganization, ownership of all of the real
property interests held by the Contributing Stockholders, other than their
personal residences, will have been transferred to the Company. After the
consummation of the Reorganization, the Contributing Stockholders intend to
engage in the real estate business exclusively through the Company.
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<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at December 31,
1996, after giving effect to the Reorganization, was $10.2 million, or $1.90 per
share. Pro forma net tangible book value per share represents the Company's pro
forma net tangible assets less total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of the shares of Common Stock offered hereby (at an assumed initial
public offering price of $9.50 per share) and the application of the net
proceeds therefrom, the pro forma net tangible book value of the Common Stock at
December 31, 1996 would have been approximately $28.7 million, or $3.76 per
share. This represents an immediate increase in pro forma net tangible book
value of Common Stock of $1.86 per share to existing stockholders and an
immediate dilution of $5.74 per share to purchasers of Common Stock in the
Offering. The following table illustrates the dilution per share to the
purchasers of shares of Common Stock in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $9.50
Pro forma net tangible book value per share as
of December 31, 1996............................... $1.90
Increase per share attributable to the Offering.......... 1.86
Pro forma as adjusted net tangible book value per
share after the Offering........................... 3.76
-----
Dilution per share to new investors......................... $5.74
=====
</TABLE>
The following table sets forth, on a pro forma basis after giving
effect to the Reorganization as of December 31, 1996, the number of shares of
Common Stock acquired from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and the new investors
purchasing shares of Common Stock in the Offering (at an assumed initial public
offering price of $9.50 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
----------------------- -------------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 5,344,142 70% $10,168,000 32% $1.90
New investors.......... 2,275,000 30% 21,612,500 68% $9.50
--------- ------- ----------- -------
Total............. 7,619,142 100% 31,780,500 100%
========= ======= =========== =======
</TABLE>
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<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect
the Reorganization and (iii) on a pro forma basis as adjusted to reflect the
Reorganization and the issuance of 2,275,000 shares of Common Stock offered
hereby at the assumed initial offering price of $9.50 per share and the
application of the estimated net proceeds therefrom. See "The Reorganization"
and "Use of Proceeds." This table should be read in conjunction with the
Combined Financial Statements of the Company and related notes thereto and the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations," in each case included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Notes payable .................................... $37,787 $37,787 $28,437
Notes payable to related parties ................. 2,762 2,762 0
Capital lease obligations ........................ 1,084 1,084 1,084
Subordinated dividend notes ...................... 8,077 2,700 0
------- ------- -------
Total debt .................................. 49,710 44,333 29,521
------- ------- -------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value; 5,000,000
shares authorized; none outstanding ......... -- -- --
Common Stock, $.001 par value; 50,000,000
shares authorized; 4,941,210 shares issued
and outstanding actual; 5,344,142 shares
issued and outstanding pro forma;
7,619,142 shares issued and outstanding
pro forma as adjusted (1) ................... 5 5 8
Additional paid-in capital ....................... 351 4,747 23,243
Partners' equity ................................. 519 -- --
Retained earnings ................................ 5,416 5,416 5,416
------- ------- -------
Total stockholders' equity .................. 6,291 10,168 28,667
------- ------- -------
TOTAL CAPITALIZATION ................................. $56,001 $54,501 $58,188
======= ======= =======
</TABLE>
- ----------
(1) Excludes (i) 104,410 shares issuable upon the exercise of options
granted by the Company to certain employees and others in December 1994,
(ii) 500,000 shares reserved for issuance upon the exercise of options
issuable under the Company's Management Stock Option Incentive Plan,
(iii) 50,000 shares reserved for issuance upon the exercise of options
issuable under the Company's Non-Employee Director Stock Option Plan,
(iv) 400,000 shares reserved for issuance upon the exercise of the
Saxton Warrants to be purchased as part of the Reorganization,
exercisable at 120% of the initial public offering price if the Company
achieves specified levels of after tax net income in 1997 and 1998, and
(v) 227,500 shares reserved for issuance upon the exercise of the
Representatives' Warrants, exercisable at 120% of the initial public
offering price. See "Reorganization," "Management -- Individual Stock
Option Agreements," "Management -- Stock Option Plans," "Description of
Capital Stock" and "Underwriting."
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<PAGE> 23
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING INFORMATION
The following tables set forth selected financial and operating
information for the Company on a combined historical basis, on a pro forma basis
to reflect the Reorganization and on a pro forma as adjusted basis to reflect
the Reorganization and the Offering. The combined historical financial and
operating information is comprised of the operations, assets and liabilities of
the Company and certain properties which were owned and operated by entities
affiliated with and controlled by the Company during the periods presented.
These operations and properties will be acquired by the Company in connection
with the consummation of the Reorganization and the Offering.
The following information should be read in conjunction with all of the
financial statements and notes thereto included elsewhere in this Prospectus.
The combined historical operating data of the Company for the years ended
December 31, 1994, 1995 and 1996 have been derived from the historical Combined
Financial Statements audited by KPMG Peat Marwick LLP, independent certified
public accountants, whose report as of December 31, 1995 and 1996 and for each
of the years in the three-year period ended December 31, 1996 is included
elsewhere in this Prospectus. The operating data for the years ended December
31, 1992 and 1993 have been derived from unaudited combined financial statements
and, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth therein. The Company believes that the book value of its real estate,
which reflects historical costs less accumulated depreciation, is not indicative
of the current market value of such assets. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, the notes thereto and
other financial information appearing elsewhere in this Prospectus.
-22-
<PAGE> 24
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996
--------------------------------
PRO
FORMA
PRO AS AD-
1992 1993 1994 1995 ACTUAL FORMA (1) JUSTED (2)
-------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (3):
Revenue:
Construction revenue ..................... $ 10,569 $ 11,951 $ 10,863 $ 22,090 $ 41,654 $ 41,654 $ 41,654
Sales of homes ........................... -- -- -- -- 12,963 12,963 12,963
Sales of commercial properties ........... 7,693 7,950 8,072 9,850 4,772 4,772 4,772
Rental revenue ........................... 3,559 3,328 3,288 3,531 3,922 3,922 3,922
Other revenue ............................ 100 143 137 99 536 536 536
-------- -------- -------- -------- -------- -------- ----------
Total revenue ......................... 21,921 23,372 22,360 35,570 63,847 63,847 63,847
-------- -------- -------- -------- -------- -------- ----------
Cost of revenue:
Cost of construction ..................... 9,918 11,267 10,713 18,194 33,101 33,101 33,101
Cost of homes sold ....................... 0 0 0 0 10,745 10,745 10,745
Cost of commercial properties sold ....... 6,031 6,876 6,027 9,373 3,444 3,444 3,444
Rental operating cost .................... 737 645 635 631 784 784 784
-------- -------- -------- -------- -------- -------- ----------
Total cost of revenue ................. 16,686 18,788 17,375 28,198 48,074 48,074 48,074
-------- -------- -------- -------- -------- -------- ----------
Gross profit .......................... 5,235 4,584 4,985 7,372 15,773 15,773 15,773
-------- -------- -------- -------- -------- -------- ----------
Other income (expense):
General and administrative expenses ...... (2,004) (1,805) (2,481) (2,679) (4,482) (4,533) (4,411)
Joint venture earnings (loss)............. (26) 64 6 1,131 (43) (43) (43)
Interest expense, net .................... (2,202) (1,628) (1,475) (2,127) (2,748) (2,748) (1,390)
-------- -------- -------- -------- -------- -------- ----------
Total other income (expense) .......... (4,232) (3,369) (3,950) (3,675) (7,273) (7,324) (5,844)
-------- -------- -------- -------- -------- -------- ----------
Income before provision for income taxes ..... 1,003 1,215 1,035 3,697 8,500 8,449 9,929
Pro forma income taxes (4) ................... 341 413 352 1,257 2,890 2,873 3,376
-------- -------- -------- -------- -------- -------- ----------
Pro forma net income ......................... $ 662 $ 802 $ 683 $ 2,440 $ 5,610 $ 5,576 $ 6,553
-------- -------- -------- -------- -------- -------- ----------
Pro forma net income per share ............... $ 1.04 $ 0.86
Number of shares outstanding ................. 5,344 7,619
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
EBITDA (in thousands) (5) $4,174 $3,753 $3,752 $6,812 $12,474
Single-family homes:
New contracts, net of cancellations -- -- -- -- 210
Closings........................... -- -- -- -- 173
Backlog (at period end) (6)........ -- -- -- -- 37
Homes remaining for sale (at period
end)............................ -- -- -- -- 9
Aggregate sales value of backlog
(in thousands).................. -- -- -- -- $2,970
Average sales price per home
closed.......................... -- -- -- -- $74,930
Design-build projects:
Number of contracts awarded........ 17 13 10 4 6
Backlog (at period end) (in
thousands) (7).................. $30,157 $30,826 $31,464 $52,075 $21,130
Portfolio properties:
Number of properties developed..... 3 3 5 3 5
Number of properties sold.......... 2 2 7 3 3
Number of properties owned (at period
end)............................ 15 16 14 14 16
</TABLE>
-23-
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------
PRO
PRO FORMA AS
1992 1993 1994 1995 ACTUAL FORMA(8) ADJUSTED(9)
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents . $ 213 $ 345 $ 53 $ 492 $ 1,590 $ 1,473 $ 3,237
Real estate properties, net 26,635 24,393 25,154 31,966 39,030 41,067 41,067
Total assets .............. 31,614 32,107 35,682 49,580 67,957 69,267 69,840
Total debt ................ 23,020 21,243 31,952 39,969 49,710 44,333 29,521
Stockholders' equity ...... 7,057 7,732 953 3,693 6,291 10,168 28,667
</TABLE>
- ----------
(1) Pro Forma Income Statement Data for the year ended December 31, 1996
give effect to the Reorganization as if it had occurred on January 1,
1996. See "The Reorganization."
(2) Pro Forma As Adjusted Income Statement Data for the year ended December
31, 1996 give effect to (i) the Reorganization, as if it had occurred
on January 1, 1996, (ii) the reduction in interest expense resulting
from the assumed repayment of debt with a portion of the net proceeds
of the Offering, as if such repayment had occurred on January 1, 1996,
and (iii) the additional number of shares to be outstanding after the
Offering.
(3) In accordance with GAAP, the income statement does not include
construction revenue and costs incurred in connection with Portfolio
Construction, but does include construction revenue and costs incurred
in connection with the construction for entities which the Company does
not control. Costs of Portfolio Construction are capitalized as
improvements on the Company's balance sheet and profit, if any, in
connection with such activities is recognized only upon sale of the
property.
(4) The combined historical financial statements of the Company are
comprised of the operations, assets and liabilities of the Combined
Entities. Prior to October 1, 1995, JSI operated as an S corporation
for income tax purposes and was, therefore, subject to no income taxes
until October 1, 1995. In addition, certain of the Combined Entities
are partnerships for federal income tax purposes and were, therefore,
subject to no income taxes. Pro forma income tax, computed at a
marginal effective rate of 34%, has been calculated for all periods as
if the Company had been subject to income taxes as a C corporation
during such periods.
(5) EBITDA is a supplemental financial measurement used by the Company in
the evaluation of its business. EBITDA is calculated by adding
interest, income taxes, depreciation and amortization expense to net
income. EBITDA should not be construed as an alternative to income from
operations or cash flows from operating activities (as determined in
accordance with GAAP).
(6) Represents the number of homes subject to pending sales contracts which
have not closed.
(7) Represents the uncompleted portion of design-build construction under
fixed-price contracts.
(8) Pro Forma Balance Sheet Data give effect to the Reorganization, as if
it had occurred on December 31, 1996.
(9) Pro Forma As Adjusted Balance Sheet Data give effect to (i) the
Reorganization and (ii) the Offering and the application of the net
proceeds therefrom, as if each had occurred on December 31, 1996.
-24-
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion is based primarily on the Combined Financial
Statements of the Company and should be read in conjunction with "Selected
Combined and Pro Forma Financial and Operating Information" and the Combined
Financial Statements, including the notes thereto, and other financial
information appearing elsewhere in this Prospectus. The Combined Financial
Statements of the Company are comprised of the operations, assets and
liabilities of the Company and of certain properties which were owned and
operated by entities affiliated with and controlled by the Company during the
periods presented. These operations and properties will be acquired by the
Company in connection with the consummation of the Reorganization. See "The
Reorganization." The pro forma effects of the Reorganization and the Offering
are set forth in the Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company, which are included elsewhere in this Prospectus.
The Company is an integrated real estate company which engages in (i)
the design, development, construction and sale of single-family homes and
portfolio properties, (ii) design-build services for third-party clients under
fixed-price construction contracts and (iii) property operations and management
which generate rental income and management fees. During the past three years,
the Company has added residential property development to its business focus
with its entry into the single-family home development business in 1995, which
first generated sales in 1996, and its increased development of Tax Credit
Projects.
Revenue from home sales and portfolio property sales is recognized
based upon the sales price at the time of closing. Revenue from construction
contracts is recognized on the percentage-of-completion method, based upon the
ratio of costs incurred to total estimated costs. All other revenue is based on
accrual accounting. Revenue resulting from the sales of homes and portfolio
properties as well as from the award and timing of design-build construction
contracts may vary significantly from period to period.
On September 30, 1995, the Company terminated its election to be
treated as an S corporation for income tax purposes. As a result, effective
October 1, 1995, the Company became subject to federal income tax.
-25-
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth, for periods indicated, information
derived from the Company's Combined Statements of Income expressed as a
percentage of total revenue unless otherwise noted:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Revenue:
Construction revenue 48.6% 62.1% 65.2%
Sales of homes -- -- 20.3
Sales of commercial properties 36.1 27.7 7.5
Rental revenue 14.7 9.9 6.2
Other revenue 0.6 0.3 0.8
------ ------ ------
Total revenue 100.0 100.0 100.0
Cost of Revenue:
Cost of construction (1) 98.6 82.4 79.5
Cost of homes sold (1) -- -- 82.9
Cost of commercial properties sold (1) 74.7 95.2 72.2
Rental operating cost (1) 19.3 17.9 20.0
Total cost of revenue 77.7 79.3 75.3
------ ------ ------
Gross profit 22.3 20.7 24.7
------ ------ ------
Other income (expense):
General and administrative expenses 11.1 7.5 7.0
Joint venture earnings 0.0 3.2 (0.1)
Interest expense, net 6.6 6.0 4.3
------ ------ ------
Total other income (expense) 17.7 10.3 11.4
------ ------ ------
Income before provision for income taxes 4.6% 10.4% 13.3%
</TABLE>
- ----------
(1) Shown as percentage of corresponding revenue items.
1996 COMPARED TO 1995
Revenue. Total revenue increased by $28.3 million, or 79.5%, from $35.6
million in 1995 to $63.8 million in 1996. Construction revenue increased by
$19.6 million, or 88.6%, from $22.1 million in 1995 to $41.7 million in 1996,
primarily due to construction on four Tax Credit Projects and contract additions
on a Tax Credit Project completed in 1995. The Company receives revenue as both
general contractor and developer from the development of Tax Credit Projects.
The commencement of sales of single-family homes in January 1996 resulted in
sales of homes of $13.0 million in 1996. Sales of commercial properties
decreased by $5.1 million, or 51.5%, from $9.9 million in 1995 to $4.8 million
in 1996. Sales of commercial properties for 1995 reflect three property sales
and five land sales compared to three property sales and two land sales for
1996. Rental revenue increased by $391,000, or 11.1%, from $3.5 million in 1995
to $3.9 million in 1996, primarily due to rent increases and changes in the
portfolio of operating properties held during 1995 and 1996.
-26-
<PAGE> 28
Cost of Revenue. Total cost of revenue increased by $19.9 million, or
70.5%, from $28.2 million in 1995 to $48.1 million in 1996. Cost of construction
increased by $14.9 million, or 81.9%, from $18.2 million in 1995 to $33.1
million in 1996, primarily due to a corresponding increase in construction
revenue. Cost of construction as a percentage of construction revenue decreased
from 82.4% in 1995 to 79.5% in 1996. This decrease was primarily due to the
Company beginning, in 1996, to perform certain construction services on its
construction projects and increased revenues in 1996 relating to work performed
on a Tax Credit Project in 1995. Cost of homes sold was $10.7 million in 1996,
which represents 82.9% of sales of homes. Cost of commercial properties sold
decreased $5.9 million, or 63.3%, from $9.4 million in 1995 to $3.4 million in
1996. Cost of commercial properties sold as a percentage of sales of commercial
properties decreased from 95.2% in 1995 to 72.2% in 1996 due primarily to the
greater number of land sales in 1995 which tend to have a lower profit margin
than sales of operating properties. Rental operating costs increased by
$153,000, or 24.2%, from $631,000 in 1995 to $784,000 in 1996, primarily due to
the net addition of two rental properties placed in service in 1996. Rental
operating costs as a percentage of rental revenue increased from 17.9% in 1995
to 20.0% in 1996 primarily due to increased operating costs from additional
portfolio properties which were in initial lease-up in 1996.
General and Administrative Expenses. General and administrative
expenses, including depreciation and amortization, increased by $1.8 million,
or 67.3%, from $2.7 million in 1995 to $4.5 million in 1996. This increase was
primarily due to salary increases related to the Company's expansion into
homebuilding, certain subcontracting trades and retail operations. Depreciation
and amortization increased by $357,000, or 49.4%, from $722,000 in 1995 to $1.1
million in 1996, primarily due to rental properties placed in service and the
purchase of equipment for subcontracting trades. General and administrative
expenses as a percentage of total revenue decreased from 7.5% in 1995 to 7.0% in
1996 as a result of spreading the costs over a larger revenue base.
Joint Venture Earnings. Joint venture earnings decreased approximately
$1.2 million, or 103.8%, from $1.1 million in 1995 to a loss of $43,000 in 1996.
The decrease is primarily due to the sale of properties by two of the Company's
joint ventures in 1995, for which there were no corresponding transactions in
1996.
Interest Expense. Net interest expense increased by $621,000, or 29.2%,
from $2.1 million in 1995 to $2.7 million in 1996, primarily due to an increase
in the average amount of debt outstanding due to additional borrowings incurred
for land acquisition and development and an increase in the average interest
rate, offset, in part, by a decrease in interest income due to a reduction in
notes receivable outstanding.
Income Before Provision For Income Taxes. As a result of the
foregoing factors, income before provision for income taxes increased by $4.8
million, or 130.0%, from $3.7 million in 1995 to $8.5 million in 1996. Income
before provision for income taxes as a percentage of total revenue increased
from 10.4% in 1995 to 13.3% in 1996.
1995 COMPARED TO 1994
Revenue. Total revenue increased by $13.2 million, or 59.1%, from $22.4
million in 1994 to $35.6 million in 1995. Construction revenue increased by
$11.2 million, or 103.4%, from $10.9 million in 1994 to $22.1 million in 1995,
primarily due to the construction on three
-27-
<PAGE> 29
Tax Credit Projects in 1995 compared to one in 1994. Sales of commercial
properties increased $1.8 million, or 22.0%, from $8.1 million in 1994 to $9.9
million in 1995. Sales of commercial properties for 1994 reflect seven property
sales and two land sales and 1995 reflect three property sales and five land
sales. The increase in revenue was primarily due to one property sale in 1995
being substantially larger than any sale in 1994. Rental revenue increased by
$243,000, or 7.4%, from $3.3 million in 1994 to $3.5 million in 1995, primarily
due to rent increases and changes in the portfolio of operating properties held
during 1994 and 1995.
Cost of Revenue. Total cost of revenue increased by $10.8 million, or
62.3%, from $17.4 million in 1994 to $28.2 million in 1995. Cost of construction
increased by $7.5 million, or 69.8%, from $10.7 million in 1994 to $18.2 million
in 1995, primarily due to a corresponding increase in construction revenue. Cost
of construction as a percentage of construction revenue decreased from 98.6% in
1994 to 82.4% in 1995, primarily due to a larger percentage of construction
revenue being derived from Tax Credit Projects which tend to have a higher
profit margin than the Company's other construction projects. Cost of commercial
properties sold increased $3.3 million, or 55.5%, from $6.0 million in 1994 to
$9.4 million in 1995. Cost of commercial properties sold as a percentage of
sales of commercial properties increased from 74.7% in 1994 to 95.2% in 1995 due
primarily to the greater number of land sales in 1995 which tend to have a lower
profit margin than sales of operating properties. Rental operating cost
decreased slightly, from $635,000 in 1994 to $631,000 in 1995. Rental operating
cost as a percentage of rental revenue decreased from 19.3% in 1994 to 17.9% in
1995 as a result of spreading the fixed operating costs over a larger rental
revenue base.
General and Administrative Expenses. General and administrative
expenses, including depreciation and amortization, increased $198,000, or 8.0%,
from $2.5 million in 1994 to $2.7 million in 1995, primarily as a result of an
increase in salary expense in connection with the Company's expansion.
Depreciation and amortization decreased by $23,000, or 3.1%, from $745,000 in
1994 to $722,000 in 1995, primarily due to the net effect of new rental
properties placed in service, rental properties sold and amortization of loan
fees on loans refinanced. General and administrative expenses as a percentage of
total revenue decreased from 11.1% in 1994 to 7.5% in 1995 as a result of
spreading the costs over a larger revenue base.
Joint Venture Earnings. Joint venture earnings increased approximately
$1.1 million, from $6,000 in 1994 to $1.1 million in 1995, due to the sale of
properties by two of the Company's joint ventures in 1995.
Interest Expense. Net interest expense increased $652,000, or 44.2%,
from $1.5 million in 1994 to $2.1 million in 1995 primarily due to an increase
in the average amount of debt outstanding from additional borrowings incurred
for the refinancing of a portfolio property and land acquisition, offset, in
part, by a decrease in interest income due to a reduction in notes receivable
outstanding.
Income Before Provision For Income Taxes. As a result of the
foregoing factors, income before provision for income taxes increased $2.7
million, or 257.2%, from $1.0 million in 1994 to $3.7 million in 1995. Income
before provision for income taxes as a percentage of total revenue increased
from 4.6% in 1994 to 10.4% in 1995.
-28-
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied upon land and project financing, as
applicable, partner contributions in the form of land or cash, developer's
equity (value in excess of cost), other forms of debt and cash flow from
operations to provide capital for land acquisitions and Portfolio Construction.
Funds needed for property operations are generally available from such
operations. The Company intends to continue to provide for its capital
requirements from these sources. Management believes that these sources,
together with a portion of the net proceeds of the Offering, will be sufficient
to provide for its capital requirements for at least the next 12 months.
Substantially all of the Company's existing indebtedness is fully
recourse to the borrower and is personally guaranteed by Mr. Saxton and his
wife. Consistent with the Company's status as a publicly traded corporation, Mr.
Saxton has indicated to the Company that he and his wife do not intend to extend
personal guarantees of any future indebtedness of the Company and the Company
and Mr. Saxton are seeking to obtain releases of the Saxtons' guarantees of all
existing indebtedness of the Company. Management anticipates that after the
Offering financing will be available to the Company without the necessity of
personal guarantees.
Upon consummation of the Offering and the application of a portion of
the proceeds therefrom to repay approximately $14.8 million of existing
indebtedness of the Company (including $2.7 million of Subordinated Dividend
Notes), the Company expects to have outstanding indebtedness of approximately
$30.0 million. Of such amount, approximately $10.5 million of the Company's
indebtedness will become due and payable prior to December 31, 1997. Of the
indebtedness that will become due and payable in 1997, approximately $8.9
million represents construction financing which will convert to permanent loans
or for which take-out commitments have been obtained, subject to completion of
construction and satisfaction of other customary conditions. An additional
$682,000 represents land loans which are expected to be repaid from construction
loans. The Company expects to refinance the $843,000 balance of its indebtedness
maturing in 1997 upon maturity at then current market rates. The weighted
average maturity of the Company's indebtedness expected to be outstanding
following the Offering is 5.8 years and the weighted average interest rate on
such indebtedness is 9.6% per annum.
Net cash used in operating activities increased from $1.5 million in
1995 to $3.6 million in 1996. This increase was primarily due to increases in
amounts due from Tax Credit Partnerships, residential properties in development
and prepaid expenses and other assets. Net cash used in investing activities was
$3.3 million in 1995. Net cash provided by investing activities was $695,000 in
1996. The $4.0 million change is primarily due to a decrease in expenditures for
property acquisitions and improvements in 1996. Net cash provided by financing
activities was $5.2 million in 1995 and $4.0 million in 1996. Financing activity
in 1995 and 1996 consisted primarily of new borrowings and refinancings which
exceeded loan payments, loan retirements and distributions.
The Company has utilized, and will continue to utilize, options as a
method of controlling and subsequently acquiring land. By controlling land,
through options on the future discretionary purchase of land, the Company
attempts to minimize its cash outlays and reduce its risk from changing market
conditions. While the Company attempts to prudently manage its
-29-
<PAGE> 31
acquisition and development of property, the development of such property can
have a negative impact on liquidity due to the timing of acquisition and
development activities.
If strategic acquisitions or joint venture opportunities arise, the
capital resources of the Company may be utilized to undertake such
opportunities. The timing and nature of these opportunities cannot be predicted
and the financing of any future strategic acquisition or joint venture may take
a variety of forms.
The Company anticipates that development of portfolio projects during
1997 will cost approximately $12.7 million in the aggregate, of which the
Company plans to finance $10.2 million through construction financing. The real
estate development business is capital intensive and requires significant
up-front expenditures to acquire and entitle land and commence development. The
Company typically finances, and will continue to finance, its land acquisition
and portfolio development activities utilizing the proceeds of institutional
loans secured by real property. In some cases, the Company plans to utilize
private financing, typically on a short-term or interim basis. In cases where
the Company holds a property after completion of construction, the Company plans
to obtain permanent financing secured by the property. The Company also expects
to purchase approximately $250,000 of construction and computer equipment during
1997.
BACKLOG
The Company's homes are generally offered for sale in advance of their
construction. The majority of the Company's homes sold in 1996 were sold
pursuant to standard sales contracts entered into prior to commencement of
construction. Such sales contracts are typically subject to certain
contingencies such as the buyer's ability to qualify for financing. Homes
covered by such sales contracts are considered by the Company as backlog. The
Company does not recognize revenue on homes covered by such contracts until the
sales are closed and the risk of ownership has been legally transferred to the
buyer. At December 31, 1996, the Company had 37 homes in backlog, representing
an aggregate sales value of approximately $3.0 million.
As part of its sales and marketing efforts, the Company builds and
maintains model homes in each of its active communities. The Company also builds
speculative homes (defined as homes which are under construction or completed
for which the Company does not yet have sales contracts) on a project-by-project
basis. See "Business -- Development Activities -- Homebuilding -- Marketing and
Sales." It is possible that, in the event of adverse economic or other business
conditions affecting home buying activity in the Company's markets, the Company
may be required to reduce prices or provide sales incentives to liquidate its
inventory of model or speculative homes. It is also possible that the Company
could be required to reduce prices or provide sales incentives to sell its model
homes at the conclusion of a particular community. Either of these actions, if
taken, could have the effect of depressing the Company's gross margin for the
relevant periods.
The Company is also involved in the design-build development of
commercial projects. Backlog for such commercial projects is defined as the
uncompleted work remaining under a signed fixed-price contract. The Company uses
the percentage of completion method to account for revenue from its design-build
contracts. At December 31, 1996, the Company had backlog under its design-build
contracts of approximately $21.1 million.
-30-
<PAGE> 32
INFLATION; INTEREST RATES
Management believes that inflation has not had a material impact on the
Company's operations. Substantial increases in labor costs, workers'
compensation rates and employee benefits, equipment costs, material or
subcontractor costs could adversely affect the operations of the Company for
future periods to the extent that the Company is unable to pass such increases
on to its construction clients or the purchasers of its properties. Following
the closing of the Offering and the application of the net proceeds therefrom,
the Company expects to have outstanding approximately $30.0 million of floating
rate debt (exclusive of the indebtedness of unconsolidated partnerships of which
the Company is a general partner), currently bearing a weighted average interest
rate of 9.6% per annum. If the interest rates on the floating rate debt increase
in accordance with changes to the indices upon which the rates are based, debt
service obligations of the Company may increase. The increases may be partially
offset by increases in investment income from increased interest earnings.
The potential adverse impact of inflation on the Company's rental
operations is mitigated by the inclusion of rent adjustment clauses in its
longer-term nonresidential leases and by generally requiring tenants to pay
their share of operating expenses, including common area maintenance, real
property taxes, insurance and utilities. The Company's shorter-term
nonresidential leases and its residential leases, which are typically for terms
of six or 12 months, permit the Company to seek increased rents upon renewal or
reletting of the leased space.
Management believes that the Company's future homebuilding activities
may be affected by fluctuations in interest rates. Higher interest rates may
decrease the demand for new homes by making it more difficult for home buyers to
qualify for mortgages or to obtain mortgages at interest rates that are
acceptable to the potential buyers. In addition, the Company, as well as the
homebuilding industry in general, may be adversely affected during periods of
high inflation, primarily as a result of higher land acquisition and land
development costs, as well as higher costs of labor and materials. The Company
attempts to pass on to its customers any increase in costs through higher sales
prices. There can be no assurance that inflation will not have a material impact
on the Company's future results of operation.
VARIABILITY OF RESULTS; SEASONALITY
The Company historically has experienced, and in the future expects to
continue to experience, variability in revenue on a quarterly basis. Factors
expected to contribute to this variability include, among others, (i) the timing
of home and other property sale closings, (ii) the Company's ability to continue
to acquire land and options thereon on acceptable terms, (iii) the timing of
receipt of regulatory approvals for the construction of homes and other
development projects, (iv) the condition of the real estate market and the
general economic conditions in the greater Las Vegas area, (v) the prevailing
interest rates and the availability of financing, both for the Company and for
the purchasers of the Company's homes and other properties, (vi) the timing of
the completion of construction of the Company's homes and other portfolio
properties and (vii) the cost and availability of materials and labor. The
Company's historical financial performance is not necessarily a meaningful
indicator of future results and, in particular, the Company expects its
financial results to vary from project to project and from quarter to quarter.
In addition, although the Company has not previously experienced significant
seasonality in its business, management expects that the Company's increased
focus on homebuilding activities
-31-
<PAGE> 33
may cause it to experience seasonal variations in its home sales as a result of
the preference of home buyers to close new home purchases either prior to the
start of a new school year or prior to the end of year holiday season.
-32-
<PAGE> 34
BUSINESS
GENERAL
Saxton Incorporated is an integrated real estate company engaged in the
design, development, construction, operation, ownership and sale of residential,
commercial and industrial properties in the greater Las Vegas metropolitan area.
The Company's business is comprised of three components: (i) the design,
development, construction and sale of single-family homes and portfolio
properties; (ii) design-build services for third-party clients and (iii)
property operations and management. The Company's principal focus historically
has been the design and development of properties for third-party clients and
for its own portfolio. Since its inception in 1986, the Company has completed
over 125 projects, including professional office buildings, retail and
industrial facilities and apartment complexes.
The Company's development experience and expertise enable it to
identify and take advantage of market opportunities and to minimize the risk of
real estate cycles. In 1995, management recognized the need for affordable
housing in the Las Vegas market and began applying the Company's construction
expertise to the development of value-priced single-family detached homes. For
1996, the Company's initial home development was ranked fourth in number of
units sold out of over 400 home developments in Clark County (which includes Las
Vegas). Based on this strong response, management has made a commitment to
expand the Company's homebuilding activities and to make them a significant
component of its business operations.
The Company also provides design-build development services to clients
which have included large nationally recognized public companies as well as
smaller regional businesses. The Company benefits from a reputation for
delivering high quality projects on time and on budget.
The Company's current portfolio of 14 operating properties includes
office buildings, retail and industrial facilities. Management monitors the
market for the Company's properties on an on-going basis to take advantage of
opportunities for strategic sales of its holdings when conditions are favorable.
The rapid economic growth of Las Vegas and the surrounding areas and
the positive demographic trends associated with such growth make Clark County a
favorable location for real estate investment and development. Clark County has
experienced increasing levels of business and employment over the past decade
which have helped drive large increases in population and demand for new
construction of both commercial and residential developments. The expansion of
gaming has led to population and employment increases that are among the highest
in the country. These increases have in turn driven increases in new home sales,
apartment rents and occupancy rates. Additionally, a favorable business
environment has led to growth of non-gaming businesses and the local population
growth has attracted additional retail and service businesses to Clark County
leading to increases in commercial rents and occupancy rates.
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<PAGE> 35
DEVELOPMENT ACTIVITIES
GENERAL
Land Acquisition. The Company selects land for its home and other
development projects based upon a variety of factors, including (i) internally
and externally generated demographic and marketing studies, (ii) soil and other
physical conditions of the site, (iii) financial and legal reviews as to the
feasibility of the proposed project, including projected profitability, (iv) the
ability to secure necessary financing and additional governmental approvals and
entitlements, (v) environmental due diligence, (vi) competition, (vii) proximity
to local traffic corridors and community facilities, (viii) infrastructure
requirements for grading, drainage, utilities and streets and (ix) management's
judgment and experience as to the real estate market and economic trends in a
particular market.
Management generally seeks opportunities to purchase undeveloped land
and the Company invests the time and resources to obtain all necessary
entitlements and develop the land. By acquiring unentitled land, the Company
(i) minimizes its capital investment because the land can generally be purchased
at a discount to land with entitlements and because the purchase is generally
not consummated until all necessary entitlements are obtained, (ii) realizes
greater returns on its investment in land due to the significant value that is
added once entitlements are obtained and subdivision or parcel maps are filed
and (iii) is provided a greater degree of involvement and control over the
design and development process. Once entitlements are obtained, the Company
undertakes the development activities that include site planning and
engineering, as well as constructing road, sewer, water, utilities and drainage.
The Company utilizes contingent purchase agreements and options to
control land while it performs its preliminary review. The Company typically
obtains all necessary development approvals, completes a satisfactory
environmental assessment of the site, secures any necessary financing and
completes other due diligence deemed appropriate by the Company prior to
becoming obligated to complete the purchase or exercising its option. The use of
contingent purchase agreements and options reduces the risks normally associated
with the purchase of undeveloped land and reduces the Company's land carrying
costs. The Company does not generally inventory undeveloped land; rather, the
Company typically acquires land in contemplation of a specific development
project which is scheduled to be commenced within six to nine months following
the acquisition. In certain cases, however, the Company may acquire a site
larger than required for the specified project with the intent of using the
balance of the site for future development.
The Company owns one site containing approximately 92.5 acres zoned for
mixed residential development and has entered into options to acquire two
additional sites, containing an aggregate of approximately 145 acres, proposed
to be developed with residential properties, subject to obtaining all necessary
entitlements. The Company also owns approximately nine acres zoned for
commercial or industrial development. All of the foregoing property is located
in the greater Las Vegas area.
A portion of the 92.5 acre mixed residential site has been identified
as wetlands. Before the Company can build on such wetlands site, it must be
granted a permit to dredge or fill the wetlands site by the U.S. Army Corps of
Engineers (the "Corps"). Although the Company believes that the permit will be
issued in due course and has submitted its preliminary
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<PAGE> 36
application, there can be no assurance that the Corps will grant the permit or
that the presence of wetlands will not otherwise result in delays, cause the
Company to incur substantial compliance or other costs or prohibit or severely
restrict development of this wetlands site. Alternatively, instead of developing
the wetlands site, the Company could enter into a land swap, through which all
or a portion of the wetlands site would be exchanged for land which the Company
believes is of comparable or greater value. There can be no assurance, however,
that the Company will be able to locate a party willing to accept the wetlands
site in a land swap or swap the wetlands site for land the Company believes is
of comparable or greater value. The Company could also decide to sell all or a
portion of the wetlands site.
The continuation of the Company's development activities over the long
term will be dependent upon its continued ability to locate, enter into
contracts to acquire, obtain governmental approval for, consummate the
acquisition of, and improve suitable parcels of land.
Construction. The Company currently employs a licensed architect who
directs and oversees the preparation of design plans for all of the Company's
projects by its intern project architects. Engineering plans are prepared by
consultants retained by the Company. The Company acts as the general contractor
for all of its development projects and each is assigned a project manager with
responsibility for all planning, scheduling and budgeting operations and an
on-site superintendent who oversees the subcontractors. The Company supervises
the construction of each project, coordinates the activities of subcontractors
and suppliers, subjects their work to quality and cost controls and assures
compliance with zoning and building codes. In addition, the Company performs
certain construction services, including concrete, masonry, wood framing,
painting, drywall and landscaping. The Company also intends to develop
capabilities in flooring, roofing and insulation. Management believes that the
Company's ability to perform construction services provides the Company with a
competitive advantage by enabling it to better control the costs, timing and,
therefore, profitability of its projects.
The Company subcontracts to specialty contractors in order to shift
certain construction risk from the Company and to benefit from workers with
expertise in specialized fields. Subcontractors typically are retained on a
project-by-project basis to complete construction at a fixed price. Agreements
with the Company's subcontractors are generally entered into after competitive
bidding on an individual basis. The Company generally obtains information from
prospective subcontractors and suppliers with respect to their financial
condition and ability to perform under their agreements prior to commencement of
a formal bidding process. The services performed for the Company by
subcontractors are generally readily available from a number of qualified
subcontractors.
The Company uses, to the extent feasible, standardized designs and
materials in its commercial construction and homebuilding operations in order to
permit efficiencies in construction and materials purchasing that can result in
higher margins. In addition, management believes that most of the homebuilders
in its market have not integrated their development operations to enable them to
offer homes with similar amenities within the Company's price range.
The Company generally negotiates the purchase of major raw material
components, such as concrete, lumber and structural steel. Where possible, the
Company negotiates price and volume discounts with suppliers on behalf of itself
and its subcontractors in order to take
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<PAGE> 37
advantage of its volume of production. Raw materials used in the Company's
operations are generally readily available from a number of sources but prices
of such raw materials may fluctuate due to various factors, including supply and
demand.
HOMEBUILDING
In 1995, the Company began applying its construction expertise to the
development of value-priced single-family detached homes to meet the demand for
affordable housing in the Las Vegas market. The Company's objective in its
homebuilding activities is to deliver superior value to low and moderate income
families by pricing its homes competitively while providing innovative designs,
quality construction and features and amenities not usually found in affordable
housing. Management plans to offer a range of value-priced homes at each
residential development, including at least one design that is the lowest priced
comparable product in the market. The Company has been able to minimize the cost
of its homes by integrating and performing many of the development functions as
well as utilizing high density site plans configured with the lots having
minimal frontage. This type of site design enables the Company to reduce certain
infrastructure construction costs, such as streets and sewer lines, in order to
increase potential profitability. The Company intends to expand its
single-family development activities to include condominiums, townhomes,
cluster homes and duplexes.
Product Description. Summit Hills is the Company's first single-family
home development. Site grading commenced in July 1995 and Phase I, comprised of
47 homes, was completed in January 1996. Phase I is comprised of two-bedroom,
two-bath homes of approximately 950 square feet and three-bedroom, two-bath
homes of approximately 1,100 square feet. The base sales prices of homes in
Phase I ranged from approximately $66,000 to $70,000, depending on the model,
lot location and optional features. Phases II, III and IV of Summit Hills
include two and three-bedroom models, as well as a four-bedroom, two-bath model
of approximately 1,250 square feet. The two- and three-bedroom homes in Phases
III and IV are being offered at base prices ranging from $69,950 to $75,990,
approximately 5% higher than the comparable models in Phase I. The four-bedroom
model is being offered at a price of approximately $79,990. Management believes
that its price structure makes Summit Hills one of the most affordable newly
constructed single-family detached home communities in the Las Vegas area and
one of only two developments offering single-family detached homes for sale
under $70,000. The homes' designs include open floor plans which permit an
efficient use of the limited space. Common area amenities at the Company's home
developments include pools, community centers and landscaped common areas.
Management believes that the affordable price of its homes, combined with their
quality and features, contributed to making Summit Hills one of the best selling
home developments in Clark County in 1996.
Hillcrest, the Company's second single-family home development, is
comprised of 90 detached single-family homes. During 1996, the Company completed
all lot development at Hillcrest and constructed three Hillcrest model homes.
The Company has designed the homes at Hillcrest utilizing the same floorplans
that were successful at Summit Hills. Various design improvements, including
vaulted ceilings, a sliding glass door in the master bedroom, wiring for a
security alarm and exterior trim, have been incorporated into the Hillcrest
homes based on the Company's survey of Summit Hills homeowners. Common area
amenities at Hillcrest will include a recreation building with a pool and spa.
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<PAGE> 38
The Company is currently developing residential communities at Taylor
Ranch, Madre Mesa and Silver Springs which will include townhomes, condominiums,
cluster homes and duplexes. The townhomes will have two- or three-bedrooms, with
two and one-half baths, and either a one- or two-car attached garage. The
condominiums will consist of one-bedroom, one-bath units and two-bedroom,
two-bath units. The cluster home development will consist of seven to eight
single-family detached homes sharing a common cul-de-sac, thus enabling the
Company to maximize the number of homes buildable on the site. Each duplex unit
will be a single-story unit, modeled after the two bedroom plan at Summit Hills,
sharing a common wall with one other duplex unit.
The following table presents, as of January 31, 1997, certain
information relating to the Company's home developments, all of which are in the
Las Vegas area.
<TABLE>
<CAPTION>
TOTAL HOMES ESTIMATED
HOMES AT HOMES HOMES IN HOMES AVERAGE
COMMUNITY HOME TYPE COMPLETION SOLD (1) CLOSED BACKLOG REMAINING (2) PRICE (3)
--------- --------- ---------- -------- ------ ------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current:
Summit Hills I...Single-family detached 47 46 46 -- 1 $70,270
Summit Hills II..Single-family detached 60 60 59 1 -- $74,600
Summit Hills III.Single-family detached 60 53 50 3 7 $77,990
Summit Hills IV..Single-family detached 52 41 35 6 11 $79,730
Hillcrest........Single-family detached 90 -- -- -- 90 $79,500
----- --- --- -- -----
Subtotal ..... 309 200 190 10 109
----- --- --- -- -----
Planned(4):
Taylor Ranch.....Single-family detached 222 -- -- -- 222 $80,700
Taylor Ranch.....Condominiums 336 -- -- -- 336 $55,000
Taylor Ranch.....Townhomes 336 -- -- -- 336 $75,700
Taylor Ranch.....Cluster Homes 209 -- -- -- 209 $85,600
Taylor Ranch.....Duplexes 70 -- -- -- 70 $68,000
Madre Mesa.......Townhomes 176 -- -- -- 176 $75,700
Silver Springs...Cluster Homes 770 -- -- -- 770 $85,600
----- --- --- -- -----
Subtotal ......................... 2,119 -- -- -- 2,119
----- --- --- -- -----
Total ................................. 2,428 200 190 10 2,228
===== === === == =====
</TABLE>
- ----------
(1) "Homes Sold" includes both home sales which have closed and homes
subject to pending sales contracts.
(2) "Homes Remaining" is the number of constructed homes not yet sold and
the number of homes which could be built on both the remaining lots
available for sale and land to be developed into lots as estimated by
the Company.
(3) "Estimated Average Price" is the current average sales price of homes
sold in current communities and the proposed offering price of homes to
be built in planned communities.
(4) "Planned" projects include only those projects for which the Company
controls land available for project development and home construction.
In most cases, planned projects require additional entitlements prior
to the commencement of construction. See "-- Development Activities --
General -- Land Acquisition" and "Risk Factors -- Regulatory and
Environmental Risks."
Production Strategy. The Company attempts to limit the number of unsold
units under construction by limiting the size of each construction phase and
closely monitoring sales activity. However, the Company commences construction
prior to obtaining sales contracts for all homes within a given phase. The
Company strives to match construction starts to its sales rates. The Company
controls its construction starts by releasing homes for construction and for
sale in phases. Building homes of the same product type in phases also allows
the Company to utilize production techniques that reduce its construction costs.
The size of these phases depends on such factors as current sales and
cancellation rates, the type of buyer targeted for
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<PAGE> 39
a particular residential project, the time of the year and the Company's
assessment of prevailing and anticipated economic conditions. Depending on the
design, time of year, local labor situation, governmental approvals,
availability of materials and supplies, and other factors, the Company generally
completes a home in three to four months.
Marketing and Sales. The Company currently sells its homes through its
own sales representatives. The Company's sales force typically works from sales
offices located in the model homes at the development. Licensed sales
representatives assist potential buyers by providing them with basic floorplans,
price information, development and construction timetables, tours of model homes
and the selection of options. The Company's sales personnel are provided
training by the Company and generally have had prior experience selling new
homes in the local market. The Company also markets its homes for sale through
direct mailing to identified populations of prospective buyers and, to a lesser
extent, through other media, including newspaper, television and radio
advertising, billboard and other signage.
Generally, the Company intends to build and decorate model homes at
each of its residential communities to display the homes' design features. Model
homes play a key role in helping buyers understand the efficiencies and value
provided by each plan type of the Company's homes.
Homes are typically sold prior to or during construction using sales
contracts which are accompanied by small cash deposits. Purchasers are permitted
to cancel sales contracts if they are unable to qualify for financing and under
certain other circumstances. The Company believes that its cancellation rate is
consistent with that generally experienced at other affordable home
developments. Although cancellations can delay the sale of the Company's homes,
they have not had a material impact on sales, operations or liquidity because
the Company closely monitors the progress of prospective buyers in obtaining
financing and monitors and adjusts its construction plans to better match the
level of demand for its homes.
To assist in the marketing of its homes and to limit the Company's
liability for certain construction defects, the Company sells the homes subject
to a limited warranty which includes, among other things, coverage from an
insurance company for the cost to repair major structural defects for ten years.
The Company is liable for such repair costs during only the first two years and,
subject to certain limitations, such liability is covered by the Company's
builders' policy.
Customer Financing. The Company does not provide financing to
prospective home buyers, but works closely with unaffiliated mortgage lenders
who assist the Company's home buyers in locating financing. At the on-site
office, sales employees provide prospective home buyers with information
regarding the qualifying criteria for mortgage financing. In addition, the
Company prices its homes to meet the applicable requirements for a home buyer's
mortgage loan to be insured by the FHA or guaranteed by the VA and purchased by
the Nevada Housing Division. FHA and VA financing generally enables home buyers
who satisfy certain income and other requirements to purchase homes with lower
down payments than the down payments required by conventional mortgage lenders,
and the Nevada Housing Division's mortgage purchase programs generally enable
such buyers to obtain mortgage financing at less than prevailing rates. The
Company also intends to work with other federal, state and nonprofit sponsors
which provide down payment assistance to qualifying home buyers. Management
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<PAGE> 40
believes that the availability of the foregoing financing programs broadens the
pool of potential purchasers for the Company's homes.
Customer Service and Quality. Management believes that strong customer
relations and an adherence to high quality control standards are fundamental to
the Company's continued success. The Company employs a quality assurance process
which is intended to provide a positive atmosphere for each customer throughout
the pre-sale, sale, building, closing and post-closing periods. The Company
employs full-time customer service employees, who, working as a team with the
Company's sales representatives and on-site construction supervisor, oversee
compliance with the Company's quality control standards. These employees as a
group have responsibility for (i) overseeing the entire project from land
development through construction, (ii) overseeing performance by the Company's
subcontractors and suppliers, (iii) reviewing the progress of each home and
conducting formal inspections as specific stages of construction are completed,
(iv) regularly updating each buyer on the progress of such buyer's home, (v)
preparing homeowner orientation materials and (vi) scheduling and performing all
service calls to handle "punchlist" and other items immediately before and after
the home sale.
PORTFOLIO PROPERTIES
The Company takes advantage of its construction experience and
expertise by developing residential, retail and commercial income producing
properties for its own portfolio. The Company currently owns and operates a
portfolio of 14 properties comprised of approximately 332,090 square feet of
office, retail and industrial space. The Company is currently constructing two
additional portfolio properties and has nine proposed portfolio properties in
the initial stages of development. Management monitors the market for the
Company's properties on an on-going basis to take advantage of opportunities for
strategic sales of its holdings when conditions are favorable. See "-- Property
Operations and Management -- Operations."
The Company builds retail and office properties which typically are
located within commercial corridors near traffic generators such as regional
malls, business developments and major thoroughfares. Management believes the
benefits of such locations include high visibility to passing traffic, ease of
access and tenant control over the site's operating hours and maintenance
standards. The Company typically builds industrial properties in areas where
other industrial properties are located. The Company's commercial and industrial
properties have the potential to be easily adapted to a variety of tenants and
have relatively low re-leasing costs which provide the Company with flexibility
in use and tenant selection when the properties are vacated upon lease
termination.
DESIGN-BUILD SERVICES
The Company provides its design-build services to third-party clients,
including Tax Credit Partnerships. During the three years ended December 31,
1996, the Company completed 20 design-build projects, comprised of five
industrial facilities, 12 other commercial properties and three apartment
complexes. At January 31, 1997, the Company had seven uncompleted design-build
projects under contract and an additional seven design-build projects in the
initial stages of development but not yet under contract.
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<PAGE> 41
Under design-build services, the Company conducts all phases of the
project including architectural design, the selection and review of engineering
professionals and the performance of all general contractor responsibilities.
Design-build projects can permit accelerated construction because the Company
can perform work on certain aspects of a project while other aspects are still
being designed. Design-build contracting enables the Company to provide
customers with comprehensive project management, providing a coordinated team
approach from the pre-construction development stage through construction and
completion of a project.
Design-build projects are undertaken on a fixed-price basis and may be
built on land owned by the Company which is then sold to the client, on land
owned by the client or on land identified by the client which is then either
purchased by the client or by the Company for resale to the client. The typical
design-build contract requires the Company to obtain all necessary government
permits and approvals, perform or oversee all architectural and engineering
services, construct the project and, in many cases, arrange, on the client's
behalf, any needed land, construction and permanent financing. The Company's
design-build projects are generally the result of referrals by former clients,
brokers or others in the real estate business.
Fixed-price contracts require the Company to accurately estimate the
cost and quantities of materials, labor and equipment necessary, and the amount
of time required to complete a project. The Company generally bears the risks of
construction cost overruns. In order to arrive at the contract price, the
Company uses a computer-based estimating program to develop a comprehensive
estimate for the project for which separate labor, equipment, material,
subcontractor, overhead and profit estimates are compiled. Once a project
begins, the estimate is used to measure and monitor ongoing project costs. The
Company's ability to estimate project costs accurately has been a key component
of its success and profitability. Fixed-price contracts provide the opportunity
for greater profits to the extent the contractor is able to hold down costs
below those originally anticipated.
The Company bills its client, or the project construction lender, for
work performed and pays the subcontractors from funds received. The Company is
responsible for the performance of the entire contract, including work assigned
to subcontractors. Accordingly, the Company is subject to liability resulting
from the failure of subcontractors to perform as required under the contract.
Typically, pursuant to construction industry practice, a portion of billings,
generally not exceeding 10%, is retained by the client until the project is
completed. The Company recognizes revenue and profit on its construction
contracts under the percentage of completion method.
The Company does not furnish bonds guaranteeing its performance and,
because the Company thoroughly investigates its subcontractors prior to entering
into subcontracts, the Company generally does not require completion bonds from
its subcontractors. To date, the Company has not been denied a construction job
because of its unwillingness to furnish a completion bond.
Stages of a Project. The Company's design and construction process is
intended to be accomplished through a coordinated, cooperative team approach.
The Company's primary goal is to achieve the owner's cost and schedule
objectives while producing a facility of the highest standards of quality.
Following is a summary of the Company's approach at the pre-construction,
construction and post-construction stages of a project:
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<PAGE> 42
Pre-construction Stage. Management believes that the Company's
pre-construction stage involvement results in many benefits to its clients. The
Company's approach for providing pre-construction services involves establishing
a project team that advises and assists the client on all aspects of design and
development for the project. The Company also assists in or manages the
development of the architectural, civil, mechanical, electrical and structural
plans and specifications, and advises in the areas of land selection,
construction feasibility, possible economies, availability and utilization of
materials, and labor and time requirements for procurement, construction and
project costs.
The Company assists its clients in the financial planning for the
project through preparation of cash flow projections, accounting procedures,
detailed cost budgets and comparative cost analysis studies. More specifically,
the Company assumes responsibility for the preparation and updating of detailed
project schedules which incorporate all required project activities. The Company
(i) works with the client to establish completion dates for all stages of the
project, (ii) analyzes market conditions with a view toward material
availabilities, cost strategies, construction techniques, manpower levels and
similar matters, (iii) develops a bid-packaging program to encourage maximum
bidder interest and fully defines the work to minimize contingencies for unknown
circumstances, (iv) thoroughly reviews and defines the project schedule,
critical materials required, delivery dates and performance criteria with the
selected subcontractors, and (v) advises and incorporates considerations
regarding construction safety and public agency requirements.
Construction Stage. As general contractor, the Company assumes
responsibility for managing the construction of a project and directs the field
execution of the concepts and objectives established during the pre-construction
stage. The Company maintains a full-time, supervisory staff at the job site to
coordinate and provide general direction of the work and progress of the
subcontractors, establishes an on-site organization to carry out the overall
plans of the project team and directs the work being performed until final
completion and delivery to the owner. The Company regularly conducts job
meetings to discuss the orderly progress of the work.
During the past year, the Company began to perform many of the
functions previously performed by subcontractors, including concrete, masonry,
wood framing, painting, drywall and landscaping. The Company intends to
integrate certain additional construction trades to further increase its
profitability and strengthen its competitive position. Management believes that
the Company's ability to perform these construction services provides the
Company with a competitive advantage by enabling it to better control the costs,
timing and, therefore, profitability of its projects.
Post-Construction Stage. As a project nears completion, the Company
works with the project team to assist in an orderly project close-out and
transition from construction to actual use in the areas of quality control,
documentation and building turnover.
Tax Credit Projects. Substantially all of the Company's design-build
contracts for apartment complexes have been Tax Credit Projects developed for
Tax Credit Partnerships formed to take advantage of the low income housing tax
credit provided by Section 42 of the Internal Revenue Code (the "Housing Tax
Credit"). The Housing Tax Credit has the effect of making the purchase of
eligible apartment complexes a more attractive investment by increasing the
return on investment. The Company structures the Tax Credit Partnership and
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<PAGE> 43
retains or purchases up to a 1% general partner interest which generally
entitles it to between 50% and 85% of any distributions of net cash from
operation of the Tax Credit Project and from its sale. An unaffiliated
third-party investor group is the limited partner of the Tax Credit Partnership
and contributes all or substantially all of the equity capital required to
develop the Tax Credit Project in exchange for substantially all of the benefit
of the Housing Tax Credit.
Developing Tax Credit Projects, which are typically in excess of 200
units, provides the potential for substantial benefits to the Company. In a
typical Tax Credit Project, the Company is retained by the Tax Credit
Partnership to develop the project pursuant to a fixed-price construction
contract. Included in the fixed price are the Company's customary contractor and
developer fees and, where market conditions permit, a markup on the sale of the
underlying land. In addition, the Company may be entitled to earn, upon
completion or over a period of time following completion, certain additional
fees, including property management fees based on property rental income. See
"-- Property Operations and Management -- Management and Leasing" and "--
Regulatory and Environmental Matters -- Resident Income and Other Limitations."
The Tax Credit Projects are also structured to be eligible for
financing through one or more of the tax-exempt private activity revenue bond
programs sponsored by the Nevada Housing Division. The programs of the Nevada
Housing Division are intended to provide incentives for the construction,
ownership and financing of housing for persons and families of low and moderate
income. These incentives may include lower interest rates on construction and
permanent financing with respect to the eligible project. Nevada Housing
Division bond financing typically involves substantially greater origination
fees and expenses than those associated with conventional financing. The Company
believes that the return on its investment provided by the lower interest rates
over the term of the loan more than compensates for the additional fees and
expenses. The Company believes that it is one of only a few developers to
combine the use of Nevada Housing Division programs with Tax Credit Projects.
The Company has completed three Tax Credit Projects and is currently
constructing two additional Tax Credit Projects. The following table sets forth
information regarding the Company's Tax Credit Projects.
<TABLE>
<CAPTION>
DATE OF
TOTAL PROJECT COMPLETION
COST(1) OR ESTIMATED NUMBER OCCUPANCY
TAX CREDIT PROJECT TYPE (IN THOUSANDS) COMPLETION OF UNITS AT 1/31/97
- ----------------------------- --------------- -------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Completed:
Saratoga Palms East I...... Senior Citizens $16,900 2/96 360 97%
Lake Tonopah............... Senior Citizens 15,400 8/96 356 72% (2)
Paseo del Prado............ Family 6,800 10/96 120 39% (2)
Under Construction:
Saratoga Palms East II..... Family 16,400 4/97 256 --
Saratoga Palms North II.... Family 16,200 4/97 252 --
</TABLE>
- ----------
(1) Includes land, construction, development, lease-up and financing costs.
(2) This property is in initial lease-up.
The ability of the Company to continue to develop Tax Credit Projects
in the future is subject to the continued availability of the low income housing
tax credit and the ability of the
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Company to utilize revenue bond financing for its projects in the future is
subject to its ability to obtain such financing from various state and local
agencies.
PROPERTY OPERATIONS AND MANAGEMENT
Operations. The Company's property operations provide it with
flexibility with respect to the disposition of its portfolio properties and
enables it to diversify its sources of revenues. The following table sets forth
certain information regarding each of the Company's operating portfolio
properties as of January 31, 1997.
<TABLE>
<CAPTION>
APPROXIMATE CURRENT
SQUARE NUMBER OF OCCUPANCY ANNUALIZED
YEAR FOOTAGE/ TENANTS AT 1/31/97 BASE RENT
PROPERTY (1) COMPLETED UNITS PRINCIPAL TENANT(S) (2) (3) (3) (4)
- ------------------------- -------------- ----------- ----------------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Retail:
Nellis Express Village 1986 16,260 -- 11 85% $138,920
Levitz................ 1991 102,400 Levitz Furniture 2 100% 940,880
Furniture Expo........ 1992 37,260 Furniture Expo; Leather 4 100% 410,620
Factory
Woody's Furniture..... 1993 4,680 Woody's Furniture 1 100% 75,000
Turtle Stop (5)....... 1994 4,430 Operations Management
Group 1 100% 163,070
Sahara/Decatur........ 1996 3,630 Bruegger's Bagels; 2 100% 94,770
Mirage Mattress
Nellis/Stewart 1996 4,570 Bargain City 1 78% (6) 51,422
Office:
Las Vegas Sun......... 1987 15,450 Las Vegas Sun 1 100% 215,280
Americana............. 1991 17,150 Americana Realtors 2 75% 136,330
General Services
Administration.... 1994 16,410 Social Security 1 100% 258,310
Administration
Flamingo Pt. ......... 1995 8,080 Air Touch Paging; 2 76% 81,700
A-Z Women's Clinic
Sahara Vista.......... 1996 38,530 -- 6 80% (6) 175,735
Industrial:
Arcata Industrial Park 1989 24,200 Status Vending (7) 4 100% 111,290
JCH Wire and Cable.... 1991 39,040 JCH Wire and Cable (8) 1 100% 206,950
</TABLE>
- ----------
(1) Excludes two retail properties owned by the Retail Partnership. Also
excludes a mixed use commercial property and an apartment complex that
were owned on January 31, 1997 and subsequently sold.
(2) For purposes of the table, a principal tenant is a tenant which leases
25% or more of a property.
(3) In the case of the Americana and Sahara Vista office buildings and the
Arcata Industrial Park, the occupancy has been calculated including
space occupied by the Company. See " -- Facilities."
(4) Represents monthly base rent of occupied space at January 31, 1997,
annualized.
(5) This property is under contract to be sold for approximately $1.1
million, subject to satisfaction of certain financing contingencies.
Monthly rent payments in excess of monthly debt service with respect to
the Company's indebtedness secured by this property will be credited to
the purchase price. See "Certain Transactions."
(6) This property is in initial lease-up.
(7) Under its lease agreement, until December 31, 1998, the tenant has the
right to purchase the property for approximately $1.3 million, subject
to annual increases based on increases in the consumer price index.
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<PAGE> 45
(8) The Company is building a new property for this tenant on a
design-build basis. Upon completion of the property, estimated to occur
in March 1997, the tenant will vacate its current space.
All of the Company's leases for its retail and industrial
properties are on a triple net basis and the leases of its office properties are
on either a triple net or full service gross basis. Under a triple net lease,
tenants pay their utilities and a pro rata share of all building insurance,
property taxes and common area services. Under a full service gross lease, the
landlord provides and pays for all utilities to the tenants' premises, as well
as all building insurance, property taxes and common area services, except that
in most cases the Company's office tenants are required to reimburse the Company
for their pro rata shares of increases in building operating costs each year
over those incurred in the base year, which is generally the year in which a
particular tenant's lease commences.
Leases for the Company's commercial and industrial properties typically
have terms ranging from one to 10 years, with renewal options of various
periods, and provide for periodic rent increases in either stated amounts or
based upon increases in the consumer price index. Leases representing
approximately 18.0% of the Company's commercial and industrial rental space, and
approximately 13.4% of the current annualized rental revenues therefrom, will
expire on or before December 31, 1997, assuming no renewal options are
exercised. Management believes that either the tenants will renew their leases
or the Company will be able to re-lease the vacated space at market rents.
Management and Leasing. The Company provides property management and
leasing services with respect to all operating properties held in its portfolio.
From time to time the Company also provides such services for properties
developed by the Company and owned by third parties. Property management
agreements with third parties generally provide for the Company to be paid a
management fee of 3% to 5% of a property's gross rental income and generally
have a minimum term of five years, although some agreements provide for earlier
termination without cause. To date, the Company's revenue from third party
property management has not been significant. While management anticipates that
the Company's revenues from its property management operations will increase as
a result of its increased development of Tax Credit Projects, such operations
are not anticipated to be material to the Company overall.
Other than the design-build properties which are to be occupied by the
Company's client, the Company strives to pre-lease its commercial properties
before and during construction through the use of on-site billboards, print
advertising and direct mail flyers. Although the Company has not previously
charged a separate leasing brokerage commission, the Company will, where
possible, negotiate a separate leasing commission for its services in leasing
properties owned by third parties. Tenants for the apartment complexes are
generally obtained through a combination of print advertising, on-site
billboards and walk-in traffic. As manager of residential properties, the
Company is responsible for the rent-up of the property and its daily
maintenance. All maintenance services, other than non-routine plumbing and
electrical, are provided by employees of the Company. See "-- Regulatory and
Environmental Matters -- Resident Income and Other Limitations."
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<PAGE> 46
STRATEGIES
The Company's business and growth strategy includes the following key
elements:
Reducing the risk of economic and real estate cycles through operating
diversification. The Company seeks to enhance its financial stability and reduce
the potential impact of economic and real estate cycles by operating in three
components of the real estate business: (i) the design, development,
construction and sale of single-family homes and portfolio properties;
(ii) design-build services for third-party clients and (iii) property
operations and management.
Enhancing profitability through an opportunistic approach to
development. The Company seeks to take advantage of market opportunities by
employing its experience and expertise to identify and enter new markets. Most
recently, in response to the identified shortage of affordable housing, the
Company expanded its development operations to include value priced homes and
apartments for low and middle income families and senior citizens.
Increasing profit margins through vertical integration. The Company's
real estate and construction expertise allows the integration of most aspects of
development and construction thereby enabling the Company to provide one-stop
shopping to its customers, maintain greater control over its projects and
generate higher operating margins. The Company intends to integrate certain
additional construction trades to further increase its profitability and
strengthen its competitive position.
Reducing development risks through conservative land policies. The
Company seeks to maximize its return on capital by limiting its investment in
land while maintaining an inventory of owned and controlled sites sufficient to
accommodate demand for its homes and other development requirements. The Company
seeks to further maximize its return by acquiring undeveloped land and using its
expertise to obtain all entitlements and develop the land. To implement this
strategy and to reduce the risks associated with investments in land, the
Company uses options or conditional land sales contracts to control land
whenever possible and seeks to purchase land only for specific developments.
Expanding business opportunities by taking advantage of government
sponsored programs. The Company has expanded its business opportunities by
building projects which are eligible for various government-sponsored programs
that provide down payment assistance or lower cost financing. These
government-sponsored programs include private activity revenue bonds, small
business loans and mortgage loan programs of federal agencies. By building
properties which are eligible for such programs, the Company is able to expand
the pool of qualified purchasers for its homes and other properties.
Pursuing geographic expansion. While the Company believes that the
outlook for the Las Vegas market is favorable, geographic expansion is a key
element in achieving long-term stability and growth. The Company intends to
capitalize on its experience and demonstrated capabilities in real estate by
targeting other viable geographic markets, including other areas of Nevada and
selected markets in the southwestern United States.
Pursuing growth through strategic acquisitions. The Company believes
that there are significant opportunities to acquire existing homebuilding
companies, particularly in and around
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<PAGE> 47
the Las Vegas area and selected markets in the southwestern United States. The
Company intends to pursue strategic acquisitions to provide the Company with
additional market share, desirable land or expertise. The Company has no
agreements, understandings or arrangements with respect to any such acquisition
and there can be no assurance that the Company will be able to consummate such
an acquisition.
LAS VEGAS MARKET
The Company currently focuses its real estate and investment activities
in Clark County, Nevada. The Company believes that Clark County provides a
favorable environment for real estate investment and development due to the
rapid, continuing economic growth of Las Vegas and the surrounding areas and
positive demographic trends associated with such growth. The area has
experienced increasing levels of business and employment over the past decade,
which have helped to drive large increases in population and demand for new
construction of both commercial and residential developments.
The following discussion includes information obtained from various
published sources independent of the Company. While the Company believes that
such information reveals positive economic trends, there can be no assurance
that these trends will continue.
Clark County's population growth in recent years is among the highest
in the nation. Now containing over one million residents, the population of
Clark County grew at a 6.5% compounded annual rate between 1986 and 1995,
substantially higher than the 1.0% compounded annual growth rate experienced
nationally over the same period. The Las Vegas Chamber of Commerce has projected
that Clark County's population will reach approximately 1.3 million people by
the year 2000, an approximate 25.4% increase over the 1995 population. The
strong population growth in Clark County has resulted, in large part, from the
increasing availability of employment in the greater Las Vegas area. From 1986
to 1995, total employment in Clark County grew at a compound annual growth rate
of 7.2%. Clark County's population growth is also the result of a growing
retiree community, attracted by favorable living conditions, including the
absence of state income, inheritance and estate taxes and a warm climate. From
1986 to 1995, the number of retirees residing in the greater Las Vegas area
increased at a compounded annual growth rate of 14.2% to over 167,000 people.
The following tables show Clark County's population and employment growth from
1986 to 1995.
[Table depicting Clark County's population, 1986-1995]
[Table depicting Las Vegas' employment figures, 1986-1995]
The Company believes that much of the economic growth of Clark County
has come from the expansion of the local gaming industry and transformation of
Las Vegas into a leading destination resort city. Over 29.0 million people
visited Las Vegas in 1995, spending $20.5 billion, an increase of 90.1% and
177.1%, respectively over 1986. Las Vegas offers over 95,000 hotel rooms, the
most of any city in the United States, including the ten largest resort hotels
in the world. With the development of mega-resorts, such as The Mirage,
Excalibur, Treasure Island, MGM Grand, New York-New York and Monte Carlo, the
gaming and hospitality industry has been a major source of new employment.
Several new resort casino-hotel properties are now in development and scheduled
to be completed in 1997 and 1998, including Bellagio, Paris and the property
being developed on the site of the former Sands, and
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<PAGE> 48
many existing casino-hotels are undergoing refurbishment and expansion,
including Caesar's Palace, Circus Circus, Luxor and the Rio. At December 31,
1996, there were over 9,200 hotel rooms under construction and the Las Vegas
Convention and Visitors Authority estimated that approximately 60,000 additional
hotel rooms were proposed for construction. The Company anticipates that the
expansion of the local gaming industry will continue to drive population and
employment growth.
The number of households in the Las Vegas metropolitan area increased
82.5% from 1986 to 1995, compared to a national increase in households of 12%
during the same period. New home sales in Clark County reached 17,921 in 1995,
increasing from 9,634 new home sales in 1993. At a median sale price of
$119,200, Clark County reported over $2.0 billion in new home sales in 1995,
which was the second highest in the nation. In 1995, permits were issued for
27,102 new housing units, including 17,674 detached single family homes, a 17.7%
increase from 1993 levels, and 9,428 multifamily units, a 149.8% increase from
1993 levels. The following tables set forth the number of building permits and
the median sales prices for single family homes from 1986 to 1995 and single
family unit sales from 1991 to 1995.
[Table depicting the number of single family home permits issued, 1986-1995]
[Table depicting the median sales price for Clark
County single family homes, 1986-1995]
[Table depicting the number of single family home
unit sales for Clark County, 1991-1995]
Demand for apartments in Las Vegas has also steadily increased as a
result of the local population growth. The average occupancy rate for apartment
complexes in metropolitan Las Vegas increased from approximately 95% in 1993 to
approximately 97% in 1994 and has remained at approximately 97% through the
third quarter of 1996. In addition, as growing demand for apartments has
outpaced the creation of new units, market rents have risen, increasing 2.5% in
1993, 14.0% in 1994 and 2.7% in 1995. The Company believes that, based on
increasing occupancy and rental rates, there is presently a limited supply of
vacant apartments in the greater Las Vegas area. The following table sets forth
apartment occupancy rates in Clark County for 1991 through 1995.
[Table depicting apartment occupancy rates for Clark County, 1986-1995]
In addition to the expansion of the gaming and hospitality industry,
economic growth in Clark County is being experienced in several other areas,
most notably in the emerging local manufacturing and warehouse/distribution
industries. Much of the growth in these and other areas can be attributed to a
favorable business environment which attracts new companies as well as
out-of-state businesses relocating to the greater Las Vegas area. These
businesses are attracted by among other factors, the absence of state income
taxes (both for corporations and individuals) and favorable unemployment and
workers compensation tax rates. According to the Nevada Development Authority,
more than 90 companies relocated to metropolitan Las Vegas in 1994 and 1995,
creating an aggregate of almost 6,000 new jobs. In 1994 and 1995, Clark County
received approximately 400-450 new business applications each week. The growth
of the local population also attracts more service and retail businesses to
serve the expanding customer base. As a result, the Company believes that Clark
County will continue to experience economic growth over an increasingly broader
range of businesses in the next several years.
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<PAGE> 49
As businesses expand or move into the area to service the growing
population, they require new or larger facilities. As the following tables
demonstrate, the number of new commercial building permits (exclusive of hotels
and motels) issued in Clark County increased to 809 permits (representing total
building valuation of $608 million) in 1995.
[Table depicting the number of new commercial
building permits issued in Clark County, 1991-1995]
[Table depicting total commercial building valuation
in Clark County, 1991-1995]
The Company believes that much of the demand for residential space is
for moderately priced single family homes and apartments for working families
and senior citizens. The Company also believes that the population and economic
growth anticipated in Clark County will provide demand for its single family
homes, as well as design-build services, for the next several years. However,
there can be no assurance that the market will continue to grow.
INSURANCE
The Company maintains general liability and excess liability insurance
and workers' compensation insurance in amounts it believes are consistent with
its risk of loss. The Company carries liability insurance of $1.0 million per
occurrence and an umbrella liability policy of $10.0 million, which management
believes are adequate for its current and anticipated future activities.
In addition, the Company carries comprehensive liability, rental loss
and all-risk (at full replacement cost) insurance with respect to all of the
properties it owns, with policy specifications, insured limits and deductibles
customarily carried for similar properties by carriers deemed capable of
providing such coverage. The Company carries similar insurance with respect to
its unimproved land, with such exceptions as are appropriate given the
undeveloped nature of such land. Management believes that the Company's improved
properties and its unimproved land are adequately insured.
The Company maintains key man life insurance on Mr. Saxton in the
amount of $5.0 million.
REGULATORY AND ENVIRONMENTAL MATTERS
In addition to the obtaining of all building permits and authorizations
normally associated with the development of real property and customary and
routine business permits and licenses, the Company's business and operations are
subject to additional regulation as described below.
Americans With Disabilities Act. The Company's properties must comply
with Title III of the Americans with Disabilities Act of 1990 ("ADA") to the
extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. In the case of existing properties,
compliance with the ADA requirements could require removal of structural
barriers to handicapped access in certain public areas of the projects where
such removal is "readily achievable." The ADA considers apartment complexes to
be public accommodations or commercial facilities, only to the extent portions
of such facilities, such as a leasing office, are
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<PAGE> 50
open to the public. The Company believes that all of its properties are in
substantial compliance with present requirements under the ADA and any
applicable state laws. Noncompliance could result in imposition of fines or an
award of damages to private litigants. The Company intends to construct all
future properties in compliance with any then-existing requirements of the ADA
and any applicable state law.
Fair Housing Amendments Act of 1988. The Fair Housing Amendment Act of
1988 ("FHAA") requires multifamily communities first occupied after March 13,
1990 to be accessible by the disabled. Noncompliance with the FHAA could result
in the imposition of fines or an award of damages to private litigants. The
Company believes that its properties that are subject to the FHAA are in
compliance with such law.
Resident Income and Other Limitations. The Company's development of Tax
Credit Projects is financed with the proceeds of tax-exempt multifamily housing
revenue bonds issued by the Nevada Housing Division, a division of the
Department of Business and Industry of the State of Nevada. As a condition to
obtaining such financing, the Company is required to enter into certain
regulatory and other agreements with the Nevada Housing Division, the terms of
which require that the owner of such properties (i) set aside a specified
percentage of the units (generally 100%) for residents whose incomes do not
exceed a specified percentage of the area median income ("Lower Income Tenants")
and (ii) hold all vacant units in the project (for a reasonable period
consistent with maintaining the project's financial viability) for rent or
occupancy by Lower Income Tenants. These restrictions terminate approximately 15
years following the date of initial occupancy of the project. During the period
that the restrictions apply, any sale or transfer of the project, or the sale or
transfer of the Company's interest in the partnership which owns the project,
will be subject to regulatory approval.
The Tax Credit Partnerships intend to operate their respective projects
so as to qualify for the Housing Tax Credit. Generally, the Housing Tax Credit
is available only with respect to residential rental projects in which a
specified minimum percentage of the residential rental units are occupied by
individuals with incomes not in excess of a specified percentage of the area
median income, as adjusted for family size (the "minimum set-aside"). The Tax
Credit Partnerships have generally elected to set aside 100% of the units for
individuals with incomes not in excess of 60% of the area median income. (Units
occupied by individuals meeting the income test are referred to herein as the
"Low-Income Units.") All units comprising the minimum set-aside must be suitable
for residential occupancy and used on a non-transient basis. Additionally, in
order to qualify for the Housing Tax Credit, the gross rent (including the cost
of any utilities, other than telephone service) charged to tenants of Low-Income
Units comprising the minimum set-aside generally cannot exceed 30% of the
applicable income limits for an apartment of its size (the "rent restriction
test"). A project must, in general, continuously meet the requirements with
respect to the minimum set-aside and the rent restriction test during the period
commencing not later than the date 12 months after the date such project is
placed in service and ending 15 years thereafter.
The Company, as manager of the Tax Credit Projects and a general
partner of Tax Credit Partnerships, will be responsible for ensuring compliance
with any tenant and rent restrictions under the regulatory agreement or
necessary for the continued eligibility for the Housing Tax Credit. The Company
may be liable to the investors in the Tax Credit Partnerships for any lost tax
credits resulting from any failure to so comply and any such liability could be
substantial.
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<PAGE> 51
Environmental Matters. The Company and its competitors are subject to a
variety of local, state and federal statutes, ordinances, rules and regulations
concerning the protection of health and the environment. The particular
environmental laws which apply to any given property vary greatly according to
the property, its environmental condition and its present and former use.
Environmental laws may result in delays, cause the Company to incur substantial
compliance or other costs or prohibit or severely restrict development in
certain environmentally sensitive regions or areas. In addition, environmental
regulations can have an adverse impact on the availability and price of certain
raw materials such as lumber.
Certain environmental laws can impose liability on owners of property,
among other parties, to the extent that hazardous or toxic substances are or
were present during their ownership period. A transfer of the property does not
relieve an owner of such liability. Thus, the Company may have liability with
respect to properties it has sold. There is also a risk that the Company may be
liable for such costs as an "owner" of real estate with respect to the
properties it owns or as an "operator" of real estate with respect to properties
that the Company does not own, but manages for a fee.
Prior to purchasing a parcel of land, the Company evaluates such land
for the presence of hazardous or toxic materials, wastes or substances. In
addition, the Company typically engages independent environmental engineers to
perform "Phase I" environmental assessments (which involve physical inspections
without soil or groundwater analyses) on the land. Since assessments are
generally performed at the time of the Company's acquisition or financing of a
property, many of the assessments of properties currently owned by the Company
were obtained more than one year ago and in one case was obtained over eight
years ago. None of the assessments revealed any hazardous or toxic materials,
wastes or substances that the Company believes would have a material adverse
effect on the Company's financial position or results of operations. The Company
has not been notified by any governmental authority of any material
noncompliance, liability or other claim in connection with any property
currently or formerly owned by the Company nor is the Company otherwise aware of
any environmental liability relating to the properties that it believes would
have a material adverse effect on its business, assets or results of operations.
Nevertheless, it is possible that the environmental assessments did not reveal
all environmental liabilities with respect to the properties, that environmental
liabilities have developed with respect to the properties since the
environmental assessments were prepared or that there are material environmental
liabilities of which the Company is unaware with respect to the properties.
Moreover, no assurance can be given that (i) future laws, ordinances or
regulations will not impose material environmental liabilities or (ii) the
current environmental condition of the properties will not be affected by the
Company or other tenants or occupants of the properties, by the uses or
condition of properties in the vicinity of the properties, or by third parties
unrelated to the Company.
For a discussion of certain wetland property owned by the Company, see
"-- Development Activities -- General -- Land Acquisition."
EMPLOYEES
As of January 31, 1997, the Company had approximately 509 employees
(of which 143 were full-time, 12 were part-time and 354 were occasional
construction workers). The Company employs construction workers on an as-needed
basis, depending upon the level and type of its construction activities.
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<PAGE> 52
None of the Company's employees is represented by a labor union and the
Company considers its employee relations to be good.
FACILITIES
The Company's executive offices are located in approximately 19,000
square feet at its Sahara Vista office building in Las Vegas. The Company also
occupies 2,800 square feet at its adjacent Americana office building and 6,050
square feet at its Arcata Industrial Park. The Company anticipates that its
existing space will satisfy its space requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company is involved in litigation arising from the ordinary course
of its business, none of which, in the opinion of the Company, will have a
material effect on the Company's financial position or results of operations.
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<PAGE> 53
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
James C. Saxton................ 60 Chairman of the Board of Directors, Chief Executive Officer and
President
Douglas W. Hensley ............ 42 Executive Vice President, Chief Financial Officer and Proposed
Director
Marc S. Hechter ............... 44 Senior Vice President of Finance and Proposed Director
Michele Saxton-Pori............ 29 Senior Vice President of Development and Director
Timothy J. Adams .............. 36 General Counsel and Proposed Director
Lee-Ann Saxton................. 29 Vice President of Human Resources
Jeffrey A. Pori................ 30 Vice President of Marketing and Commercial Development
Michael Etter.................. 51 Vice President of Construction
Bernard J. Mikell, Jr.......... 58 Proposed Director
Robert L. Seale ............... 55 Proposed Director
</TABLE>
Messrs. Hensley, Hechter, Adams, Mikell and Seale have agreed to join
the Board of Directors concurrently with the closing of the Offering.
James C. Saxton founded the Company in 1986 and has served as its
Chairman, Chief Executive Officer and President since its formation. For the two
years prior to the formation of the Company, Mr. Saxton concentrated on the
development in Las Vegas of privately owned construction projects financed
through private investments. From 1970 to May 1984, Mr. Saxton was employed by
Intel Corporation in various sales and management positions.
Douglas W. Hensley has served as Chief Financial Officer of the Company
since March 1990 and as Executive Vice President of the Company since January
1994. Mr. Hensley joined the Company as Corporate Controller in February 1990.
Prior to joining the Company, Mr. Hensley was with Henson, Stewart & Hensley,
Certified Public Accountants, for six years, the last three years as a partner.
Marc S. Hechter has served as Senior Vice President of Finance of the
Company since May 1995. From July 1993 to May 1995, Mr. Hechter served as a
director of Jayne, Hechter and Company, Inc., a consulting firm providing
strategic planning and financial advice. In such position, Mr. Hechter served as
a financial consultant to the Company from March 1994 to May 1995. Mr. Hechter
served as Assistant General Manager of Finance for the Nevada State
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<PAGE> 54
Industrial Insurance System from December 1991 to July 1993, and as Vice
President of Wadhams and Associates, Inc. from August 1990 to December 1991.
Michele Saxton-Pori has served as Senior Vice President of Development
of the Company since June 1990 and as a director since the Company's formation.
Timothy J. Adams has served as General Counsel of the Company since
October 1996. From July 1987 to September 1996, Mr. Adams was engaged in the
private practice of law, most recently as a partner of Adams & Tobler, Ltd. Mr.
Adams has acted as counsel to the Company since 1993.
Lee-Ann Saxton has served as Vice President of Human Resources of the
Company since July 1996. From June 1993 to July 1996, Ms. Saxton served as
Director of Retail Operations of the Company. Ms. Saxton served as a director of
the Company from its formation until December 1995. Prior to her employment with
the Company, Ms. Saxton served as Management Consultant with Resource
Evaluation, Ltd., an accounting consultant firm based in San Francisco from
October 1992 to June 1993 and Sales Operation Supervisor with Next Computer,
Inc. from April 1991 to October 1992.
Jeffrey A. Pori has served as Vice President of Marketing and
Commercial Development of the Company since April 1995. Mr. Pori also serves as
President of RealNet, the Company's licensed real estate brokerage subsidiary.
Mr. Pori joined the Company as Leasing Manager in April 1991 and was promoted to
Director of Marketing in December 1992. Prior to joining the Company, Mr. Pori
served as a sales representative for Nevada Advertising from October 1990 to
March 1991.
Michael Etter has served as Vice President of Construction of the
Company since February 1996. Mr. Etter joined the Company as Director of
Purchasing and Construction Services in October 1995. From April 1991 to
September 1995, Mr. Etter owned and operated Desert Sands Masonry, a masonry
subcontractor located in Orange County, California.
Bernard J. Mikell, Jr. has been engaged in the private practice of law,
legislative advocacy and financial consulting since August 1995. From July 1994
to August 1995, Mr. Mikell served as Senior Vice President, Public Finance for
Sutro & Co. Incorporated. From April 1991 to July 1994, Mr. Mikell was engaged
in the private practice of law and financial consulting. Other previous
positions include Vice President, Municipal Finance for Goldman, Sachs & Co.,
Vice President, Public Finance for Dean Witter Reynolds Inc. and General Counsel
of California Housing Finance Agency.
Robert L. Seale has served as the elected Treasurer of the State of
Nevada since January 1991. Prior thereto, Mr. Seale was Managing Partner of
Pangborn & Co., Ltd., Certified Public Accountants, from 1983 to 1989. Mr. Seale
is a past president of the National Association of State Treasurers.
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<PAGE> 55
Mr. Saxton is the father of Michele Saxton-Pori and Lee-Ann Saxton and
the father-in-law of Jeffrey A. Pori.
Each director holds office until the next annual meeting of
stockholders or until his or her successor has been elected and qualified.
Officers serve at the pleasure of the Board of Directors.
The Board of Directors currently does not have, but will, concurrently
with the closing of the Offering, establish, an Audit Committee and a
Compensation Committee. The Company presently expects that, upon joining the
Board of Directors, Messrs. Mikell and Seale will be appointed to the Audit
Committee and the Compensation Committee. The Audit Committee will be
responsible for reviewing the audited financial statements of the Company and
making recommendations to the full Board on matters concerning the Company's
audits and the selection of independent public accountants. The Compensation
Committee will be responsible for establishing salaries, bonuses and other
compensation for the Company's executive officers and administering the
Company's Management Stock Option Incentive Plan. See "-- Stock Option Plans --
Management Stock Option Incentive Plan."
DIRECTOR COMPENSATION
Directors do not presently receive any compensation for their services.
The Company anticipates that directors who are not employees of the Company will
receive a fee of $625 per Board meeting attended and will be reimbursed for
certain expenses incurred in attending Board and committee meetings. No fee will
be payable for participation in Board committee meetings. In addition, such
directors will be eligible to participate in the Company's Non-Employee Director
Stock Option Plan. See "-- Stock Option Plans -- Non-Employee Director Stock
Option Plan." Directors who are employees of the Company will not receive
additional compensation for service as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, compensation of executive officers of the Company was
determined by James C. Saxton, Chairman, Chief Executive Officer and President
of the Company. Concurrently with the completion of the Offering, the Company
will establish a Compensation Committee. No member of such Compensation
Committee will be an executive officer of the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid during the year
ended December 31, 1996 to the Chief Executive Officer and each other executive
officer of the Company whose cash compensation exceeded $100,000 (the "Named
Executive Officers").
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<PAGE> 56
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- ------ ----- ------------
<S> <C> <C> <C>
James C. Saxton, Chairman, President and
Chief Executive Officer....................... $346,991 $8,000 -- (1)
Douglas W. Hensley, Executive Vice President
and Chief Financial Officer................... 75,000 30,000 8,654 (2)
</TABLE>
- ----------
(1) Excludes the value of interest-free loans made by the Company to Mr.
Saxton during 1996 because the outstanding principal amount of
interest-free loans made by Mr. Saxton to the Company was at all times
during the year in excess of the loans made to Mr. Saxton by the
Company. See "Certain Transactions."
(2) Represents a cash payment for accrued vacation.
No stock options were granted during fiscal 1996 to the Named Executive
Officers. The following table sets forth the number and value of stock options
held as of December 31, 1996 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT FISCAL YEAR-END FISCAL YEAR-END (1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James C. Saxton........... -- -- -- -- -- --
Douglas W. Hensley........ -- -- 30,723 30,724 $104,458 $104,462
</TABLE>
- ----------
(1) Amounts calculated by subtracting the exercise price of the options
from the value of the underlying Common Stock on December 31, 1996,
which, for purposes of this table only, is the assumed initial public
offering price of $9.50 per share.
EMPLOYMENT AGREEMENT
The Company has entered into a three-year employment agreement with
James C. Saxton, the Company's President and Chief Executive Officer, which
terminates on March 10, 2000, subject to automatic one-year renewals unless
either the Company or Mr. Saxton gives 60 days prior notice to the other of its
desire not to renew. Pursuant to the terms of such agreement, Mr. Saxton will be
entitled to receive a base salary of $360,000 per year, increasing each year by
3% or such other amount as is determined by the Board of Directors in its
discretion, and will receive supplemental life insurance and long-term
disability insurance at the Company's expense. Mr. Saxton will also be eligible
to receive an annual bonus at the discretion of the Board of Directors. The
agreement requires Mr. Saxton to devote his full time, attention and energies to
the Company's business and contains restrictive covenants pursuant
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to which Mr. Saxton has agreed not to compete with the Company, within 90 miles
of any location in which the Company or any affiliate is doing business, for a
period of one year following termination of his employment if such termination
is the result of the Company's termination of Mr. Saxton "for cause" (as such
term is defined in the employment agreement), Mr. Saxton's election not to renew
the agreement at the end of any term thereof or if Mr. Saxton terminates the
agreement for other than "good reason" (as such term is defined in the
employment agreement). The agreement further provides that, if Mr. Saxton is
terminated other than "for cause," Mr. Saxton will be entitled to receive any
unpaid compensation accrued through the last day of his employment together with
certain severance payments.
INDIVIDUAL STOCK OPTION AGREEMENTS
In December 1994, the Company granted options to purchase an aggregate
of 127,907 shares of Common Stock to various officers, key employees and a
consultant under separate letter agreements, including options to purchase
61,447 shares to Mr. Hensley. Options to purchase 23,497 shares lapsed upon
termination of certain employees' employment without vesting.
The options granted to Mr. Hensley vested as to 20% of the shares on
December 29, 1995, and as to an additional 30% of the shares on December 29,
1996. The remaining shares underlying Mr. Hensley's options will vest on
December 29, 1997. The other options vested as to 20% of the shares on December
29, 1995, and as to an additional 20% on December 31, 1996. The remaining 60%
will vest 20% per year on December 29 of each of the next three years. All
options are exercisable from the date of vesting through December 28, 2004, at
an exercise price of $6.10 per share, the fair market value of the underlying
shares on the date of grant. The Company intends to register and qualify the
stock underlying the options for resale under federal and state securities laws
after the closing of the Offering.
STOCK OPTION PLANS
MANAGEMENT STOCK OPTION INCENTIVE PLAN
The Company plans to adopt a Management Stock Option Incentive Plan
(the "Option Plan") prior to the closing of the Offering. The Option Plan will
provide for the grant of options to purchase Common Stock either that are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code or that are not intended to so qualify
("non-qualified options"). All officers, directors (other than non-employee
directors), employees, consultants, advisers, independent contractors and agents
will be eligible to receive options under the Option Plan, except that only
employees will be eligible to receive incentive stock options. The maximum
number of shares which will be available for issuance under the Option Plan is
500,000. No person eligible to receive options under the Option Plan may receive
options for the purchase of more than an aggregate of 50,000 shares.
The Option Plan will be administered by the Board of Directors or, in
its discretion, by a committee of the Board of Directors appointed for that
purpose (the "Committee"), which, subject to the terms of the Option Plan, will
have the authority in its sole discretion to determine (i) the individuals to
whom options shall be granted, (ii) the time or times at which options may be
exercised, (iii) the number of shares subject to each option, the option price
and the duration of each option granted and (iv) all of the other terms and
conditions of options granted under
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the Option Plan. The exercise price of incentive stock options granted under the
Option Plan must be at least equal to the fair market value of the shares on the
date of grant (110% of fair market value in the case of participants who own
more than 10% of the combined voting power of the Company and its subsidiaries)
and may not have a term in excess of 10 years from the date of grant (five years
in the case of participants who own more than 10% of the combined voting power
of the Company and its subsidiaries). Options granted under the Option Plan will
not be transferable other than by will or the laws of descent and distribution.
Unless otherwise determined by the Board of Directors or the Committee
in connection with the grant of any non-qualified stock options, all stock
options granted under the Option Plan will expire 30 days after the date of the
optionee's termination of employment or other relationship with the Company for
any reason other than death or permanent disability and one year after the
optionee's termination of employment or other relationship by reason of death or
permanent disability (but not, in either case, later than the scheduled
expiration date).
Upon the occurrence of certain extraordinary events, appropriate
adjustments will be made by the Board of Directors or the Committee to preserve,
but not to increase, the benefits to option holders, including adjustments to
the aggregate number and kind of shares subject to outstanding options and the
per share exercise price.
No grant of options will be permitted to be made under the Option Plan
more than 10 years after its date of adoption. The Board of Directors will have
authority to terminate or to amend the Option Plan, subject to the approval of
the Company's stockholders under certain circumstances, provided that such
action does not impair the rights of any holder of outstanding options without
the consent of such holder.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company also plans to adopt a Non-Employee Director Stock Option
Plan (the "Director Plan") prior to the closing of the Offering. The Director
Plan will provide for the grant of non-qualified options to purchase Common
Stock to the non-employee members of the Company's Board of Directors. The
maximum number of shares of Common Stock which will be available for issuance
under the Director Plan is 50,000. The Director Plan will be administered by the
Board of Directors.
Under the Director Plan, each person who becomes a non-employee
director will be automatically granted, as of the date of his election or
appointment to the Board of Directors, an initial option to purchase 500 shares
of Common Stock and will automatically be granted an option to purchase an
additional 500 shares of Common Stock on each anniversary of such date if he
remains a non-employee director on that anniversary date. Options granted under
the Director Plan will have an exercise price equal to the fair market value of
the shares on the date of grant and will become exercisable one year from the
date of grant. Options granted under the Director Plan will have a term of 10
years from the date of grant and will not be transferable other than by will or
the laws of descent and distribution.
Upon the occurrence of certain extraordinary events, appropriate
adjustments will be made by the Board of Directors to preserve, but not to
increase, the benefits to option holders, including adjustments to the aggregate
number and kind of shares subject to outstanding options and the per share
exercise price.
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Under the Director Plan, no grant of options will be permitted to be
made more than 10 years after its date of adoption. The Board of Directors will
have authority to terminate or to amend the Director Plan, subject to the
approval of the Company's stockholders under certain circumstances, provided
that such action does not impair the rights of any holder of outstanding options
without the consent of such holder.
PROFIT SHARING PLAN AND ESOP
On December 31, 1994, JSI established the Jim Saxton, Inc. Profit
Sharing Plan (the "Profit Sharing Plan") for its eligible employees. On December
29, 1995, the Company adopted the Saxton Incorporated Employee Stock Ownership
Plan (the "ESOP") and Trust (the "ESOP Trust"). In connection with the merger of
the Company and JSI on December 31, 1995, the Profit Sharing Plan was merged
into the ESOP and the assets of the trust established under the Profit Sharing
Plan were transferred to the ESOP Trust.
An "employee stock ownership plan" (as defined in Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Internal Revenue Code) is designed to invest
primarily in "qualifying employer securities" of the Company. The account
balances of participants in the Profit Sharing Plan transferred to the ESOP
Trust were invested by the ESOP Trust in the Company's Common Stock. Thereafter,
the Company may make periodic contributions to the ESOP Trust out of its net
profits in amounts determined by the Board of Directors, which contributions may
be made in cash or in shares of the Company's Common Stock. Amounts contributed
in cash will be used to purchase shares of the Company's Common Stock. The ESOP
Trust currently holds 44,142 shares of the Company's Common Stock.
Participants in the Profit Sharing Plan on December 31, 1995 were
immediately eligible to participate in the ESOP. All other employees will become
eligible to participate in the ESOP on the first day of the ESOP plan year
coinciding with or next following the date the employee completes one year of
service with the Company, although eligibility to participate in the salary
deferral feature described below may commence at an earlier date. Contributions
by the Company to the ESOP for the benefit of a participating employee will vest
over a seven-year period of participation in the ESOP and will be held in trust
until distributed pursuant to the terms of the ESOP.
The ESOP also includes a salary deferral feature (the "401(k) Feature")
which, if activated by the Company, will permit employees of the Company
participating in the ESOP to defer a portion of their compensation in accordance
with the provisions of Section 401(k) of the Code. Matching contributions by the
Company may be made in amounts and at times determined by the Company. Matching
contributions by the Company, if any, under the 401(k) Feature for the benefit
of a participating employee will vest over a seven-year period of participation
in the ESOP and will be held in trust, together with the participants'
deferrals, until distributed pursuant to the terms of the 401(k) Feature. The
401(k) Feature will be available to ESOP participants only for those plan years
which the Board of Directors of the Company determines that the 401(k) Feature
shall apply.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation provide that, pursuant to
Nevada law, each director shall not be liable for monetary damages for breach of
the directors' fiduciary duty as a
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director to the Company and its stockholders. In addition, the Company's Bylaws
provide that the Company will indemnify its directors and officers and may
indemnify its employees and other agents to the fullest extent permitted by law.
The Company also contemplates entering into indemnification agreements with its
officers and directors. See "Description of Capital Stock -- Charter and Bylaw
Provisions."
CERTAIN TRANSACTIONS
In December 1994, the Company distributed to its stockholders $6.5
million of the Company's Subordinated Dividend Notes (see Note 12 of Notes to
Combined Financial Statements included elsewhere herein) representing the
Company's estimated undistributed S corporation earnings as of December 31,
1994. The Subordinated Dividend Notes are non-interest bearing, have 10-year
terms and are subordinated to all existing debt. In August 1996, the Company
distributed to its stockholders approximately $1.6 million, which represented
the stockholders' estimated aggregate liability for federal income taxes
attributed to the Company's undistributed S corporation earnings through
September 30, 1995. The stockholders immediately thereafter loaned the full
amount of the distribution to the Company in exchange for $1.6 million of the
Company's Subordinated Dividend Notes. The Company is also indebted to Mr.
Saxton in the amount of $693,000 on account of a non-interest-bearing demand
loan made by Mr. Saxton to the Company in July 1996.
Since January 1, 1994, the Contributing Stockholders have from time to
time been indebted to the Company in varying amounts. All such indebtedness is
non-interest-bearing. At March 4, 1997, the aggregate amount owed by the
Contributing Stockholders to the Company was approximately $727,000. The
aggregate amount owed by the Contributing Stockholders at the end of each of the
last three fiscal years was approximately as follows: 1996 - $610,000; 1995 -
$1.8 million and 1994 - $1.2 million. The largest amount of indebtedness
outstanding at any time since January 1, 1994 was approximately $2.6 million in
September 1996. For a description of the transactions pursuant to which the
Company and the Contributing Stockholders will satisfy its obligations to the
stockholders under the Subordinated Dividend Notes, see "The Reorganization."
The Company and the stockholders have entered into a tax indemnification
agreement under which the Company would reimburse the stockholders for any
increase in their federal income tax liability attributable to any adjustment by
the Internal Revenue Service in the Company's S corporation earnings for federal
income tax purposes.
Mr. Saxton and the other stockholders who are members of his family
received distributions from various partnerships which are being combined with
the Company in connection with the Reorganization.
The Company received fees for construction, development and management
of properties owned by various partnerships which are being combined with the
Company in connection with the Reorganization. The Company also sold land to
such partnerships. Because the Combined Financial Statements of the Company
included elsewhere herein present the financial operations of the Company and
the various combining entities on a combined basis, all such transactions are
treated as intercompany transactions and have been eliminated.
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During 1995 and 1996, RealNet, a company owned 50% by Mr. Saxton and
50% by Jeffrey A. Pori, provided real estate brokerage services to the Company
on a commission basis in connection with the sale and leasing of Company
properties. The aggregate amount earned by RealNet for such services was
approximately $55,000 in 1995 and approximately $252,000 in 1996. Prior to the
consummation of the Offering, Messrs. Saxton and Pori will each sell their
respective interests in RealNet to the Company for $10.
Mr. Saxton and his wife personally guarantee certain of the Company's
indebtedness for which they receive no compensation. The Company intends to seek
the elimination of such guarantees.
Pursuant to an agreement dated January 10, 1994, the Company agreed to
construct and sell an approximately 4,420 square-foot convenience store to
L.'M.E.D.D., Inc., a privately-held corporation of which Michele Saxton-Pori was
a 25% stockholder ("L'MEDD"), for approximately $1.3 million, subject to the
Company's arranging permanent financing on behalf of L'MEDD. The financing has
not been obtained and the sale has not occurred. Pursuant to a lease dated
December 1, 1994, the Company leased the property to an affiliate of L'MEDD on a
triple net basis for a term of 20 years, with two five-year renewal options.
Under the terms of the lease, the tenant is required to pay a basic monthly
rental of $13,244 during the initial lease year, which amount will be adjusted
annually to reflect increases in the cost of living. Of the rent paid during the
first twelve months of the lease, $24,000 will be applied to reduce the purchase
price payable by L'MEDD for the property. The Company is currently assisting in
the operation of the store for no additional compensation. In July 1995, Ms.
Saxton-Pori entered into a stock purchase agreement to sell her shares in L'MEDD
and its affiliate to a third party for $54,250. To date, the sale of the shares
has not been consummated.
Marc S. Hechter, an executive officer and a proposed director of the
Company, was previously employed by, and a 50% stockholder of, Jayne, Hechter
and Company, Inc., a consulting firm to which the Company made payments totaling
approximately $55,207 in 1994 and $43,250 in 1995, exclusive of expense
reimbursements, for services rendered to the Company pursuant to a Consulting
Agreement in effect from January 1994 to May 1995. In December 1994, during the
term of such Consulting Agreement, the Company granted Mr. Hechter options to
purchase an aggregate of 25,562 shares of Common Stock, at an exercise price of
$6.10 per share. The options vest over a five-year period, subject to
acceleration or termination under certain circumstances. See "Management --
Individual Stock Option Agreements."
Timothy J. Adams, an executive officer and a proposed director of the
Company, was previously a partner of Adams & Tobler, Ltd., to which the Company
made payments totaling approximately $10,950, $61,730 and $170,400 in 1994, 1995
and 1996, respectively. Prior to his affiliation with Adams & Tobler, Ltd., Mr.
Adams was sole proprietor of The Law Offices of Timothy J. Adams, to which the
Company made payments totaling approximately $46,897 in 1994.
From time to time, Mr. Saxton's sister, Dorothy Kidd, has advanced
funds to the Company for general corporate purposes. The aggregate amount
borrowed from Ms. Kidd during 1994, 1995 and 1996 was $610,000, none and
$130,000, respectively. In addition, the Company owes $30,000 to an affiliate of
Ms. Kidd for services in representing the Company before local governmental
entities during 1995. The amounts owed Ms. Kidd and her affiliate
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are evidenced by unsecured promissory notes bearing interest at 12% per annum.
At December 31, 1996, the aggregate principal amount owed by the Company to Ms.
Kidd and her affiliate was $770,000, which is expected to be paid in full in
March 1997.
In the future, transactions with affiliates of the Company are
anticipated to be minimal and will require approval by a majority of the Board
of Directors, including a majority of the disinterested members of the Board of
Directors, and will be made on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
For a description of additional transactions between the Company and
its existing stockholders, see "The Reorganization" and "Description of Capital
Stock -- Saxton Warrants and Registration Rights."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus with respect to the beneficial ownership of the Company's
outstanding Common Stock by (i) each person or group who was on such date the
beneficial owner of more than five percent of the outstanding Common Stock, (ii)
each director and proposed director of the Company, (iii) each Named Executive
Officer and (iv) all directors, proposed directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY SHARES BENEFICIALLY OWNED
-------------------------------
NAME AND ADDRESS (1) OWNED (2)(3) BEFORE OFFERING AFTER OFFERING
- ------------------- ------------ --------------- --------------
<S> <C> <C> <C>
James C. Saxton (4) ................................... 1,860,798 34.5% 24.3%
Dorothy J. Saxton (5) ................................. 1,855,000 34.4% 24.2%
Michele Saxton-Pori ................................... 531,611 9.9% 6.9%
Lee-Ann Saxton (6) .................................... 531,378 9.9% 6.9%
James C. Saxton II .................................... 530,000 9.8% 6.9%
Douglas W. Hensley (6)(7)(8) .......................... 33,664 * *
Marc S. Hechter (7)(8) ................................ 10,225 * *
Timothy J. Adams (6)(8) ............................... -- -- --
Bernard J. Mikell, Jr. (8) ............................ -- -- --
Robert L. Seale (8) ................................... -- -- --
Directors, proposed directors and executive officers as
a group (10 persons) (9) .............................. 2,971,217 55.1% 38.8%
</TABLE>
- ----------
* Less than 1%.
(1) The address of each beneficial owner of more than five percent of the
outstanding Common Stock is 5440 West Sahara Avenue, Third Floor, Las
Vegas, Nevada 89102.
(2) Unless otherwise noted, sole voting and dispositive power are possessed
with respect to all shares of Common Stock shown.
(3) Includes shares allocated to the account of the following individuals
and for all directors, proposed directors and executive officers as a
group under the Company's ESOP: James C. Saxton - 5,798 shares; Michele
Saxton-Pori - 1,611 shares; Lee-Ann Saxton - 1,378 shares; Douglas W.
Hensley - 2,941 shares; and all directors, proposed directors and
executive officers as a group - 13,224 shares. ESOP participants have
sole discretion as to voting of such allocated shares.
(4) Does not include 1,855,000 shares owned by Mr. Saxton's wife, Dorothy
J. Saxton, as to which Mr. Saxton disclaims beneficial ownership.
(5) Does not include 1,860,798 shares owned by Ms. Saxton's husband, James
C. Saxton, as to which Ms. Saxton disclaims beneficial ownership.
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(6) Does not include 23,957 shares owned by the Company's ESOP Trust which
are not currently allocated to the account of any ESOP participants.
The voting of such unallocated shares may be directed by Lee-Ann
Saxton, Douglas W. Hensley and Timothy J. Adams as member of the ESOP
Administrative Committee. Ms. Saxton and Messrs. Hensley and Adams each
disclaim beneficial ownership of all such shares.
(7) Represents shares which may be acquired upon exercise of options
exercisable within 60 days.
(8) Messrs. Hensley, Hechter, Adams, Mikell and Seale have agreed to be
appointed to the Board of Directors concurrently with the closing of
the Offering.
(9) Includes shares which may be acquired by Messrs. Hensley and Hechter
upon the exercise of options exercisable within 60 days.
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Company's Articles
of Incorporation, the Company's Bylaws and certain provisions of the Nevada
General Corporation Law (the "Corporation Law"). Such summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Company's Articles of Incorporation
and Bylaws and the Corporation Law, including the definitions therein of certain
terms. Copies of the Company's Articles of Incorporation and Bylaws are filed as
exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
The authorized capital stock of the Company consists of 50,000,000
shares of common stock, $0.001 par value per share ("Common Stock"), and
5,000,000 shares of preferred stock, $0.001 par value per share ("Preferred
Stock"). As of December 31, 1996, there were 4,941,210 shares of Common Stock
and no shares of Preferred Stock issued and outstanding. All issued and
outstanding Common Stock are, and the shares of Common Stock to be issued upon
consummation of the Reorganization and the Offering will be, fully paid and
non-assessable.
COMMON STOCK
Holders of Common Stock have one vote per share of record on each
matter submitted to a vote of stockholders, the right to receive such dividends,
if any, as may be declared by the Board of Directors out of assets legally
available therefor and the right to receive net assets in liquidation after
payment of all amounts due to creditors and all preferential amounts due to
holders of any Preferred Stock. Holders of Common Stock have noncumulative
voting rights in the election of directors. Holders of Common Stock have no
conversion rights and are not entitled to any preemptive or subscription rights.
The Common Stock is not subject to redemption or any further calls or
assessments.
PREFERRED STOCK
The terms of the Preferred Stock, or any series thereof, may be
determined from time to time by the Board of Directors. Such shares may be
convertible into Common Stock, which
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could result in dilution of the holders of Common Stock, and may have a rank
superior to the Common Stock in the payment of dividends, liquidation rights,
voting and other rights, preferences and privileges. Future shares of Preferred
Stock may be issued from time to time by authorization of the Board of Directors
of the Company without submitting a proposal regarding the issuance of such
shares to a vote of holders of Common Stock. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the rights of
holders of Common Stock and under certain circumstances make it more difficult
for a third party to gain control of the Company. No shares of Preferred Stock
are outstanding, and the Company has no current plans to issue any shares of
Preferred Stock.
CHARTER AND BYLAW PROVISIONS
The Company's Articles of Incorporation provide that no officer or
director will be personally liable to the Company or any stockholder for damages
for breach of fiduciary duty as a director or officer, except for (i) acts or
omissions that involve intentional misconduct, fraud or a knowing violation of
law or (ii) the payment of dividends in violation of the Corporation Law. If the
Corporation Law is amended or interpreted to eliminate or limit further the
personal liability of directors or officers, then the liability of all directors
and officers automatically will be eliminated or limited to the full extent then
so permitted. These provisions in the Articles of Incorporation do not eliminate
the fiduciary duties of the directors and officers and, in appropriate
circumstances, equitable remedies such as injunctive relief or other forms of
non-monetary relief will remain available under Nevada law. In addition, these
provisions do not affect responsibilities imposed under any other law, such as
the federal securities laws or state or federal environmental laws.
The Company's Bylaws provide that the Company will indemnify its
directors and officers and may indemnify its employees and other agents to the
fullest extent permitted under the Corporation Law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
by indemnified parties and permits the Company to advance litigation expenses in
the case of stockholder derivative actions or other actions, against an
undertaking by the indemnified party to repay such advances if it is ultimately
determined that the indemnified party is not entitled to indemnification. The
Company intends to seek liability insurance for its officers and directors.
Prior to the consummation of the Offering, the Company anticipates that
it will enter into separate indemnification agreements with each of its
directors and officers. These agreements will require the Company, among other
things, to indemnify such persons against certain liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions involving intentional misconduct, fraud or a
knowing violation of law), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified and to cover such
persons under any directors' and officers' liability insurance policy maintained
by the Company. These indemnification agreements will be separate and
independent of the indemnification rights under the Bylaws and are irrevocable.
The Company believes that these provisions of the Articles of
Incorporation and Bylaws and the indemnification agreements are necessary to
attract and retain qualified persons as directors and officers. Insofar as
indemnification pursuant to the foregoing provisions against liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act"), may be
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permitted to directors, officers or persons controlling the Company, the Company
has been informed that, in the opinion of the Securities and Exchange Commission
(the "Commission"), such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
The Company has elected in its Articles of Incorporation to not be
subject to the Nevada Combinations With Interested Stockholders Act and the
Nevada Acquisition of Controlling Interest Act. Such acts, when applicable, have
the effect of delaying or making it more difficult to effect a change in control
of the Company.
The Company's Bylaws permit stockholders to take action by written
consent in lieu of a meeting so long as holders of not less than a majority of
the outstanding shares, or such greater percentage as may be required for the
action proposed to be taken, participate in such consent.
SAXTON WARRANTS AND REGISTRATION RIGHTS
In connection with the Reorganization, the Contributing Stockholders
will acquire the Saxton Warrants to purchase 400,000 shares of Common Stock in
exchange for $1.0 million of Subordinated Dividend Notes. The Saxton Warrants
will be exercisable, at an exercise price per share equal to 120% of the initial
public offering price per share, for a five year period commencing upon the
determination of the Company's independent auditors that the Company had after
tax net income of not less than $7.4 million in 1997 and aggregate after tax net
income of not less than $18.4 million for 1997 and 1998 prior to any expense
related to such warrants, calculated based on federal and state income tax rates
now in effect. If the Company does not achieve the specified levels of after tax
net income, the Saxton Warrants will lapse.
The Saxton Warrants provide certain rights with respect to the
registration under the Securities Act of the shares of Common Stock issuable
upon exercise thereof. The holders of the shares issuable upon exercise of the
Saxton Warrants may require the Company to file a registration statement under
the Securities Act with respect to such shares. In addition, if the Company
registers any of its Common Stock whether for its own account or for the account
of other security holders, the holders of the shares issuable upon exercise of
the Saxton Warrants are entitled to include their shares of Common Stock in the
registration.
REPRESENTATIVES' WARRANTS AND REGISTRATION RIGHTS
The Company has agreed to sell to the Representatives the
Representatives' Warrants to purchase 227,500 shares of Common Stock at an
exercise price per share equal to 120% of the initial public offering price per
share. The Representatives' Warrants, which are not transferable (other than to
affiliates of the Representatives) are exercisable for a period of four years
beginning one year from the date of this Prospectus. See "Underwriting."
The Representatives' Warrants provide certain rights with respect to
the registration under the Securities Act of the shares of Common Stock issuable
upon exercise thereof. The holders of the shares issuable upon exercise of the
Representatives' Warrants may require the Company to file a registration
statement under the Securities Act with respect to such shares. In addition, if
the Company registers any of its Common Stock whether for its own account or for
the account of other security holders, the holders of the shares issuable upon
exercise of
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the Representatives' Warrants are entitled to include their shares of Common
Stock in the registration.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation. Its telephone number is (818) 502-1404.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, and assuming no exercise of the
Underwriters' over-allotment option, the Company will have 7,619,142 shares of
Common Stock outstanding. Of these shares, the 2,275,000 shares to be sold to
the public in the Offering will have been registered under the Securities Act
and will be freely transferable without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of the Company (as
that term is defined in Rule 144 under the Securities Act ("Rule 144")). Of
the remaining 5,344,142 shares, 4,959,886 shares will be "restricted securities"
(as defined in Rule 144), of which 4,915,744 shares will be immediately eligible
for sale in the public market in the quantities and manner permitted by Rule 144
following expiration of the 180-day lock-up period described below and the
remaining 44,142 shares constituting restricted securities will be eligible for
sale in the public market pursuant to Rule 144 upon the expiration of the
holding period required by Rule 144(d). The 384,256 shares to be acquired
immediately prior to the closing of the Offering as part of the Reorganization
will be issued pursuant to the exemption from registration under the Securities
Act afforded to "intrastate offerings" within the meaning of Section 3(a)(11) of
the Securities Act. Such shares will be eligible for sale in the public market
in the quantities and manner permitted by Rule 144 commencing nine months
following the date such shares are acquired. All of the unregistered outstanding
shares of the Company's Common Stock are held by affiliates of the Company or
the Company's ESOP Trust.
In general, under Rule 144, as currently in effect, an affiliate of the
Company (or persons whose shares are required to be aggregated with an
affiliate) who beneficially owns registered shares or restricted securities with
respect to which at least two years have lapsed since the later of the date such
restricted securities were acquired from the Company or from an affiliate of the
Company is entitled to sell in "brokers' transactions" or to market makers
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock or
(ii) the average weekly reported trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain requirements
relating to the manner of sale, notice and availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not and has not been an affiliate of the Company at any time during the
three months immediately preceding the sale of the restricted securities is
entitled to sell such securities pursuant to Rule 144(k) without regard to the
limitations described above, provided that three years have elapsed since the
later of the date on which such restricted securities were acquired from the
Company or the date they were acquired from an affiliate of the Company. Under
Rule 701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to this Offering are entitled to sell such shares 90 days
after the Offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the volume limitation or notice filing provisions
of Rule 144. In addition, Rule 144A would permit the resale of restricted
securities to qualified institutional buyers subject to compliance with
conditions of the Rule.
The Commission recently adopted amendments to the holding period
required by Rule 144 to permit sales of "restricted securities" after one year
rather than two years (and two years
-66-
<PAGE> 68
rather than three years for "non-affiliates" who desire to sell such shares
under Rule 144(k)). The amendments will be effective April 29, 1997 and will
apply to securities both acquired before and after the effective date.
The Company and its directors, officers and holders of 5% or more of
the Common Stock have agreed with the Underwriters that for a period of 180 days
after the date of this Prospectus (the "lock-up period"), they will not sell or
otherwise dispose of any shares of Common Stock without the prior written
consent of the Representatives of the Underwriters. See "Underwriting."
The Company intends to file a registration statement on Form S-8 under
the Securities Act to register Common Stock reserved for issuance to employees
and others pursuant to various stock option agreements, the Option Plan and the
Director Plan. Such registration is expected to become effective as soon as
practicable following the date of this Prospectus. Shares issued pursuant to the
stock option agreements, the Option Plan and the Director Plan if not otherwise
subject to an agreement not to sell any Common Stock during the 180-day period
following the date of this Prospectus after the effective date of such
registration statement generally will be available for sale in the open market.
As of the date of this Prospectus, (i) options to purchase 104,410 shares of
Common Stock are outstanding pursuant to various stock option agreements, of
which options to purchase 47,909 shares are vested and (ii) no options to
purchase shares of Common Stock are outstanding under the Option Plan or
Director Plan.
Holders of shares issuable upon exercise of the Saxton Warrants and the
Representatives' Warrants are entitled to certain registration rights. See
"Description of Capital Stock -- Saxton Warrants and Registration Rights" and
"Description of Capital Stock -- Representatives' Warrants and Registration
Rights."
-67-
<PAGE> 69
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, the Underwriters named below (the
"Underwriters"), have severally, and not jointly, agreed, through Ladenburg
Thalmann & Co. Inc. and Stifel, Nicolaus & Company, Incorporated, the
Representatives of the Underwriters (the "Representatives"), to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the
aggregate number of shares of Common Stock set forth opposite their respective
names:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Ladenburg Thalmann & Co. Inc....................
Stifel, Nicolaus & Company, Incorporated........
---------
Total.................................. 2,275,000
=========
</TABLE>
The Underwriters are committed to take and to pay for all of the shares
of Common Stock offered hereby (other than the shares covered by the
over-allotment option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer
all or part of the Common Stock offered directly to the public initially at the
price to the public set forth on the cover page of this Prospectus, that they
may offer shares to certain dealers at a price that represents a concession of
not more than $ per share, and that the Underwriters may allow, and such
dealers may reallow, a concession of not more than $ per share to certain
other dealers. After the commencement of the Offering, the price to the public
and the concessions may be changed.
The Company has granted to the Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to 341,250
additional shares of Common Stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of the shares offered hereby. To the extent the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase the same percentage thereof as the
percentage of the initial shares to be purchased by that Underwriter.
The Company has agreed to indemnify the Underwriters and certain
related persons against certain liabilities, including certain liabilities under
the Securities Act, and to contribute to payments the Underwriters may be
required to make in respect thereof.
The Company and its directors, officers and holders of 5% or more of
the Common Stock have agreed that they will not, directly or indirectly, offer,
sell or otherwise dispose of any equity securities of the Company or any
securities convertible into or exchangeable for, or any
-68-
<PAGE> 70
rights to purchase or acquire, equity securities of the Company for a period of
180 days after the date of this Prospectus, without the prior written consent of
the Representatives.
The Company has agreed to issue to the Representatives and their
designees, for their own accounts, warrants to purchase an aggregate of 227,500
shares of Common Stock. The warrants will be exercisable during the four-year
period commencing one year after the date hereof, at an exercise price per share
equal to 120% of the initial public offering price. The warrants will contain
customary antidilution provisions and certain rights to register the shares
issuable upon exercise of the warrants under the Securities Act.
Prior to the Offering, there has been no public market for the Common
Stock. The initial offering price was determined by negotiations between the
Company and the Representatives. Among the factors considered in such
negotiations were the Company's historical results of operations and financial
condition, prospects for the Company and for the industry in which the Company
operates, the Company's capital structure, and the general condition of the
securities market. The estimated offering price set forth on the cover of this
Prospectus is subject to change as a result of market conditions and other
factors.
The Representatives have informed the Company that the Underwriters do
not expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby, and the Representatives do not intend to confirm sales of
shares to any account over which they exercise discretionary authority.
In connection with the Offering, the Underwriters may over-allot or
effect transactions which stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
Such transactions may be effected on the Nasdaq National Market or otherwise.
Such stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the legality of the shares
offered by this Prospectus will be passed upon for the Company by Hughes Hubbard
& Reed LLP, Los Angeles, California. Certain legal matters in connection with
the Offering will be passed upon for the Underwriters by Willkie Farr &
Gallagher, New York, New York.
EXPERTS
The Combined Financial Statements of the Company as of December 31,
1995 and 1996, and for each of the years in the three-year period ended December
31, 1996 have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on
Form S-1 (of which this Prospectus is a part) under the Securities Act and the
rules and regulations promulgated thereunder with respect to the shares of
Common Stock offered pursuant to this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration
-69-
<PAGE> 71
Statement and the schedules and exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract,
agreement or other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract, agreement or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and such schedules and exhibits,
copies of which may be examined without charge at, or copies obtained upon
payment of prescribed fees from, the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Such material may also be accessed electronically by means
of the Commission's website on the Internet at http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing consolidated financial statements audited by its independent public
accountants and quarterly reports containing unaudited consolidated financial
statements for three quarters of each fiscal year.
-70-
<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements................ F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 1996................................................... F-3
Unaudited Pro Forma Condensed Consolidated Statement of Income for the
year ended December 31, 1996.............................................. F-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements....... F-5
Independent Auditors' Report................................................... F-6
Combined Balance Sheets as of December 31, 1995 and 1996....................... F-7
Combined Statements of Income for the years ended
December 31, 1994, 1995 and 1996.......................................... F-8
Combined Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996.......................................... F-9
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.......................................... F-10
Notes to Combined Financial Statements......................................... F-11
</TABLE>
F-1
<PAGE> 73
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma condensed consolidated financial statements
of the Company present pro forma information giving effect to the Reorganization
and the Offering and the application of the net proceeds and other transactions
expected to be completed concurrently with the Offering, which are described in
the accompanying notes to the pro forma condensed consolidated financial
statements.
The pro forma condensed consolidated balance sheet at December 31, 1996
assumes that the Reorganization and the Offering occurred on December 31, 1996.
The pro forma condensed consolidated statement of income for the year ended
December 31, 1996 assumes that the Reorganization and the Offering occurred on
January 1, 1996.
The pro forma condensed consolidated financial statements should be
read in conjunction with the combined financial statements of the Company,
including the notes thereto, included elsewhere in this Prospectus. The pro
forma condensed consolidated financial statements do not purport to represent
the Company's operating results for the year ended December 31, 1996 that would
have actually occurred had the Reorganization and the Offering been completed on
January 1, 1996 or on December 31, 1996, or to project the Company's operating
results or financial position for any future period or date.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances.
F-2
<PAGE> 74
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
REORGANIZATION OFFERING AS
ACTUAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
-------- -------------- --------- ----------- ---------
Assets (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,590 $ (117) (a) $ 1,473 $ 1,764 (f) $ 3,237
Real estate properties, net of
accumulated depreciation 39,030 2,037 (b) 41,067 41,067
Due from tax credit partnerships 16,215 -- 16,215 -- 16,215
Due from related parties 748 117 (a) 138 138
(727) (c)
Other assets 10,374 10,374 (1,161) (f) 9,183
(30) (g)
-------- ----------- -------- ------------- --------
Total Assets $67,957 $1,310 $ 69,267 $ 573 $ 69,840
======= =========== ======== ============= ========
Liabilities and Stockholders' Equity
Notes payable 37,787 37,787 (9,350) (f) 28,437
Notes payable to related parties 2,762 2,762 (2,762) (f) 0
Capital lease obligations 1,084 1,084 1,084
Subordinated dividend notes 8,077 (727) (c) 2,700 (2,700) (f) 0
(3,650) (d)
(1,000) (e)
-------- ----------- -------- ------------- --------
Total Debt 49,710 (5,377) 44,333 (14,812) 29,521
Accounts payable and accrued
expenses 10,545 -- 10,545 -- 10,545
Other liabilities 1,411 2,810 (b) 4,221 (2,810) (f) 1,107
(304) (f)
-------- ----------- -------- ------------- --------
Total Liabilities 61,666 (2,567) 59,099 (17,926) 41,173
-------- ----------- -------- ------------- --------
Stockholders' Equity 6,291 (773) (b) 10,168 18,529 (f) 28,667
3,650 (d) (30) (g)
1,000 (e)
-------- ----------- -------- ------------- --------
Total Liabilities and
Stockholders' Equity $67,957 $1,310 $ 69,267 $ 573 $ 69,840
======= =========== ======== ============= ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 75
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
REORGANIZATION OFFERING AS
ACTUAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------- -------------- --------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Construction revenue $41,654 $41,654 $41,654
Sale of homes 12,963 12,963 12,963
Sales of commercial properties 4,772 4,772 4,772
Rental revenue 3,922 3,922 3,922
Other revenue 536 536 536
------- ---------- ------- ----------- -------
63,847 0 63,847 0 63,847
------- ---------- ------- ----------- -------
Cost of construction 33,101 33,101 33,101
Cost of homes sold 10,745 10,745 10,745
Cost of commercial properties sold 3,444 3,444 3,444
Rental operating cost 784 784 784
------- ---------- ------- ----------- -------
48,074 0 48,074 0 48,074
------- ---------- ------- ----------- -------
Gross profit 15,773 0 15,773 0 15,773
------- ---------- ------- ----------- -------
General and administrative expenses (4,482) (51) (i) (4,533) 122 (j) (4,411)
Joint venture earnings (loss) (43) (43) (43)
Interest expense (net of interest
income) (2,748) (2,748) 1,358 (k) (1,390)
------- ---------- ------- ----------- -------
Income before provision for
income taxes 8,500 (51) 8,449 1,480 9,929
Pro forma income tax
expense (h) 2,890 (17) 2,873 503 3,376
------- ---------- ------- ----------- -------
Net Income $5,610 $(34) $5,576 $977 $ 6,553
======= ========== ======= =========== =======
Net income per common share $ 1.04 $ 0.86
Number of shares outstanding 5,344 7,619
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 76
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Represents an increase in amounts due from related parties resulting
from additional net borrowings by the Contributing Stockholders
subsequent to December 31, 1996.
(b) Reflects the purchase of interests of the unaffiliated partners of the
predecessor partnerships and the increase in the basis of real estate
properties for cash paid in excess of equity.
<TABLE>
<CAPTION>
<S> <C>
Purchase price of unaffiliated partners' interests in
the predecessor partnerships $2,810,000
Less: Acquired equity (773,000)
----------
Excess of purchase price over equity acquired $2,037,000
----------
</TABLE>
(c) Reflects the repayment by the Contributing Stockholders of $727,000 of
advances and loans by offsetting this amount against an equal amount of
Subordinated Dividend Notes.
(d) Reflects the contribution by the Contributing Stockholders of
$3,650,428 of Subordinated Dividend Notes in exchange for 384,256
shares of the Common Stock. See "The Reorganization."
(e) Reflects the contribution by the Contributing Stockholders of
$1,000,000 of Subordinated Dividend Notes in exchange for warrants for
400,000 shares of Common Stock. See "The Reorganization" and
"Description of Capital Stock -- Saxton Warrants and Registration
Rights."
(f) Reflects the issuance of 2,275,000 shares of common stock in the
Offering at an assumed initial public offering price of $9.50 per share
and the application of the proceeds as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross proceeds from stock issuance $21,612,500
Less use of proceeds:
Issuance costs, including deferred offering costs 3,084,000
-----------
Net increase in stockholders equity 18,528,500
Purchase of unaffiliated partners' interests 2,810,000
Retirement of subordinated dividend notes 2,700,000
Retirement of indebtedness to related parties 2,762,000
Retirement of certain third party indebtedness 9,350,000
-----------
Net proceeds before previously recorded deferred offering costs 906,500
Deferred offering costs 1,161,000
Deferred offering costs payable (304,000)
---------
Add: Prepaid issuance costs 857,000
-----------
$ 1,763,500
===========
</TABLE>
(g) Reflects the write-off of deferred loan costs associated with the early
repayment of third-party debt.
(h) Certain of the combined entities are partnerships for federal tax
purposes and were, therefore, subject to no income tax. Pro forma
income tax, computed at a marginal effective rate of 34%, has been
computed as if the combined entities had been subject to income taxes
as C corporations during the year ended December 31, 1996.
(i) Reflects depreciation expense for the excess purchase price paid over
equity for the unaffiliated partners' interest in the predecessor
partnerships. Such excess purchase price is allocated 25% to land and
75% to buildings and is depreciated on a straight-line basis over 30
years.
(j) Reflects the reduction in amortization of loan fees resulting from the
repayment of debt.
(k) Reflects the reduction in interest expense resulting from the repayment
of debt.
F-5
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Saxton Incorporated:
We have audited the accompanying combined balance sheets of Saxton Incorporated
and Combined Entities (the Company) as of December 31, 1995 and 1996, and the
related combined statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Saxton Incorporated
and Combined Entities as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Las Vegas, Nevada
February 26, 1997
F-6
<PAGE> 78
SAXTON INCORPORATED
AND COMBINED ENTITIES
Combined Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Real estate properties (notes 9, 10 and 18):
Operating properties, net of accumulated
depreciation (note 3) $22,154 $26,164
Properties under development 7,591 10,344
Land held for future development or sale 2,221 2,522
------- -------
Total real estate properties 31,966 39,030
Cash and cash equivalents 492 1,590
Due from Tax Credit Partnerships (note 4) 6,653 16,215
Construction contracts receivable, net of allowance
for doubtful accounts of $55 and $369 at
December 31, 1995 and 1996, respectively (note 6) 583 973
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 6) 1,348 2,249
Notes receivable (note 5) 2,183 186
Investments in joint ventures (note 7) 1,375 1,332
Due from related parties (note 4) 2,128 748
Prepaid expenses and other assets (notes 8, 11 and 17) 2,852 5,634
------- -------
Total assets $49,580 $67,957
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses (note 6) $ 5,302 $10,545
Tenant deposits and other liabilities 515 993
Billings in excess of costs and estimated earnings
on uncompleted contracts (note 6) 101 418
Notes payable (note 9) 30,957 37,787
Notes payable to related parties (note 10) 1,826 2,762
Long-term capital lease obligations (note 11) 686 1,084
Subordinated dividend notes (note 12) 6,500 8,077
------ ------
Total liabilities 45,887 61,666
Stockholders' equity (notes 12, 13 and 16) 3,693 6,291
Commitments and contingencies (notes 11 and 20)
------- -------
Total liabilities and
stockholders' equity $49,580 $67,957
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE> 79
SAXTON INCORPORATED
AND COMBINED ENTITIES
Combined Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Revenue:
Construction revenue, including Tax Credit Partnership
construction revenue of $5,809, $16,643 and
$35,528 for the years ended 1994, 1995 and 1996,
respectively $10,863 $22,090 $41,654
Sales of homes -- -- 12,963
Sales of commercial properties 8,072 9,850 4,772
Rental revenue (note 14) 3,288 3,531 3,922
Other revenue 137 99 536
------- ------- -------
Total revenue 22,360 35,570 63,847
------- ------- -------
Cost of revenue:
Cost of construction, including Tax Credit Partnership
cost of construction of $4,422, $14,182 and
for the years ended 1994, 1995 and 1996, 10,713 18,194 33,101
Cost of homes sold -- -- 10,745
Cost of commercial properties sold 6,027 9,373 3,444
Rental operating cost 635 631 784
------- ------- -------
Total cost of revenue 17,375 28,198 48,074
------- ------- -------
Gross profit 4,985 7,372 15,773
------- ------- -------
Other income (expenses):
General and administrative expenses (2,481) (2,679) (4,482)
Joint venture earnings (losses) (note 7) 6 1,131 (43)
Interest expense, net of interest income
of $497, $266 and $147 for the years ended
December 31, 1994, 1995 and 1996, respectively (1,475) (2,127) (2,748)
------- ------- -------
Total other income (expense) (3,950) (3,675) (7,273)
------- ------- -------
Income before provision for income taxes 1,035 3,697 8,500
Provision for income taxes (note 17) -- 67 2,517
------- ------- -------
Net income $ 1,035 $ 3,630 $ 5,983
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-8
<PAGE> 80
SAXTON INCORPORATED
AND COMBINED ENTITIES
Combined Statements of Stockholders' Equity
Years ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<S> <C>
Balance at January 1, 1994 $ 7,732
Contributions 223
Distributions (note 12) (8,082)
Net income 1,035
-------
Balance at December 31, 1994 908
Contributions 700
Distributions (1,545)
Net income 3,630
-------
Balance at December 31, 1995 3,693
Contributions 256
Distributions (note 12) (3,641)
Net income 5,983)
-------
Balance at December 31, 1996 $ 6,291
=======
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE> 81
SAXTON INCORPORATED
AND COMBINED ENTITIES
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1994 1995 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,035 $ 3,630 $ 5,983
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 745 722 1,079
Gain on sales of commercial properties (2,045) (477) (1,327)
Joint venture (earnings) loss (6) (1,131) 43
Changes in operating assets and liabilities:
Increase in due from Tax Credit Partnerships (1,629) (3,855) (9,562)
Decrease (increase) in construction
contracts receivable 1,206 (175) (390)
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (213) (191) (901)
Increase in residential properties under development -- (1,909) (2,390)
Decrease (increase) in prepaid expenses and
other assets (335) (1,175) (2,158)
Increase in accounts payable and accrued expenses 135 2,975 5,243
Increase (decrease) in billings in excess of costs
and estimated earnings on uncompleted contracts (167) 84 316
Increase (decrease) in tenant deposits and
other liabilities (278) 37 479
------ ------ ------
Net cash used in operating activities (1,552) (1,465) (3,585)
------ ------ ------
Cash flows from investing activities:
Expenditures for property acquisitions and improvements (7,390) (13,658) (7,453)
Proceeds from sales of commercial properties 6,280 9,043 4,771
(Increase) decrease in due from related parties 849 (441) 1,380
Decrease (increase) in notes receivable (111) 865 1,997
Capital contributions to joint ventures (1,105) -- --
Distributions from joint ventures 57 874 --
------ ------ ------
Net cash provided by (used in)
investing activities (1,420) (3,317) 695
------ ------ ------
</TABLE>
(Continued)
F-10
<PAGE> 82
SAXTON INCORPORATED
AND COMBINED ENTITIES
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of notes payable $ 18,780 $15,556 $13,053
Principal payments on notes payable (14,591) (9,913) (8,179)
Net increase in notes payable to related parties 20 1,123 937
Principal payments on capital lease obligations -- -- (15)
Proceeds from issuance of subordinated dividend notes -- -- 1,577
Capital contributions 53 -- 256
Distributions paid (1,582) (1,545) (3,641)
-------- ------- -------
Net cash provided by financing activities 2,680 5,221 3,988
-------- ------- -------
Net increase (decrease) in cash
and cash equivalents (292) 439 1,098
Cash and cash equivalents:
Beginning of year 345 53 492
-------- ------- -------
End of year $ 53 $ 492 $ 1,590
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest, net of
amounts capitalized (note 2) $ 1,982 $ 2,039 $ 2,799
======== ======= =======
Cash paid during the year for income taxes $ -- $ -- $ 171
======== ======= =======
Non-cash financing and investing activities:
Subordinated notes issued for dividends payable $ 6,500 $ -- $ --
======== ======= =======
Capital contribution of land $ 170 $ 700 $ --
======== ======= =======
Properties sold in exchange for notes receivable $ 1,832 $ 807 $ --
======== ======= =======
Notes payable issued to acquire real estate properties $ -- $ -- $ 1,968
======== ======= =======
Capital lease obligation recorded in connection with
equipment acquisitions $ -- $ -- $ 400
======== ======= =======
Capital lease obligation recorded in connection with
sale/leaseback transaction $ -- $ 686 $ --
======== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-11
<PAGE> 83
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements
December 31, 1995 and 1996
(1) ORGANIZATION
The accompanying combined financial statements include the combined
accounts of Saxton Incorporated ("Saxton"), formerly Jim Saxton, Inc.
("JSI"), Big Tyme Food Marts, Inc. ("Big Tyme"), seven general
partnerships, three limited partnerships and one wholly-owned
corporation, Summit Hills, Inc. Big Tyme and all the partnerships
included in the combination ("predecessor partnerships") are under the
common management of Saxton or executive officers of Saxton. Such
combined group is collectively referred to as "Saxton Incorporated and
Combined Entities" (the "Company"). The combined financial statements
have been presented on a combined basis because of the common ownership
and management and because the entities are expected to be subject to a
business combination. All significant intercompany balances and
transactions have been eliminated in combination.
The Company plans to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of 2,275,000 shares of
common stock. Concurrent with the sale of these shares, the Company plans
to consummate a 1 for approximately .51312 reverse stock split and effect
a plan of reorganization.
The names of the partnerships included in these combined financial
statements are as follows:
Saxton Properties Novex, LP
LRC, LP Levitz Plaza, LP
Sahara West SNIC II
Mendenhall & Saxton Partners LB&S Partners
R & D Partners TVS
Because the unaffiliated partners of the partnerships included in the
combined financial statements are to be issued cash or other
consideration for their ownership interests in such partnerships as a
result of the expected business combination, no minority interest is
included in the combined financial statements.
The Company is engaged in the acquisition, development, construction,
ownership and operation of real property located in the greater Las Vegas
area. The properties consist of industrial buildings, retail centers,
apartments, single family homes and land in various phases of
development. The Company also has noncontrolling interests in joint
ventures that are engaged in the acquisition, development, ownership and
operation of real property.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE PROPERTIES
Real estate operating properties are stated at cost less accumulated
depreciation. Costs incurred for acquisition and betterment of the
property are capitalized. Repair and maintenance costs are expensed as
incurred. The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, on January
1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison
F-12
<PAGE> 84
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
of the carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
The Company capitalizes interest costs and real estate taxes in
connection with properties that are under development. Capitalization
of interest costs and real estate taxes is discontinued when a
project is substantially complete and ready for its intended use. The
Company incurred interest costs of approximately $2,427,000, $2,748,000
and $4,091,000 at December 31, 1994, 1995 and 1996, respectively, of
which, the Company capitalized approximately $455,000, $355,000 and
$1,271,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
DEPRECIATION AND AMORTIZATION
For financial reporting purposes, the Company depreciates its
buildings, tenant improvements and furniture and equipment over their
estimated useful lives (buildings 31.5 to 40 years, tenant improvements
over the term of the related lease, and furniture and equipment 5 to 7
years) using the straight-line method. Leasing costs are capitalized
and amortized on a straight-line basis over the term of the lease. Loan
fees are deferred and amortized on a straight-line basis (which
approximates the effective interest method) over the term of the loan.
Capitalized leasing costs and loan fees are included in other assets
in the accompanying combined balance sheet.
RENTAL REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of
the respective leases.
CONSTRUCTION REVENUE AND COST RECOGNITION
Revenue on fixed-price construction contracts is recognized on the
percentage of completion method of accounting based on the proportion
of actual contract costs incurred to total estimated contract costs.
Revisions to contract revenues and cost estimates are reflected in the
accounting period in which they become known. Provisions for estimated
losses on uncompleted contracts are made in the accounting period in
which the events that give rise to such losses are determined. Changes
in job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions and final
contract settlements, may result in revisions to costs and revenue and
are recognized in the period in which such revisions are determined.
SALE OF PROPERTIES
Profit is generally recognized on sales of properties at the time
escrow is closed provided that (i) there has been a minimum down
payment, ranging from 10% to 25% depending upon the type of property
sold, (ii) the buyer has met adequate continuing investment criteria,
and (iii) the Company, as the seller, has no continuing involvement in
the property. Where the Company has an obligation to complete certain
future development, profit is deferred in the ratio of the cost of
development to be completed to the total cost of the property being
sold under percentage of completion accounting.
F-13
<PAGE> 85
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Applying the percentage-of-completion method of recognizing revenue
requires the Company to estimate the outcome of its long-term contracts.
The Company forecasts such outcomes to the best of its knowledge and
belief of current and expected conditions, and its expected course of
action. Differences between the Company's estimates and actual results
often occur resulting in changes to reported revenue and earnings. Such
changes could have a material effect on future financial statements.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
INVESTMENTS IN JOINT VENTURES
The equity method of accounting is used for investments in entities in
which the Company has the ability to exercise significant influence over
operating and financial policies. Under the equity method of accounting,
the Company recognizes its share of the net earnings or losses of these
entities as earned or incurred, increases the carrying value of its
investment by the amount of contributions made, and reduces the carrying
value of its investment by the amount of all distributions received.
INCOME TAXES
Prior to October 1, 1995, Saxton elected to be taxed as an S corporation
under sections of the Internal Revenue Code of 1986, as amended (the
"Code"), which provides that in lieu of corporate income tax, the
stockholders separately account for items of income, deductions, losses
and credits. The partners of the predecessor partnerships also report
their share of taxable income in their individual income tax returns.
Accordingly, no provision for federal or state income taxes is included
in the accompanying combined financial statements for the year ended
December 31, 1994.
Effective October 1, 1995, Saxton revoked its election to be taxed as an
S corporation and began to be taxed as a C corporation. A C corporation
accounts for its income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes, which requires recognition of deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. See Note 17.
STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock options in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the
F-14
<PAGE> 86
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123. See Note 16.
PER SHARE DATA
Per share data is not relevant because the Company is a presentation of
combined operations of partnerships and corporations.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
current year's presentation.
(3) REAL ESTATE OPERATING PROPERTIES
Real estate operating properties are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION
AND
COST AMORTIZATION NET
-------- ------------ -------
<S> <C> <C> <C>
December 31, 1995:
Buildings $ 17,224 $ (1,873) $15,351
Tenant improvements 884 (122) 762
Land 6,041 -- 6,041
-------- -------- -------
$ 24,149 $ (1,995) $22,154
======== ======== =======
December 31, 1996:
Buildings $ 21,329 $ (2,327) $19,002
Tenant improvements 900 (170) 730
Land 6,432 -- 6,432
-------- -------- -------
$ 28,661 $ (2,497) $26,164
======== ======== =======
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and
1996 was approximately $534,000, $537,000 and $858,000, respectively,
for the above assets. For further information on real estate properties
see Note 18.
F-15
<PAGE> 87
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
(4) DUE FROM RELATED PARTIES AND DUE FROM TAX CREDIT PARTNERSHIPS
Amounts due from related parties consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------ ----
<S> <C> <C>
Notes receivable $1,844 $641
Advances to affiliates 284 106
------ ----
$2,128 $747
====== ====
</TABLE>
Notes receivable and advances to affiliates are from stockholders and
employees of the Company, affiliated entities and partners of the
predecessor partnerships. The notes are unsecured and bear interest at
prime plus 2% (10.25% at December 31, 1996) and mature within one year.
The advances are noninterest bearing and payable on demand.
Amounts due from Tax Credit Partnerships ("TCP's") relate to developer
fees, land acquisition and construction costs receivable pertaining to
low-income housing tax credit projects of the Company at various stages
of completion. TCP's are limited partnerships formed for the purpose of
constructing, owning and operating eligible low-income housing projects
(as defined under Section 42(d) of the Code). The Company generally
retains approximately a 1% general partnership interest and sells the
remaining 99% to a large institutional investor which, in turn,
publicly syndicates the interest to third party purchasers. These third
party purchasers acquire the limited partnership interests to receive
tax credits. Amounts due from TCP's will be collected from loan
proceeds, contributions from partners, and cash flow from operations
and consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1996
------- -------
<S> <C> <C>
Developer fees receivable $ 3,419 $ 5,405
Land acquisition and construction costs receivable 3,234 10,810
------- -------
$ 6,653 $16,215
======= =======
</TABLE>
F-16
<PAGE> 88
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
(5) NOTES RECEIVABLE
Notes receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1996
------ ----
<S> <C> <C>
Promissory notes from nonaffiliated entities,
bearing interest ranging between 8.5% and 11%,
secured by deeds of trust, due April 1998. $ 171 $116
Promissory note from a nonaffiliated entity, bearing
interest at 1% greater than "A" rated new issue
long-term industrial bond rate as reported by
Salomon Brothers Inc. (8.33% at December 31,
1995), secured by deed of trust, principal and
interest paid in full in July 1996. 1,810 --
Other 202 70
------ ----
$2,183 $186
====== ====
</TABLE>
Interest income recorded on notes receivable for the years ended
December 31, 1994, 1995 and 1996 was approximately $242,000, $155,000
and $80,000, respectively.
(6) CONSTRUCTION CONTRACTS
Construction contracts receivable include amounts retained pending
contract completion aggregating approximately $279,000 and $265,000 at
December 31, 1995 and 1996, respectively. Based on anticipated
completion dates, the retentions as of December 31, 1996 are expected
to be collected in 1997.
Accounts payable and accrued expenses includes amounts retained pending
subcontract completion aggregating approximately $1,203,000 and
$1,220,000 at December 31, 1995 and 1996, respectively.
Costs and estimated earnings on uncompleted contracts are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1995 1996
-------- --------
<S> <C> <C>
Costs incurred to date $ 22,753 $ 53,002
Estimated earnings to date 4,650 14,010
-------- --------
27,403 67,012
Less billings to date (26,156) (65,181)
-------- --------
Costs and estimated earnings in excess of billings, net $ 1,247 $ 1,831
======== ========
</TABLE>
F-17
<PAGE> 89
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
Costs and estimated earnings in excess of billings, net are shown on
the accompanying combined balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------ ------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $1,348 $2,249
Billings in excess of costs and estimated earnings on
uncompleted contracts (101) (418)
------ ------
$1,247 $1,831
====== ======
</TABLE>
The asset "costs and estimated earnings in excess of billings on
uncompleted contracts" represents construction revenue recognized in
excess of amounts billed on the respective construction contracts. The
liability "billings in excess of costs and estimated earnings on
uncompleted contracts" represents amounts billed in excess of revenue
recognized on the respective construction contracts.
(7) INVESTMENTS IN JOINT VENTURES
The Company participates in several real estate development joint
ventures. The joint ventures have projects at various stages of
completion and development. The Company provides development and
construction services to these joint ventures. The Company's interests
in these joint ventures range from 1% to 50%. Summary financial
information for the joint ventures are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
FINANCIAL POSITION 1995 1996
- ------------------------------- ------- -------
<S> <C> <C>
Real estate properties $22,538 $59,884
Other assets 491 1,421
------- -------
Total assets 23,029 61,305
Notes payable 13,540 41,043
Other liabilities 7,853 15,922
------- --------
Net assets $ 1,636 $ 4,340
======= =======
Company's share of net assets $ 1,375 $ 1,332
======= =======
</TABLE>
F-18
<PAGE> 90
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
RESULTS OF OPERATIONS 1994 1995 1996
- -------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Rental revenues $ 1,609 $ 1,147 $ 2,197
Sale of properties -- 10,741 --
------- ------- -------
1,609 11,888 2,197
Interest expense 467 518 1,551
Cost of properties sold -- 7,988 --
Other expense 1,142 875 1,933
------- ------- -------
Net earnings (loss) $ -- $ 2,507 $(1,287)
======= ======= =======
Company's share of net earnings (loss) $ 6 $ 1,131 $ (43)
======= ======= =======
</TABLE>
In 1995, two of the Company's joint ventures sold the majority of their
properties.
(8) PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1996
------ ------
<S> <C> <C>
Rental and other accounts receivable $ 63 $ 266
Other assets, primarily leasing costs and loan fees 1,784 2,622
Deferred offering costs 523 1,161
Deferred tax assets, net 98 154
Furniture and equipment, net 384 1,008
Inventories -- 423
------ ------
$2,852 $5,634
====== ======
</TABLE>
F-19
<PAGE> 91
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
(9) NOTES PAYABLE
Notes payable, substantially all guaranteed by the two principal
stockholders of the Company, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- -------
<S> <C> <C>
Notes payable to various financial institutions maturing at dates
ranging between March 1997 and July 2014. The notes bear
interest monthly at various rates ranging between 7.62% and
18%. Monthly principal and interest payments approximate
$260. The notes are collateralized by first trust deeds on real
property. $28,074 $29,592
Notes payable to various individuals maturing at dates ranging
between March 1997 and December 1997. The notes bear interest
at various rates ranging between 13% and 20%. Monthly interest
payments approximate $112. The notes are collateralized by
first trust deeds on real property. 1,146 4,990
Other 1,737 3,205
------- -------
$30,957 $37,787
======= =======
</TABLE>
Approximate principal maturities as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1997 $ 18,212
1998 2,679
1999 740
2000 790
2001 2,144
Thereafter 13,222
--------
$ 37,787
========
</TABLE>
For notes payable with maturity dates in 1997, management is
negotiating refinancing alternatives with the applicable lenders.
F-20
<PAGE> 92
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
(10) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties are unsecured notes payable for
development purposes to partners of the partnerships included in these
combined financial statements. Interest only payments are due monthly
at rates ranging from 10.5% to 12%. Approximate note principal payments
payable to related parties are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,447
1998 315
--------
$ 2,762
========
</TABLE>
(11) LEASE OBLIGATIONS
The Company is obligated under various capital leases for equipment and
vehicles that expire at various dates over the next five years. These
equipment and vehicle leases require minimum monthly payments ranging
from $240 to $2,200 with interest at rates ranging from 7.9% to 11.73%.
In addition, the Company is party to a sale and leaseback agreement for
one of its self-constructed convenience store facilities and the
related land. The lease does not contain a bargain purchase option nor
does the lease transfer ownership of the property upon expiration of
the lease. The land portion of the leaseback has been classified as an
operating lease and the building portion of the leaseback has been
classified as a capital lease in accordance with SFAS No. 13,
Accounting for Leases.
The book value of the land of approximately $709,000 was removed from
the accounts and the related gain on the sale of approximately $103,000
was deferred. The deferred gain is being recognized over the lease
term.
The lease is for a 20-year period with four 5-year options to extend.
The lease obligation requires monthly minimum lease payments of
approximately $16,000 with fixed annual step increases plus contingent
rent based on 4% of annual sales in excess of $1,200,000.
During 1996, the Company sold a property to a third party which the
Company leased back under a master lease agreement requiring monthly
payments of $20,700 until the property reaches a certain level of
occupancy. Management of the Company expects to reach that level of
occupancy in April 1997. The Company has accounted for this transaction
using the deposit method and accordingly has recognized no revenue or
costs in connection with this sale. Cash received of $773,000 has been
recorded as a deposit liability and is included in tenant deposits and
other liabilities in the accompanying 1996 combined balance sheet.
Future minimum lease payments under lease obligations, excluding
contingent rents are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
TOTAL PORTION PORTION
------------ ----------- ------------
<S> <C> <C> <C> <C>
Year ending December 31:
1997 $ 322 $ 236 $ 86
1998 323 235 88
1999 323 234 89
2000 308 217 91
2001 247 154 93
Thereafter 3,401 1,905 1,496
------------ ----------- ------------
Total minimum payments $ 4,924 2,981 $ 1,943
============ ============
Amount representing interest (at rates ranging
from 7.9% to 11.73%) (1,897)
-----------
Net present value $ 1,084
===========
</TABLE>
F-21
<PAGE> 93
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
Assets leased under capital leases consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Operating properties $ 686 $ 686
Equipment -- 584
---------- -----------
686 1,270
Less accumulated amortization -- (116)
---------- -----------
$ 686 $ 1,154
========== ===========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
(12) SUBORDINATED DIVIDEND NOTES
On December 31, 1994, the Board of Directors of Saxton declared a
dividend of $1,300 per share on its 5,000 outstanding shares of common
stock. In August 1996, the Board declared and, in September 1996, paid
a dividend of approximately $0.165 per share for 9,580,020 outstanding
shares of common stock at the date of declaration. These dividends were
issued in order to distribute retained earnings through December 31,
1994 and the period from January 1, 1995 through September 30, 1995,
respectively. These earnings had been taxed at the stockholders level
due to the corporation's election to be taxed as an S corporation.
These actions were taken in anticipation of and as a result of Saxton
revoking its S corporation election on September 30, 1995.
The August 1996 dividends were paid in cash and then loaned back to the
Company as subordinated dividend notes. The 1994 dividends were paid
through the issuance of subordinated dividend notes to the
stockholders. These notes have 10-year terms and are, and will be,
subordinate to all existing and future corporate and combined entity
debt.
(13) STOCKHOLDERS' EQUITY
Stockholders' equity consists of the net assets of the predecessor
partnerships and Saxton's stockholders' equity with all significant
intercompany amounts eliminated. Saxton's equity consists of 9,647,847
shares of $.001 par value common stock issued and outstanding
(50,000,000 shares authorized), $.001 par value preferred stock
unissued (5,000,000 authorized), $346,540 of additional paid-in capital
and accumulated retained earnings. In December 1995, JSI was acquired
by Saxton, a newly formed holding company. The acquisition was
accounted for as the combination of entities under common control using
the as-if pooling of interests method. Each outstanding share of JSI
common stock was exchanged for 1,916 shares of $.001 par value common
stock of Saxton.
(14) RENTAL INCOME
Operating properties are leased to tenants under various arrangements
classified as operating leases. The leases provide for rent and
reimbursement of various common area maintenance charges paid by the
Company. Minimum future rentals (excluding percentage rents and renewal
options) on noncancelable leases are as follows (in thousands):
F-22
<PAGE> 94
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1997 $ 2,982
1998 2,838
1999 2,701
2000 2,626
2001 2,252
Thereafter 10,520
----------
$ 23,919
==========
</TABLE>
Approximately 28% of each year's rental revenue reflected in the
accompanying combined financial statements is derived from one tenant.
(15) EMPLOYEE STOCK OWNERSHIP PLAN
On December 31, 1994, the Company established a profit sharing plan
("the Profit Sharing Plan") for its eligible employees. On December 29,
1995, the Company adopted employee stock ownership plan ("the ESOP")
and trust ("the ESOP Trust"). In connection with the merger of Saxton
and JSI on December 31, 1995, the Profit Sharing Plan was merged into
the ESOP and the assets of the trust established under the Profit
Sharing Plan have been transferred to the ESOP Trust.
An "employee stock ownership plan" (as defined in Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code) is designed to invest
primarily in "qualifying employer securities". The account balances of
participants in the Profit Sharing Plan transferred to the ESOP Trust
have been invested by the ESOP Trust in the Company's common stock.
Thereafter, the Company may make periodic contributions to the ESOP
Trust out of its net profits in amounts determined by the Board of
Directors, which contributions may be made in cash or in shares of the
Company's common stock. Amounts contributed in cash will be used to
purchase shares of the Company's common stock.
Participants in the Profit Sharing Plan on December 31, 1995 were
immediately eligible to participate in the ESOP. All other employees
become eligible to participate in the ESOP on the date coinciding with
or next following the date the employee completes one year of service
with the Company. Contributions by the Company to the ESOP for the
benefit of a participating employee vest over a seven-year period of
participation in the ESOP and are held in trust until distributed
pursuant to the terms of the ESOP. The Company made contributions to
the Plan of $172,000, $172,000 and $0 for 1994, 1995 and 1996,
respectively.
(16) STOCK OPTIONS
In December 1994, the Company granted options to purchase an aggregate
of 249,272 shares of common stock to various officers and other key
employees under separate letter agreements. In 1995, options to
purchase 45,792 shares lapsed without vesting upon certain employees'
termination of employment with the Company. Options granted to one
officer of the Company vested 20% on December 29, 1995, 30% on December
29, 1996 and 50% vests on December 29, 1997. The remaining options vest
20% per year on December 29 for five years beginning December 29, 1995.
All options are exercisable from the date of vesting through December
28, 2004 at an exercise price of $3.13 per share. No options were
granted in 1995 or 1996. After the proposed reverse stock split
described in Note 1, outstanding stock options at
F-23
<PAGE> 95
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
December 31, 1996 will be 104,410 shares that will be exercisable from
the date of vesting at an exercise price of $6.10.
(17) INCOME TAXES
Income tax expense in the statements of income includes the following
amounts for the three-month period from October 1, 1995 to December 31,
1995 and for the year ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- -------
<S> <C> <C>
Federal:
Current $ 165 $ 2,573
Deferred (98) (56)
----- -------
Total $ 67 $ 2,517
===== =======
</TABLE>
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before taxes.
The sources and tax effects of the differences at December 31, 1995 and
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Computed "expected" federal income tax expense $ 1,257 $ 2,890
Reduction in income taxes resulting from:
Earnings prior to C corporation election (640) --
Earnings of combined entities not subject to taxation (364) (373)
Deferred tax asset recognized upon change in tax status (186) --
------- -------
$ 67 $ 2,517
======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1995
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Deferred tax assets:
Bad debt reserve $ 68 $ 90
Investment in related party 34 75
----- -----
Total deferred tax assets 102 165
----- -----
Deferred tax liabilities:
Depreciation/amortization (4) (11)
----- -----
Total deferred tax liabilities (4) (11)
----- -----
Net deferred tax assets $ 98 $ 154
===== =====
</TABLE>
The Company considers recording a valuation allowance in accordance
with the provisions of SFAS No. 109 to reflect the estimated amount of
deferred tax assets which may not be realized. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is
F-24
<PAGE> 96
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences.
F-25
<PAGE> 97
SAXTON INCORPORATED
AND COMBINED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
(18) REAL ESTATE PROPERTIES
Schedule of real estate properties as of December 31, 1996:
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT GROSS AMOUNTS AT WHICH
DESCRIPTION INITIAL COST TO ACQUISITION CARRIED AT CLOSE OF PERIOD
- --------------------------------------- ---------------------- ------------------- --------------------------------
ENCUM- BUILDINGS AND IMPROV- CARRYING BUILDINGS AND
PROPERTY TYPE BRANCES LAND IMPROVEMENT MENTS COSTS LAND IMPROVEMENT TOTAL
- -------------------------- ----------- ------- ------- ------------- ------- -------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
Nellis Express Village Retail 1,039 222 -- 843 99 222 942 1,164
Levitz 1 Retail 8,013 1,694 -- 4,535 579 1,694 5,114 6,808
Furniture Expo Retail 385 714 -- 1,543 210 714 1,753 2,467
Woodys Furniture Retail -- 209 -- 324 49 209 373 582
MLK/Owens (Turtle Stop) Retail 915 148 -- 742 83 148 825 973
Big Tyme Retail -- -- -- 633 59 -- 692 692
Sahara/Decatur Retail Retail 500 205 -- 306 47 205 353 558
Nellis & Stewart Retail 344 240 -- 335 53 240 388 628
Rainbow & Charleston, C&E Retail 1,340 384 -- 1,005 129 384 1,134 1,518
Las Vegas Sun Office 1,118 192 -- 790 91 192 881 1,073
SI/Americana Office 1,538 500 -- 1,024 142 500 1,166 1,666
General Services Admin. Office 1,195 405 -- 1,151 145 405 1,296 1,701
Flamingo Point, Lot 4 Office 608 216 -- 322 50 216 372 588
Sahara Vista Office 4,116 682 -- 2,833 327 682 3,160 3,842
Arcata Park Industrial 890 196 -- 720 85 196 805 1,001
JCH Wire & Cable Industrial 1,287 236 -- 1,040 119 236 1,159 1,395
Diamondhead Apts. Residential 2,024 189 -- 1,646 170 189 1,816 2,005
------ ------ ------ ------- ------ ------ ------ ------
Subtotal 25,312 6,432 -- 19,792 2,437 6,432 22,229 28,661
------ ------ ------ ------- ------ ------ ------ ------
PROPERTIES UNDER DEVELOPMENT
Ali Baba and Wynn Office 768 521 -- 956 137 521 1,093 1,614
Levitz, land (Mineral
Avenue) Retail -- 577 -- 82 -- 577 82 659
Summit Hills Residential 2,106 114 -- 4,063 205 114 4,268 4,382
Hillcrest Residential 2,100 291 -- 893 -- 291 893 1,184
Sahara Vista Bldg. B Office -- 682 -- 263 -- 682 263 945
Regency, Lot B & C Land 557 588 -- 199 -- 588 199 787
Andrews Land 452 311 -- 373 6 311 379 690
Rancho/Vegas Land 22 79 -- 4 -- 79 4 83
------ ------ ------ ------- ------ ------ ------ ------
Subtotal 6,005 3,163 -- 6,833 348 3,163 7,181 10,344
------ ------ ------ ------- ------ ------ ------ ------
LAND HELD FOR DEVELOPMENT OF SALE
East II Retail Land 300 518 -- -- -- 518 -- 518
Silver Springs Land 2,700 1,056 -- -- -- 1,056 -- 1,056
Northpark II Land -- 276 -- -- -- 276 -- 276
Flamingo Point, Lot 6 Land 418 657 -- -- 15 657 15 672
------ ------ ------ ------- ------ ------ ------ ------
Subtotal 3,418 2,507 -- -- 15 2,507 15 2,522
------ ------ ------ ------- ------ ------ ------ ------
Totals 34,735 12,102 -- 26,625 2,800 12,102 29,425 41,527
====== ====== ====== ======= ====== ====== ====== ======
<CAPTION>
LIFE ON WHICH
DEPRECIATION
DESCRIPTION IN LATEST
- ---------------------------------------- NET INCOME
ACCUMULATED BOOK DATE OF DATE STATEMENT
PROPERTY TYPE DEPRECIATION VALUE CONSTRUCTION ACQUIRED IS COMPUTED
- -------------------------- ----------- ------------ ----- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
Nellis Express Village 223 941 1987 1986 40
Levitz 1 Retail 746 6,062 1991 1990 40
Furniture Expo Retail 249 2,218 1992 1990 32
Woodys Furniture Retail 37 545 1993 1990 24
MLK/Owens (Turtle Stop) Retail 53 920 1994 1987 40
Big Tyme Retail 19 673 1996 1995 20
Sahara/Decatur Retail Retail 7 551 1996 1995 32
Nellis & Stewart Retail -- 628 1996 1995 40
Rainbow & Charleston, C&E Retail 28 1,490 1993 1993 40
Las Vegas Sun Office 288 785 1987 1987 32
SI/Americana Office 210 1,456 1991 1991 32
General Services Admin. Office 82 1,619 1994 1989 40
Flamingo Point, Lot 4 Office 14 574 1995 1990 40
Sahara Vista Office 59 3,783 1996 1989 40
Arcata Park Industrial 157 844 1989 1987 40
JCH Wire & Cable Industrial 21 1,374 1991 1995 32
Diamondhead Apts. Residential 304 1,701 1992 1988 32
----- ------
Subtotal 2,497 26,164
----- ------
PROPERTIES UNDER DEVELOPMENT
Ali Baba and Wynn Office -- 1,614 -- 1996 --
Levitz, land (Mineral
Avenue Retail -- 659 -- 1990 --
Summit Hills Residential -- 4,382 -- 1995 --
Hillcrest Residential -- 1,184 -- 1996 --
Sahara Vista Bldg. B Office -- 945 -- 1989 --
Regency, Lot B & C Land -- 787 -- 1991 --
Andrews Land -- 690 -- 1990 --
Rancho/Vegas Land -- 83 -- 1988 --
----- ------
Subtotal -- 10,344
----- ------
LAND HELD FOR DEVELOPMENT OF SALE
East II Retail Land -- 518 -- 1996 --
Silver Springs Land -- 1,056 -- 1996 --
Northpark II Land -- 276 -- 1996 --
Flamingo Point, Lot 6 Land -- 672 -- 1990 --
----- ------
Subtotal -- 2,522
----- ------
Totals 2,497 39,030
===== ======
</TABLE>
F-26
<PAGE> 98
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
The following table reconciles the historical cost of properties from
January 1, 1994 to December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period $ 26,495 $ 26,846 $ 33,961
Additions during period:
Acquisitions, improvements, etc 7,322 16,722 20,617
Deductions during period:
Cost of real estate sold (6,971) (9,607) (13,051)
-------- -------- --------
Balance at close of period $ 26,846 $ 33,961 $ 41,527
======== ======== ========
</TABLE>
The following table reconciles the accumulated depreciation on
properties from January 1, 1994 to December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period $ 2,102 $ 1,692 $ 1,995
Additions during period:
Depreciation for the year 534 537 858
Deductions during period:
Cost of real estate sold (944) (234) (356)
------- ------- -------
Balance at close of period $ 1,692 $ 1,995 $ 2,497
======= ======= =======
</TABLE>
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, construction
contracts receivable, costs and estimated earnings in excess of
billings on uncompleted contracts, accounts payable and accrued
expenses, tenant deposits and other liabilities and billings in excess
of costs and estimated earnings on uncompleted contracts, approximate
fair value because of the short maturity of these instruments.
DUE FROM RELATED PARTIES AND DUE FROM TAX CREDIT PARTNERSHIPS
Management has determined that it is not practicable to estimate the
fair value of due from related parties and due from tax credit
partnerships because of the difficulty in evaluating the timing of
payments.
NOTES RECEIVABLE, NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
The fair value of the Company's notes receivable, notes payable and
notes payable to related parties approximates their respective carrying
values using a market discount rate of 10%.
F-27
<PAGE> 99
SAXTON INCORPORATED
AND COMBINED ENTITIES
Notes to Combined Financial Statements, Continued
SUBORDINATED DIVIDEND NOTES
The fair value of the Company's subordinated dividend notes is estimated
by discounting the future cash flows of the notes at 10%. The estimated
fair market value of these notes at December 31, 1996 is $5,500,000.
(20) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's combined financial position, results of
operations or liquidity.
The Company and its two principal stockholders are guarantors on
construction loans relating to the TCP's described in Note 4. Total
construction loans payable for these TCP's was approximately $13,300,000
and $26,600,000 at December 31, 1995 and 1996, respectively.
F-28
<PAGE> 100
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES OR
AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
-------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary............................. 3
Risk Factors................................... 9
Use of Proceeds................................ 17
Dividend Policy ............................... 17
The Reorganization............................. 18
Dilution....................................... 20
Capitalization................................. 21
Selected Combined and Pro Forma Financial
and Operating Information................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 25
Business....................................... 33
Management..................................... 52
Certain Transactions........................... 59
Principal Stockholders......................... 62
Description of Capital Stock................... 63
Shares Eligible for Future Sale................ 66
Underwriting................................... 68
Legal Matters.................................. 69
Experts........................................ 69
Additional Information......................... 69
Index to Financial Statements.................. F-1
-------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
2,275,000 SHARES
[LOGO]
COMMON STOCK
----------
PROSPECTUS
----------
LADENBURG THALMANN & CO. INC.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
, 1997
================================================================================
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities registered hereby, other than underwriting discounts and
commissions, are set forth in the following table:
SEC Registration Fee................... $7,928
NASD Fee............................... 3,116
Nasdaq National Market
Application Fee...................... 36,548
Blue Sky Fees and Expenses............. *
Legal Fees and Expenses................ *
Accounting Fees and Expenses........... *
Printing and Engraving expenses........ *
Transfer Agent and Registrar Fee....... *
Miscellaneous.......................... *
------
Total............................ $
======
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law (the "GCL") and
Article VIII of the Bylaws of the Registrant contain provisions for
indemnification of officers and directors of the Registrant. Section 78.751 of
the GCL also contains provisions permitting the indemnification of employees and
agents of the Registrant. The provisions of the Bylaws permit the Registrant to
indemnify officers and directors to the full extent permitted under law. Each
person will be indemnified in any proceeding if such person acted in good faith
and in a manner which such person reasonably believed to be in or not opposed to
the best interest of the Registrant. Indemnification would cover expenses
including attorneys' fees, judgments, fines and amounts paid in settlement.
Prior to the consummation of the Offering, the Registrant anticipates that it
will also enter into separate indemnification agreements with each of its
officers and directors. These indemnification agreements will be separate and
independent of the indemnification rights under the Bylaws and will be
irrevocable.
The Articles of Incorporation eliminate each director's and officer's
liability to the Registrant or its stockholders for damages for breach of
fiduciary duty except for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law or (ii) the payment of dividends
in violation of Section 78.300 of the GCL.
The Underwriting Agreement contains provisions under which the Registrant,
on the one hand, and the Underwriters, on the other hand, have agreed to
indemnify each other (including officers and directors of the Registrant and the
Underwriters, and any person who may be deemed to control the Registrant or the
Underwriters) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has made the following sales of its unregistered securities
within the past three years:
(i) In connection with the initial capitalization of the Company, on
December 26, 1995, the Company issued to James C. Saxton, Dorothy J. Saxton,
Michele
II-1
<PAGE> 102
Saxton-Pori, Lee-Ann Saxton and James C. Saxton II an aggregate of
10 shares of its common stock, par value $0.001 per share ("Common Stock"),
in exchange for an aggregate contribution of $200.
(ii) In connection with the merger of Jim Saxton, Inc. ("JSI") into
the Company on December 31, 1995 (the "Merger"), the Company issued an aggregate
of 4,915,734 shares of Common Stock to the then stockholders of JSI. In
addition, options to purchase an aggregate of 104,410 shares of Common Stock
were granted in connection with the merger to employees in exchange for their
options to purchase shares of JSI's common stock.
(iii) In January 1996, the Company issued 17,513 shares of Common
Stock to the Saxton Incorporated Employee Stock Ownership Plan and Trust
(the "ESOP") in exchange for $174,256.
(iv) In September 1996, the Company issued 17,291 shares of Common
Stock to the ESOP in exchange for $172,000.
(v) In March 1997, the Company issued 2,774 shares of Common Stock
to the ESOP in exchange for $23,216.
(vi) In March 1997, the Company issued 6,564 additional shares of
Common Stock to the ESOP to reflect a recalculated price per share of $8.37
(equal to 93% of the lowpoint in the initial public offering price range) for
the shares purchased in 1996 rather than the estimated value of the shares used
at the time of purchase.
(All numbers of shares of Common Stock are stated after giving effect to a
1-for-0.51312465 reverse split of the Common Stock to be accomplished prior to
the closing of the initial public offering). Exemption from registration is
claimed under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)Exhibits.
See Exhibit Index.
(b)Financial Statements and Schedules
(1)Financial Statements
Unaudited Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Income for
the year ended December 31, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
Independent Auditors' Report
Combined Balance Sheets as of December 31, 1995 and 1996
Combined Statements of Income for the years ended December 31,
1994, 1995 and 1996
Combined Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996
Combined Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996
Notes to Combined Financial Statements
(2) Financial Statement Schedules
Combined financial statement schedules have been omitted because either
they are not required or the information required to be set forth therein is
included in the Combined Financial Statements or in the Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities
II-2
<PAGE> 103
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Las Vegas,
State of Nevada, on March 25, 1997.
SAXTON INCORPORATED
Registrant
By: /s/ James C. Saxton
-----------------------------
James C. Saxton,
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
James C. Saxton and Douglas W. Hensley, and each of them, acting jointly or
alone, his true and lawful attorneys-in-fact, with full power of substitution to
execute in the name and on behalf of such person, individually and in each
capacity indicated below, and to file any and all amendments to this
Registration Statement, including all post-effective amendments hereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below on the 25th day of March, 1997
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ James C. Saxton President, Chief Executive Officer
- ------------------------------- and Chairman of the Board of
James C. Saxton Directors (Principal Executive
Officer)
/s/ Douglas W. Hensley Chief Financial Officer (Principal
- ------------------------------- Financial and Accounting Officer)
Douglas W. Hensley
/s/ Michele Saxton-Pori Director
- -------------------------------
Michele Saxton-Pori
</TABLE>
II-4
<PAGE> 105
EXHIBIT INDEX
Exhibit Description of Document
1.1 Form of Underwriting Agreement
2.1 Plan of Merger between Jim Saxton, Inc. and the Company, dated
December 26, 1995, as filed with Nevada Secretary of State on
December 29, 1995.
2.2 Reorganization documents*
3.1 Articles of Incorporation of the Company
3.2 Articles of Merger merging Jim Saxton, Inc. into the Company, as
filed with Nevada Secretary of State on December 29, 1995
3.3 Bylaws of the Company, as amended
4.1 Specimen Common Stock Certificate*
4.2 Form of Representatives' Warrants
4.3 Form of Saxton Warrants*
5.1 Opinion of Hughes Hubbard & Reed LLP*
10.1 Saxton Incorporated Employee Stock Ownership Plan and Trust,
adopted December 29, 1995
10.1.1 Amendment to Saxton Incorporated Employee Stock Ownership Plan and
Trust, adopted December 10, 1996
10.2 Management Stock Option Incentive Plan*
10.3 Non-Employee Stock Option Plan*
10.4 1994 Stock Option Agreement between the Company and Douglas W.
Hensley *
10.5 Employment Agreement between the Company and James C. Saxton,
dated March 10, 1997
10.6 Form of Indemnification Agreement between the Company and each
director and officer of the Company *
10.7 Tax Indemnification Agreement between the Company and each of
James C. Saxton, Dorothy J. Saxton, Michele Saxton-Pori, Lee-Ann
Saxton and James C. Saxton II *
10.8 Indemnification Agreement regarding liability on Company loans
between the Company and James C. Saxton and Dorothy J. Saxton *
21.1 List of subsidiaries of the Company*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hughes Hubbard & Reed LLP (included in Exhibit 5)*
24 Power of Attorney (included on page II-4)
27 Financial Data Schedule
99 Consents of Douglas W. Hensley, Marc S. Hechter, Timothy J. Adams,
Bernard J. Mikell, Jr. and Robert L. Seale to be named as proposed
directors
- ----------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
WF&G Draft
3/6/97
2,275,000 Shares
SAXTON INCORPORATED
(Common Stock $.001 Par Value)
UNDERWRITING AGREEMENT
__________, 1997
LADENBURG THALMANN & CO. INC.
STIFEL, NICOLAUS & COMPANY, INC.
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, New York 10022
Dear Ladies and Gentlemen:
1. Introductory. Saxton Incorporated, a Nevada corporation
(the "Company"), proposes to sell, pursuant to the terms of this Agreement, to
the several underwriters named in Schedule A hereto (the "Underwriters," or,
each, an "Underwriter"), an aggregate of 2,275,000 shares of Common Stock,
$.001 par value per share (the "Common Stock"), of the Company. The aggregate
of 2,275,000 shares so proposed to be sold is hereinafter referred to as the
"Firm Stock." The Company also proposes to sell to the Underwriters, upon the
terms and conditions set forth in Section 3 hereof, up to an additional 341,250
shares of Common Stock (the "Option Stock"). The Firm Stock and the Option
Stock are hereinafter collectively referred to as the "Stock." Ladenburg
Thalmann & Co. Inc. ("Ladenburg") and Stifel, Nicolaus & Company, Inc.
("Stifel") are acting as representatives of the several Underwriters and in
such capacity are hereinafter referred to as the "Representatives."
2. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the several Underwriters
that:
(a) A registration statement on Form S-1
(File No. 333-________) in the form in which it became or
becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective with
respect to the Stock, including any pre-effective prospectuses
included as part of the registration statement as originally
filed or as part of
<PAGE> 2
any amendment or supplement thereto, or filed pursuant to Rule
424 under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have heretofore
been delivered to you, has been carefully prepared by the
Company in conformity with the requirements of the Securities
Act and has been filed with the Commission under the
Securities Act; one or more amendments to such registration
statement, including in each case an amended pre-effective
prospectus, copies of which amendments have heretofore been
delivered to you, have been so prepared and filed. Such
registration statement is referred to hereinafter as the
"Registration Statement." If it is contemplated, at the time
this Agreement is executed, that a post-effective amendment to
the Registration Statement will be filed and must be declared
effective before the offering of the Stock may commence, the
term "Registration Statement" as used in this Agreement means
the Registration Statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this
Agreement shall also include any registration statement
relating to the Stock that is filed and declared effective
pursuant to Rule 462(b) under the Securities Act. The term
"Prospectus" as used in this Agreement means the prospectus in
the form included in the Registration Statement, or, (A) if
the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act
and such information is included in a prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities
Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement
as supplemented by the addition of the Rule 430A information
contained in the prospectus filed with the Commission pursuant
to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are
delivered pursuant to Rule 434 under the Securities Act, then
(i) the term "Prospectus" as used in this Agreement means the
"prospectus subject to completion" (as such term is defined in
Rule 434(g) under the Securities Act) as supplemented by (a)
the addition of Rule 430A information or other information
contained in the form of prospectus delivered pursuant to Rule
434(b)(2) under the Securities Act or (b) the information
contained in the term sheets described in Rule 434(b)(3) under
the Securities Act, and (ii) the date of such prospectuses
shall be deemed to be the date of the term sheets. The term
"Pre- Effective Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in
the Registration Statement at the time of the initial filing
of the
-2-
<PAGE> 3
Registration Statement with the Commission, and as such
prospectus shall have been amended from time to time prior to
the date of the Prospectus.
(b) The Commission has not issued or
threatened to issue any order preventing or suspending the use
of any Pre-Effective Prospectus, and, at its date of issue,
each Pre-Effective Prospectus conformed in all material
respects with the requirements of the Securities Act and did
not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and,
when the Registration Statement becomes effective and at all
times subsequent thereto up to and including the Closing Date,
the Registration Statement and the Prospectus and any
amendments or supplements thereto contained and will contain
all material statements and information required to be
included therein by the Securities Act and conformed and will
conform in all material respects to the requirements of the
Securities Act and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, included
or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the foregoing representations,
warranties and agreements shall not apply to information
contained in or omitted from any Pre-Effective Prospectus or
the Registration Statement or the Prospectus or any such
amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company
by or on behalf of any Underwriter, directly or through you,
specifically for use in the preparation thereof; there is no
franchise, lease, contract, agreement or document required to
be described in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which is
not described or filed therein as required; and all
descriptions of any such franchises, leases, contracts,
agreements or documents contained in the Registration
Statement are accurate and complete descriptions of such
documents in all material respects.
(c) Subsequent to the respective dates
as of which information is given in the Registration Statement
and Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations, direct or
contingent, nor entered into any transactions not in the
ordinary course of business, and
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<PAGE> 4
there has not been any material adverse change in the
condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole, or any
change in the capital stock, short-term or long-term debt of
the Company and its subsidiaries considered as a whole (as
used herein, "subsidiaries" shall include any entities in
which the Company owns, directly or indirectly, any
partnership or other equity interest).
(d) The financial statements, together
with the related notes and schedules, set forth in the
Prospectus and elsewhere in the Registration Statement fairly
present, on the basis stated in the Registration Statement,
the financial position and the results of operations and
changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such statements and
related notes and schedules have been prepared in accordance
with generally accepted accounting principles applied on a
consistent basis except as may be set forth in the Prospectus.
The selected financial and statistical data set forth in the
Prospectus under the caption "SELECTED COMBINED AND PRO FORMA
FINANCIAL AND OPERATING INFORMATION" fairly present, on the
basis stated in the Registration Statement, the information
set forth therein.
(e) KPMG Peat Marwick LLP, who have
expressed their opinions on the audited financial statements
and related schedules included in the Registration Statement
and the Prospectus, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(f) The Company and each of its
subsidiaries have been duly organized and are validly existing
and in good standing as corporations, partnerships or limited
liability companies, under the laws of their respective
jurisdictions of organization, with power and authority
(corporate and other) to own or lease, as applicable, their
properties and to conduct their businesses as described in the
Prospectus; the Company is, and each of its subsidiaries are,
in possession of and operating in compliance with all
franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full
force and effect; and the Company is, and each of such
subsidiaries are, duly qualified to do business and in good
standing as foreign corporations, partnerships or limited
liability companies in all other jurisdictions where their
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<PAGE> 5
ownership or leasing of properties or the conduct of their
businesses requires such qualification. The Company and each
of its subsidiaries have all requisite power and authority,
and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits of and
from all public regulatory or governmental agencies and bodies
to own, lease and operate its properties and conduct its
business as now being conducted and as described in the
Registration Statement and the Prospectus, and no such
consent, approval, authorization, order, registration,
qualification, license or permit contains a materially
burdensome restriction not adequately disclosed in the
Registration Statement and the Prospectus. The Company owns
or controls, directly or indirectly, only the corporations,
partnerships, limited liability companies, associations or
other entities listed on Schedule B hereto.
(g) The Company's authorized and
outstanding capital stock is on the date hereof, and will be
on the Closing Date, as set forth under the heading
"Capitalization" in the Prospectus; the outstanding shares of
Common Stock conform to the description thereof in the
Prospectus and have been duly authorized and validly issued
and are fully paid and nonassessable and have been issued in
compliance with all federal and state securities laws and were
not issued in violation of or subject to any preemptive rights
or similar rights to subscribe for or purchase securities and
conform to the description thereof contained in the
Prospectus. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and
related notes thereto included in the Prospectus, the Company
does not have outstanding any options or warrants to purchase,
or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into,
or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's
stock option and other stock plans or arrangements, and the
options or other rights granted or exercised thereunder, as
set forth in the Prospectus, accurately and fairly presents
the information required to be shown with respect to such
plans, arrangements, options and rights. All outstanding
shares of capital stock, partnership interests, membership
interests or other equity interests of each subsidiary have
been duly authorized and validly issued, and are fully paid
and nonassessable and are owned directly by the Company or by
another wholly owned subsidiary of the Company free and clear
of any liens, encumbrances, equities or claims.
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<PAGE> 6
(h) The shares of Stock to be issued and
sold by the Company to the Underwriters hereunder (including
the Option Stock) have been duly and validly authorized and,
when issued and delivered against payment therefor as provided
herein, will be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and
will conform to the description thereof in the Prospectus.
The shares of Common Stock issuable upon exercise of the
Warrants (as hereinafter defined) have been properly reserved
for the event of exercise of the Warrants and have been duly
and validly authorized and, when issued and delivered against
payment therefor in accordance with the terms thereof, will be
duly and validly issued, fully paid and nonassessable and free
of any preemptive or similar rights.
(i) Except as set forth in the
Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries or
affiliates is a party or of which any property of the Company
or any subsidiary or affiliate is subject, which, if
determined adversely to the Company or any such subsidiary or
affiliate, might individually or in the aggregate (i) prevent
or adversely affect the transactions contemplated by this
Agreement, (ii) suspend the effectiveness of the Registration
Statement, (iii) prevent or suspend the use of the
Pre-Effective Prospectus in any jurisdiction or (iv) result in
a material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole; and to the best of the
Company's knowledge no such proceedings are threatened or
contemplated against the Company or any subsidiary or
affiliate by governmental authorities or others. Neither the
Company nor any of its subsidiaries is a party or subject to
the provisions of any material injunction, judgment, decree or
order of any court, regulatory body or other governmental
agency or body. The description of the Company's litigation
under the heading "Business--Legal Proceedings" in the
Prospectus is true and correct and complies with the Rules and
Regulations.
(j) The execution, delivery and
performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach
or violation of any of the terms or provisions of or
constitute a default under any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by
which it or any of them or any of their properties is or may
be bound, the
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<PAGE> 7
Certificate of Incorporation, By-laws or other organizational
documents of the Company or any of its subsidiaries, or any
law, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties or will result in
the creation of a lien.
(k) No consent, approval, authorization
or order of any court or governmental agency or body is
required for the consummation by the Company of the
transactions contemplated by this Agreement, except such as
may be required by the National Association of Securities
Dealers, Inc. (the "NASD") or under the Securities Act or the
securities or "Blue Sky" laws of any jurisdiction in
connection with the purchase and distribution of the Stock by
the Underwriters.
(l) The Company has the full corporate
power and authority to enter into this Agreement and to
perform its obligations hereunder (including to issue, sell
and deliver the Stock), and this Agreement has been duly and
validly authorized, executed and delivered by the Company and
is a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to
the extent that rights to indemnity and contribution hereunder
may be limited by federal or state securities laws or the
public policy underlying such laws. The Company has the full
corporate power and authority to execute and deliver the
Warrants on the terms and conditions set forth in this
Agreement and in the Warrants, and such execution and delivery
of the Warrants has been duly and validly authorized. When
executed and delivered pursuant to this Agreement, the
Warrants will be enforceable against the Company in accordance
with their terms.
(m) The Company and its subsidiaries are
in all material respects in compliance with, and conduct their
businesses in conformity with, all applicable federal, state,
local and foreign laws, rules and regulations of each court or
governmental agency or body having jurisdiction over the
Company and its subsidiaries; to the knowledge of the Company,
otherwise than as set forth in the Registration Statement and
the Prospectus, no prospective change in any of such federal
or state laws, rules or regulations has been adopted which,
when made effective, would have a material adverse effect on
the operations of the Company and its subsidiaries.
(n) The Company, its subsidiaries and
its stockholders have filed all necessary federal, state,
local and foreign income, payroll, franchise and other
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<PAGE> 8
tax returns and have paid all taxes shown as due thereon or
with respect to any of the properties of the Company or any
subsidiary, and there is no tax deficiency that has been, or
to the knowledge of the Company is likely to be, asserted
against the Company, any of its subsidiaries or stockholders,
or any of their respective properties or assets that would
adversely affect the financial position, business or
operations of the Company and its subsidiaries.
(o) No person or entity has the right to
require registration of shares of Common Stock or other
securities of the Company because of the filing or
effectiveness of the Registration Statement or otherwise,
except for persons and entities who have expressly waived such
right or who have been given proper notice and have failed to
exercise such right within the time or times required under
the terms and conditions of such right.
(p) Neither the Company nor any of its
officers, directors or affiliates has taken or will take,
directly or indirectly, any action designed or intended to
stabilize or manipulate the price of any security of the
Company, or which caused or resulted in, or which might in the
future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company.
(q) The Company has provided you with
all financial statements of the Company and its consolidated
subsidiaries since January 1, 1992 to the date hereof that are
available to the officers of the Company.
(r) The Company and its subsidiaries own
or possess all patents, trademarks, trademark registrations,
service marks, service mark registrations, tradenames,
copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of
them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of
the Company and its subsidiaries with respect to the
foregoing. The Company's business as now conducted and as
proposed to be conducted does not and will not infringe or
conflict with any patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other
intellectual property or franchise right of any person. No
claim has been made against the Company alleging the
infringement by the Company of any patent, trademark, service
mark, tradename, copyright, trade secret, license in or other
-8-
<PAGE> 9
intellectual property right or franchise right of any person.
(s) Each of the Company and its
subsidiaries has performed all material obligations required
to be performed by it under any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument to
which it is a party or by which it or any of its properties is
or may be bound, and neither the Company nor any of its
subsidiaries nor any other party to such indenture, mortgage,
deed of trust, note agreement or other agreement or instrument
is in default under or in breach of any such obligations.
Neither the Company nor any of its subsidiaries has received
any notice of such default or breach.
(t) The Company is not involved in any
labor dispute nor is any such dispute threatened. The Company
is not aware that (A) any executive, key employee or
significant group of employees of the Company or any
subsidiary plans to terminate employment with the Company or
any such subsidiary or (B) any such executive or key employee
is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreement that would be
violated by the present or proposed business activities of the
Company and its subsidiaries. Neither the Company nor any
subsidiary has or expects to have any liability for any
prohibited transaction or funding deficiency or any complete
or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
to which the Company or any subsidiary makes or ever has made
a contribution and in which any employee of the Company or any
subsidiary is or has ever been a participant. With respect to
such plans, the Company and each subsidiary are in compliance
in all material respects with all applicable provisions of
ERISA.
(u) The Company has obtained the written
agreement described in Section 8(j) of this Agreement from
each of its officers, directors and holders of Common Stock.
(v) The Company and its subsidiaries
have, and as of the Closing Date will have, good and
marketable title in fee simple to all real property owned by
it and good and marketable title to all personal property
owned or proposed to be owned by them which is material to the
business of the Company or of its subsidiaries, in each case
free and clear of all liens, encumbrances and defects except
such as are described the Prospectus or such as do not affect
the
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<PAGE> 10
value of such property or interfere with the use made or
proposed to be made of such property by the Company and its
subsidiaries; and any agreements pursuant to which the Company
and its subsidiaries have a right to acquire real property
are, and will be as of the Closing Date, duly and validly
authorized, executed and delivered by the parties thereto, are
not subject to termination by any act of the sellers of such
real property and are enforceable against the respective
sellers in accordance with their terms; and any real property
and buildings held under lease by the Company and its
subsidiaries are, and will be as of the Closing Date, held by
them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such real property and
buildings by the Company and its subsidiaries, in each case
except as described in or contemplated by the Prospectus.
(w) The Company and its subsidiaries are
insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are
customary in the businesses in which they are engaged as
described in the Prospectus; and neither the Company nor any
subsidiary of the Company has any reason to believe that it
will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue their
business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries
considered as a whole, except as described in or contemplated
by the Prospectus.
(x) Other than as contemplated by this
Agreement, there is no broker, finder or other party that is
entitled to receive from the Company any brokerage or finder's
fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(y) The Company has complied with all
provisions of Florida Statutes Section 517.075 (Chapter
92-198; Laws of Florida).
(z) There is no claim pending or
threatened or, to the best knowledge of the Company,
contemplated under any Environmental Law (as defined below)
against the Company or any Subsidiary which, if adversely
determined, might be reasonably likely to have a material
adverse effect on the condition (financial or other),
business, properties, prospects, net worth or results of
operations of the Company and its
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<PAGE> 11
subsidiaries taken as a whole; there are no past or present
actions or conditions, including without limitation the
release of any Hazardous Material (as defined below) regulated
under any Environmental Law, that are likely to form the basis
of any such claim under existing law against the Company or
any of its subsidiaries which, if adversely determined, might
be reasonably likely to have a material adverse effect on the
condition (financial or other), business, properties,
prospects, net worth or results of operations of the Company
and its subsidiaries taken as a whole; there are no costs or
liabilities associated with Environmental Laws (including,
without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any
potential liabilities to third parties) that might be
reasonably likely, singly or in the aggregate, to have a
material adverse effect on the condition (financial or other),
business, properties, prospects, net worth or results of
operations of the Company and the subsidiaries taken as a
whole; and there are no events, conditions, contingencies or
occurrences of environmental nature that have resulted or
could reasonably be expected to result in any material
expenditure, impairment to development, operation or use of
any real property referred to in the Prospectus or to
otherwise have a material adverse effect on the Company or its
subsidiaries.
The Company has provided copies to the
Representatives or their counsel of all written reports of
environmental studies, assessments, audits, tests or other
investigations of the real property referred to in the
Prospectus within its or its subsidiaries' possession, custody
or control.
As used herein, "Hazardous Material" shall
include, without limitation, any and all flammable explosives,
radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials, asbestos,
polychlorinated biphenyls ("PCBs"), petroleum products and
by-products and substances defined or listed as "hazardous
substances," "toxic substances," "hazardous waste," or
"hazardous materials" in any federal, state or local
Environmental Law. As used herein, "Environmental Law" shall
mean all laws, regulations or ordinances of any federal, state
or local governmental authority having or claiming
jurisdiction over the Company, its subsidiaries or any of the
real property referred to in the Prospectus that are designed
to protect public health and the environment or regulate the
handling of Hazardous
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<PAGE> 12
Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Section 9601 et seq.) ("CERCLA"),
the Hazardous Material Transportation Act, as amended (49
U.S.C. Section 1801 et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Section 6901 et seq.),
the Federal Water Pollution Control Act, as amended (33 U.S.C.
Section 1251 et seq.), and the Clear Air Act, as amended (42
U.S.C. Section 7401 et seq.), and any and all analogous
federal, state or local laws.
(aa) The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(bb) To the Company's knowledge, neither
the Company nor any of its subsidiaries nor any employee or
agent of the Company or any of its subsidiaries has made any
payment of funds of the Company or any of its subsidiaries or
received or retained any funds in violation of any law, rule
or regulation.
(cc) Neither the Company nor any of its
subsidiaries is an "investment company" or an entity
"controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
(dd) Each certificate signed by any
officer of the Company and delivered to the Underwriters or
counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company as to the matters
covered thereby.
3. Purchase by, and Sale and Delivery to,
Underwriters--Closing Dates. The Company agrees to sell to the Underwriters
the Firm Stock, and on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Underwriters agree, severally and not jointly, to purchase the
Firm Stock from the Company, the number of shares of Firm Stock to be purchased
by each Underwriter being set opposite
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<PAGE> 13
its name in Schedule A, subject to adjustment in accordance with Section 12
hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $_________ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives
for the respective accounts of the several Underwriters (in the form of
definitive certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or
prior to 12:00 noon, New York City time, on the second full business day
preceding the First Closing Date (as defined below) or, if no such direction is
received, in the names of the respective Underwriters or in such other names as
Ladenburg may designate (solely for the purpose of administrative convenience)
and in such denominations as Ladenburg may determine), against payment of the
aggregate Purchase Price therefor by certified or official bank check or checks
in Clearing House funds (next day funds), payable to the order of the Company,
all at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022. The time and date of the delivery and
closing shall be at 10:00 A.M., New York City time, on ________, 1997, in
accordance with Rule 15c6-1 of the Securities Exchange Act of 1934 (the
"Exchange Act"). The time and date of such payment and delivery are herein
referred to as the "First Closing Date." The First Closing Date and the
location of delivery of, and the form of payment for, the Firm Stock may be
varied by agreement between the Company and Ladenburg. The First Closing Date
may be postponed pursuant to the provisions of Section 12.
The Company shall make the certificates for the Stock
available to the Representatives for examination on behalf of the Underwriters
not later than 10:00 A.M., New York City time, on the business day preceding
the First Closing Date at the offices of Ladenburg, 590 Madison Avenue, New
York, New York 10022.
It is understood that Ladenburg or Stifel, individually and
not as Representatives of the several Underwriters, may (but shall not be
obligated to) make payment to the Company on behalf of any Underwriter or
Underwriters, for the Stock to be purchased by such Underwriter or
Underwriters. Any such payment by Ladenburg or Stifel shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.
The several Underwriters agree to make an initial public
offering of the Firm Stock at the initial public offering price as soon after
the effectiveness of the Registration Statement as in their judgment is
advisable. The Representatives shall promptly advise the Company of the making
of the initial public offering.
For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Stock as
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<PAGE> 14
contemplated by the Prospectus, the Company hereby grants to the Underwriters
an option to purchase, severally and not jointly, the Option Stock. The price
per share to be paid for the Option Stock shall be the Purchase Price. The
option granted hereby may be exercised as to all or any part of the Option
Stock at any time, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Option Stock shall be
sold and delivered unless the Firm Stock previously has been, or simultaneously
is, sold and delivered. The right to purchase the Option Stock or any portion
thereof may be surrendered and terminated at any time upon notice by the
Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters
by giving written notice from Ladenburg to the Company setting forth the number
of shares of the Option Stock to be purchased by them and the date and time for
delivery of and payment for the Option Stock. Each date and time for delivery
of and payment for the Option Stock (which may be the First Closing Date, but
not earlier) is herein called the "Option Closing Date" and shall in no event
be earlier than two (2) business days nor later than ten (10) business days
after written notice is given. (The Option Closing Date and the First Closing
Date are herein called the "Closing Dates.") All purchases of Option Stock
from the Company shall be made on a pro rata basis. Option Stock shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
Schedule A hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company agrees to sell to the Underwriters the
number of shares of Option Stock set forth in the written notice of exercise
and the Underwriters agree, severally and not jointly and subject to the terms
and conditions herein set forth, to purchase the number of such shares
determined as aforesaid.
The Company will deliver the Option Stock to the Underwriters
(in the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company given at or prior to 12:00 noon, New York City time, on the second full
business day preceding the Option Closing Date or, if no such direction is
received, in the names of the respective Underwriters or in such other names as
Ladenburg may designate (solely for the purpose of administrative convenience)
and in such denominations as Ladenburg may determine), against payment of the
aggregate Purchase Price therefor by certified or official bank check or checks
in Clearing House funds (next day funds), payable to the order of the Company
all at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022. The Company shall make the
certificates for the Option Stock available to the Underwriters for examination
not later than 10:00 A.M., New York City time, on the business day preceding
the Option Closing Date at the offices of Ladenburg, 590 Madison Avenue, New
York, New
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<PAGE> 15
York 10022. The Option Closing Date and the location of delivery of, and the
form of payment for, the Option Stock may be varied by agreement between the
Company and Ladenburg. The Option Closing Date may be postponed pursuant to
the provisions of Section 12.
In order to induce you to enter into this Agreement, the
Company, in consideration of the receipt of $[___] for each Warrant and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, shall execute and deliver to you, in your individual capacity and
not as Representatives, or your assignees, in compliance with the rules of the
NASD, warrants exercisable during the five-year period commencing ___________,
1997 (the "Warrants") to purchase an aggregate of 227,500 shares of Common
Stock at an exercise price per share equal to 120% of the initial public
offering price set forth on the cover page of the Prospectus. The Warrants
shall be in the form of Exhibit 4.2 to the Registration Statement. Execution
and delivery of Warrants, registered in your name or the names of such of your
officers or such assignees as you shall notify the Company in writing, shall be
made to you, at your offices at 590 Madison Avenue, New York, New York 10022,
at the First Closing Date. The cost of original issue tax stamps, if any, in
connection with the execution and delivery of the Warrants shall be borne by
the Company.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters that:
(a) The Company will (i) if the Company
and the Representatives have determined not to proceed
pursuant to Rule 430A, use its best efforts to cause the
Registration Statement to become effective, (ii) if the
Company and the Representatives have determined to proceed
pursuant to Rule 430A, use its best efforts to comply with the
provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and
Regulations and (iii) if the Company and the Representatives
have determined to deliver Prospectuses pursuant to Rule 434
of the Rules and Regulations, to use its best efforts to
comply with all the applicable provisions thereof. The
Company will advise the Representatives promptly as to the
time at which the Registration Statement becomes effective,
will advise the Representatives promptly of the issuance by
the Commission of any stop order suspending the effectiveness
of the Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as
soon as possible the lifting thereof, if issued. The Company
will advise the Representatives promptly of the receipt of any
comments of the Commission or any request by the Commission
for any amendment of or supplement to the Registration
Statement or the Prospectus or for additional
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<PAGE> 16
information and will not at any time file any amendment to the
Registration Statement or supplement to the Prospectus which
shall not previously have been submitted to the
Representatives a reasonable time prior to the proposed filing
thereof or to which the Representatives shall reasonably
object in writing or which is not in compliance with the
Securities Act and the Rules and Regulations.
(b) The Company will prepare and file
with the Commission, promptly upon the request of the
Representatives, any amendments or supplements to the
Registration Statement or the Prospectus which in the opinion
of the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and
will use its best efforts to cause the same to become
effective as promptly as possible.
(c) If at any time after the effective
date of the Registration Statement when a prospectus relating
to the Stock is required to be delivered under the Securities
Act any event relating to or affecting the Company or any of
its subsidiaries occurs as a result of which the Prospectus or
any other prospectus as then in effect would include an untrue
statement of a material fact, or omit to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to
comply with the Securities Act, the Company will promptly
notify the Representatives thereof and will prepare an amended
or supplemented prospectus which will correct such statement
or omission; and in case any Underwriter is required to
deliver a prospectus relating to the Stock nine (9) months or
more after the effective date of the Registration Statement,
the Company upon the request of the Representatives and at the
expense of such Underwriter will prepare promptly such
prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Securities Act.
(d) The Company will deliver to the
Representatives, at or before the Closing Dates, signed copies
of the Registration Statement, as originally filed with the
Commission, and all amendments thereto including all financial
statements and exhibits thereto and will deliver to the
Representatives such number of copies of the Registration
Statement, including such financial statements but without
exhibits, and all amendments thereto, as the Representatives
may reasonably request. The Company will deliver or mail to
or upon the order of the Representatives, from time to
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<PAGE> 17
time until the effective date of the Registration Statement,
as many copies of the Pre-Effective Prospectus as the
Representatives may reasonably request. The Company will
deliver or mail to or upon the order of the Representatives on
the date of the initial public offering, and thereafter from
time to time during the period when delivery of a prospectus
relating to the Stock is required under the Securities Act, as
many copies of the Prospectus, in final form or as thereafter
amended or supplemented, as the Representatives may reasonably
request; provided, however, that the expense of the
preparation and delivery of any prospectus required for use
nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters
required to deliver such prospectus.
(e) The Company will make generally
available to its stockholders as soon as practicable, but not
later than fifteen (15) months after the effective date of the
Registration Statement, an earnings statement which will be in
reasonable detail (but which need not be audited) and which
will comply with Section 11(a) of the Securities Act, covering
a period of at least twelve (12) months beginning after the
"effective date" (as defined in Rule 158 under the Securities
Act) of the Registration Statement.
(f) The Company will cooperate with the
Representatives to enable the Stock to be registered or
qualified for offering and sale by the Underwriters and by
dealers under the securities laws of such jurisdictions as the
Representatives may designate and at the request of the
Representatives will make such applications and furnish such
consents to service of process or other documents as may be
required of it as the issuer of the Stock for that purpose;
provided, however, that the Company shall not be required to
qualify to do business or to file a general consent (other
than that arising out of the offering or sale of the Stock) to
service of process in any such jurisdiction where it is not
now so subject. The Company will, from time to time, prepare
and file such statements and reports as are or may be required
of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the
Representatives may reasonably request for the distribution of
the Stock. The Company will advise the Representatives
promptly after the Company becomes aware of the suspension of
the qualifications or registration of (or any such exception
relating to) the Common Stock of the Company for offering,
sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and, in the
event of
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<PAGE> 18
the issuance of any orders suspending such qualifications,
registration or exception, the Company will, with the
cooperation of the Representatives, use its best efforts to
obtain the withdrawal thereof.
(g) The Company will furnish to its
stockholders annual reports containing financial statements
certified by independent public accountants and with quarterly
summary financial information which may be unaudited in
reasonable detail. During the period of five (5) years from
the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other
Underwriters, as soon as they are available, copies of each
annual report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and statements
of income, stockholders' equity and cash flows for the year
then ended and the opinion thereon of the Company's
independent public accountants, and each other report or
communication furnished by the Company to its stockholders and
will deliver to the Representatives, (i) as soon as they are
available, copies of any other reports or communication
(financial or otherwise) which the Company shall publish or
otherwise make available to any of its stockholders as such,
(ii) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the
Commission, or the NASD or any national securities exchange
and (iii) from time to time such other information concerning
the Company as you may request. So long as the Company has
active subsidiaries, such financial statements will be on a
consolidated basis to the extent the accounts of the Company
and its subsidiaries are consolidated in reports furnished to
its stockholders generally. Separate financial statements
shall be furnished for all subsidiaries whose accounts are not
consolidated but which at the time are significant
subsidiaries as defined in the Rules and Regulations.
(h) The Company will use its best
efforts to have included, subject to official notice of
issuance, on the Nasdaq National Market, the Stock to be
issued and sold by the Company.
(i) The Company will maintain a transfer
agent and registrar for its Common Stock.
(j) Prior to filing its quarterly
reports on Form 10-Q, the Company will have its independent
public accountants perform a limited quarterly review of its
quarterly financial statements.
(k) The Company will not offer, sell,
assign, transfer, encumber, contract to sell, grant an option
to
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<PAGE> 19
purchase or otherwise dispose of any shares of Common Stock or
securities convertible into or exercisable or exchangeable for
Common Stock during the 180 days following the date on which
the price of the Common Stock to be purchased by the
Underwriters is established, other than the Company's sale of
Common Stock hereunder, the issuance of the Warrants and the
Company's issuance of Common Stock upon the exercise of the
Warrants and of stock options which are presently outstanding
and described in the Prospectus.
(l) The Company will apply the net
proceeds from the sale of the Stock as set forth in the
description under "Use of Proceeds" in the Prospectus, which
description complies in all respects with the requirements of
Item 504 of Regulation S-K.
(m) The Company will supply you with
copies of all correspondence to and from, and all documents
issued to and by, the Commission in connection with the
registration of the Stock under the Securities Act.
(n) Prior to the Closing Dates the
Company will furnish to you, as soon as they have been
prepared, copies of any unaudited interim consolidated
financial statements of the Company and its subsidiaries for
any periods subsequent to the periods covered by the financial
statements appearing in the Registration Statement and the
Prospectus.
(o) Prior to the Closing Dates the
Company will issue no press release or other communications
directly or indirectly and hold no press conference with
respect to the Company or any of its subsidiaries, the
financial condition, results of operation, business,
prospects, assets or liabilities of any of them, or the
offering of the Stock, without your prior written consent.
For a period of twelve (12) months following the Closing Date,
the Company will use its best efforts to provide to you copies
of each press release or other public communications with
respect to the financial condition, results of operations,
business, prospects, assets or liabilities of the Company at
least twenty-four (24) hours prior to the public issuance
thereof or such longer advance period as may reasonably be
practicable.
5. Payment of Expenses. (a) The Company will pay
(directly or by reimbursement) all costs, fees and expenses incurred in
connection with expenses incident to the performance of its obligations under
this Agreement and in connection with the transactions contemplated hereby,
including but not limited to (i) all expenses and taxes incident to the
issuance and delivery of the Stock to the Representatives; (ii) all expenses
incident to the
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<PAGE> 20
registration of the Stock under the Securities Act; (iii) the costs of
preparing stock certificates (including printing and engraving costs); (iv) all
fees and expenses of the registrar and transfer agent of the Common Stock; (v)
all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Stock to the Underwriters; (vi) fees and expenses of
the Company's counsel and the Company's independent public accountants; (vii)
all costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
Pre-Effective Prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein,
the "Agreement Among Underwriters" between the Representatives and the other
Underwriters, the Master Selected Dealers' Agreement, the Underwriters'
Questionnaire, the Blue Sky memoranda and this Agreement; (viii) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with exemptions from the qualifying or registering (or obtaining
qualification or registration of) all or any part of the Stock for offer and
sale and determination of its eligibility for investment under the Blue Sky or
other securities laws of such jurisdictions as the Representatives may
designate; (ix) all fees and expenses paid or incurred in connection with
filings made with the NASD; (x) all fees and expenses paid or incurred in
connection with inclusion of the Stock on the NASDAQ National Market; and (xi)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section 5.
(b) In addition to its other obligations under Section
6(a) hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding arising out of
or based upon (i) any statement or omission or any alleged statement or
omission or (ii) any breach or inaccuracy in its representations and
warranties, it will reimburse each Underwriter on a quarterly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse each Underwriter for
such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that
any such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Citibank, N.A., New York, New York (the "Prime Rate").
Any such interim reimbursement payments which are not made to an Underwriter in
a timely manner as provided below shall bear interest at the Prime Rate from
the due date for such reimbursement. This expense reimbursement agreement will
be in addition to any other liability
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<PAGE> 21
which the Company may otherwise have. The request for reimbursement will be
sent to the Company.
(c) In addition to its other obligations under Section
6(b) hereof, each Underwriter severally agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in Section 6(b) hereof which relates
to written information furnished to the Company by the Representatives on
behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus, it will reimburse the Company (and, to the extent
applicable, each officer, director, or controlling person) on a quarterly basis
for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, or
controlling person) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment by an Underwriter is
so held to have been improper, the Company (and, to the extent applicable, each
officer, director, or controlling person) shall promptly return it to such
Underwriter together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made
to the Company within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(d) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in paragraph (b)
and/or (c) of this Section 5, including the amounts of any requested
reimbursement payments and the method of determining such amounts, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or
pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in paragraph (b) and/or (c) of this Section 5 and would
not resolve the ultimate propriety or enforceability of the obligation to
reimburse expenses which is created by the provisions of Section 6.
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<PAGE> 22
6. Indemnification and Contribution. (a) The Company
and its subsidiaries agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls such Underwriter within the meaning of the
Securities Act and the respective officers, directors, partners, employees,
representatives and agents of each of such Underwriter (collectively, the
"Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified
Party"), against any losses, claims, damages, liabilities or expenses
(including the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection therewith), joint or
several, which may be based upon the Securities Act, or any other statute or at
common law, on the ground or alleged ground that any Pre-Effective Prospectus,
the Registration Statement or the Prospectus (or any Pre-Effective Prospectus,
the Registration Statement or the Prospectus as from time to time amended or
supplemented) includes or allegedly includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company or any subsidiary by any Underwriter,
directly or through the Representatives, specifically for use in the
preparation thereof. The Company or any subsidiary will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event the Company or any subsidiary elects to
assume the defense of any such suit and retain such counsel, any Underwriter
Indemnified Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) the
Company or such subsidiary shall have specifically authorized the retaining of
such counsel or (ii) the parties to such suit include any such Underwriter
Indemnified Parties, and the Company or any subsidiary and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel to the
Underwriters that one or more legal defenses may be available to it or them
which may not be available to the Company or any subsidiary, in which case the
Company or any subsidiary shall not be entitled to assume the defense of such
suit notwithstanding its obligation to bear the fees and expenses of such
counsel. This indemnity agreement is not exclusive and will be in addition to
any liability which the Company or any subsidiary might otherwise have and
shall not limit any rights or remedies which may otherwise be available at law
or in equity to each Underwriter Indemnified Party.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company and any subsidiary, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company or any subsidiary within the
meaning of the Securities Act (collectively, the "Company Indemnified
Parties"), against any
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<PAGE> 23
losses, claims, damages, liabilities or expenses (including, unless the
Underwriter or Underwriters elect to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which arise out of or are
based in whole or in part upon the Securities Act, the Exchange Act or any
other federal, state, local or foreign statute or regulation, or at common law,
on the ground or alleged ground that any Pre-Effective Prospectus, the
Registration Statement or the Prospectus (or any Pre-Effective Prospectus, the
Registration Statement or the Prospectus, as from time to time amended and
supplemented) includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, but only insofar as any such statement or omission was made in
reliance upon, and in conformity with, written information furnished to the
Company by such Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided, however, that in no
case is such Underwriter to be liable with respect to any claims made against
any Company Indemnified Party against whom the action is brought unless such
Company Indemnified Party shall have notified such Underwriter in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Company
Indemnified Party, but failure to notify such Underwriter of such claim shall
not relieve it from any liability which it may have to any Company Indemnified
Party otherwise than on account of its indemnity agreement contained in this
paragraph. Such Underwriter shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if such Underwriter elects to
assume the defense, such defense shall be conducted by counsel chosen by it.
In the event that any Underwriter elects to assume the defense of any such suit
and retain such counsel, the Company Indemnified Parties and any other
Underwriter or Underwriters or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, respectively. The Underwriter against whom indemnity
may be sought shall not be liable to indemnify any person for any settlement of
any such claim effected without such Underwriter's consent. This indemnity
agreement is not exclusive and will be in addition to any liability which such
Underwriter might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to any Company Indemnified
Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
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<PAGE> 24
appropriate to reflect the relative benefits received by the Company or any
subsidiary on the one hand and the Underwriters on the other from the offering
of the Stock. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company or any subsidiary on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company or any
subsidiary on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company or any subsidiary bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or any subsidiary or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, its subsidiaries and the Underwriters
agree that it would not be just and equitable if contribution were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to above shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, defending, settling or compromising any
such claim. Notwithstanding the provisions of this subsection (c), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the shares of the Stock underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
The Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations,
Warranties, etc. The respective indemnities, covenants, agreements,
representations, warranties and other statements of the Company and its
subsidiaries and the several Underwriters, as set
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<PAGE> 25
forth in this Agreement or made by them respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, the Company or any of
its subsidiaries or any of their officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The
respective obligations of the several Underwriters hereunder shall be subject
to the accuracy, at and (except as otherwise stated herein) as of the date
hereof and at and as of the Closing Dates, of the representations and
warranties made herein by the Company to compliance at and as of the Closing
Dates by the Company with its covenants and agreements herein contained and
other provisions hereof to be satisfied at or prior to the Closing Dates, and
to the following additional conditions:
(a) The Registration Statement shall have
become effective and no stop order suspending the
effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction
of the Representatives. Any filings of the Prospectus, or any
supplement thereto, required pursuant to Rule 424(b) or Rule
434 of the Rules and Regulations, shall have been made in the
manner and within the time period required by Rule 424(b) and
Rule 434 of the Rules and Regulations, as the case may be.
(b) The Representatives shall have been
satisfied that there shall not have occurred any change, on a
consolidated basis, prior to the Closing Dates in the
condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of
the Company and its subsidiaries considered as a whole, or any
change in the capital stock, short-term or long-term debt of
the Company and its subsidiaries considered as a whole, such
that (i) the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains an untrue statement
of fact which, in the opinion of the Representatives, is
material, or omits to state a fact which, in the opinion of
the Representatives, is required to be stated therein or is
necessary to make the statements therein not misleading, or
(ii) it is impracticable in the reasonable judgment of the
Representatives to proceed with the public offering or
purchase the Stock as contemplated hereby.
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<PAGE> 26
(c) The Representatives shall be satisfied
that no legal or governmental action, suit or proceeding
affecting the Company which is material and adverse to the
Company or which affects or may affect the Company's ability
to perform its obligations under this Agreement shall have
been instituted or threatened and there shall have occurred no
material adverse development in any existing such action, suit
or proceeding.
(d) At the time of execution of this
Agreement, the Representatives shall have received from KPMG
Peat Marwick LLP, independent certified public accountants, a
letter, dated the date hereof, in form and substance
satisfactory to the Representatives.
(e) The Representatives shall have received
from KPMG Peat Marwick LLP, independent certified public
accountants, a letters, dated the Closing Dates, to the effect
that such accountants reaffirm, as of the Closing Dates, and
as though made on the Closing Dates, the statements made in
the letter furnished by such accountants pursuant to paragraph
(d) of this Section 8.
(f) The Representatives shall have received
from Hughes Hubbard & Reed LLP, counsel for the Company, an
opinion, dated the Closing Dates, to the effect set forth in
Exhibit I hereto. In rendering such opinion, Hughes Hubbard &
Reed LLP may rely as to all matters governed other than by the
laws of the States of California, New York and Nevada or
federal laws on the opinion of local counsel of good standing
in such jurisdictions, provided that such local counsel is
satisfactory to the counsel to the Underwriters and that in
each case Hughes Hubbard & Reed LLP shall state that they
believe that they and the Underwriters are justified in
relying on such other counsel.
(g) The Representatives shall have received
from Willkie Farr & Gallagher, counsel for the Underwriters,
their opinion or opinions dated the Closing Dates with respect
to the incorporation of the Company, the validity of the
Stock, the Registration Statement and the Prospectus and such
other related matters as it may reasonably request, and the
Company shall have furnished to such counsel such documents as
they may request for the purpose of enabling them to pass upon
such matters. In rendering such opinion, Willkie Farr &
Gallagher may rely as to all matters governed other than by
the laws of the State of New York or federal laws on the
opinion of counsel referred to in paragraph (f) of this
Section 8.
(h) The Representatives shall have received
a certificate, dated the Closing Dates, of the chief
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<PAGE> 27
executive officer or the President and the chief financial or
accounting officer of the Company to the effect that:
(i) The Registration Statement has
become effective under the Act and no stop order
suspending the effectiveness of the Registration
Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that
purpose have been instituted or are pending or
contemplated under the Securities Act;
(ii) All filings required to have been
made pursuant to Rules 424 or 430A under the Act have
been made;
(iii) Neither any Pre-Effective
Prospectus, as of its date, nor the Registration
Statement nor the Prospectus, nor any amendment or
supplement thereto, as of the time when the
Registration Statement became effective and at all
times subsequent thereto up to the delivery of such
certificate, included any untrue statement of a
material fact or omitted to state any material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading and since
the effective date of the Registration Statement, no
event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or
amendment;
(iv) Subsequent to the respective
dates as of which information is given in the
Registration Statement and the Prospectus, and except
as set forth or contemplated in the Prospectus,
neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations,
direct or contingent, nor entered into any material
transactions not in the ordinary course of business
and there has not been any material adverse change in
the condition (financial or otherwise), properties,
business, management, prospects, net worth or results
of operations of the Company and its subsidiaries
considered as a whole, or any change in the capital
stock, short-term or long-term debt of the Company
and its subsidiaries considered as a whole;
(v) The representations and warranties
of the Company in this Agreement are true and correct
at and as of the Closing Dates, and the Company has
complied with all the agreements and
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<PAGE> 28
performed or satisfied all the conditions on its part
to be performed or satisfied at or prior to the
Closing Dates; and
(vi) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, (i) there has
not been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), properties, business,
management, prospects, net worth or results of
operations of the Company and its subsidiaries
considered as a whole; (ii) the business and
operations conducted by the Company and its
subsidiaries have not sustained a loss by strike,
fire, flood, accident or other calamity (whether or
not insured) of such a character as to interfere
materially with the conduct of the business and
operations of the Company and its subsidiaries
considered as a whole; (iii) no legal or governmental
action, suit or proceeding is pending or threatened
against the Company or any of its subsidiaries which
is material to the Company and its subsidiaries taken
as a whole, whether or not arising from transactions
in the ordinary course of business, or which may
materially and adversely affect the transactions
contemplated by this Agreement; (iv) since such dates
and except as so disclosed, neither the Company nor
any of its subsidiaries has incurred any material
liability or obligation, direct, contingent or
indirect, made any change in its capital stock, made
any material change in its short-term or funded debt
or repurchased or otherwise acquired any of the
Company's capital stock; and (v) the Company has not
declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock
payable to stockholders of record on a date prior to
the Closing Date.
(i) The Company shall have furnished to the
Representatives such additional certificates as the
Representatives may have reasonably requested as to the
accuracy, at and as of the Closing Dates, of the
representations and warranties made herein by it and as to
compliance at and as of the Closing Dates by it with its
covenants and agreements herein contained and other provisions
hereof to be satisfied at or prior to the Closing Dates, and
as to satisfaction of the other conditions to the obligations
of the Underwriters hereunder.
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<PAGE> 29
(j) Ladenburg shall have received the
written agreements of all officers and directors of the
Company and all holders of securities of the Company that each
will not offer, sell, assign, transfer, encumber, contract to
sell, grant an option to purchase or otherwise dispose of,
other than by operation of law, gifts, pledges or dispositions
by estate representatives, any shares of Common Stock
(including, without limitation, Common Stock which may be
deemed to be beneficially owned by such officer, director or
holder in accordance with the Rules and Regulations) or
securities convertible into or exercisable or exchangeable for
Common Stock during the 180 days following the date of the
final Prospectus.
(k) The Nasdaq National Market shall have
approved the Stock for inclusion, subject only to official
notice of issuance.
All opinions, certificates, letters and other documents will
be in compliance with the provisions hereunder only if they are satisfactory in
form and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Dates, but Ladenburg shall
be entitled to waive any of such conditions.
9. Effective Date. This Agreement shall become
effective immediately as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16, 17, 18
and 19, as to all other provisions, at 11:00 A.M. New York City time, on the
first full business day following the effectiveness of the Registration
Statement or at such earlier time after the Registration Statement becomes
effective as the Representatives may determine on and by notice to the Company
or by release of any of the Stock for sale to the public. For the purposes of
this Section 9, the Stock shall be deemed to have been so released upon the
release for publication of any newspaper advertisement relating to the Stock or
upon the release by you of telegrams (i) advising Underwriters that the shares
of Stock are released for public offering or (ii) offering the Stock for sale
to securities dealers, whichever may occur first.
10. Termination. This Agreement (except for the
provisions of Section 5) may be terminated by the Company at any time before it
becomes effective in accordance with Section 9 by notice to the Representatives
and may be terminated by the Representatives at any time before it becomes
effective in accordance with Section 9 by notice to the Company. In the event
of any termination of this Agreement under this or any other
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<PAGE> 30
provision of this Agreement, there shall be no liability of any party to this
Agreement to any other party, other than as provided in Sections 5, 6 and 11
and other than as provided in Section 12 as to the liability of defaulting
Underwriters.
This Agreement may be terminated after it becomes effective by
the Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the New York Stock Exchange,
American Stock Exchange or Nasdaq National Market shall have been suspended or
minimum or maximum prices shall have been established on any such exchange or
market, or a banking moratorium shall have been declared by New York or United
States authorities; (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market; (iii) if at
or prior to the First Closing Date there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign power or of
any other insurrection or armed conflict involving the United States or (B) any
change in financial markets or any calamity or crisis which, in the judgment of
the Representatives, makes it impracticable or inadvisable to offer or sell the
Firm Stock on the terms contemplated by the Prospectus; (iv) if there shall
have been any development or prospective development involving particularly the
business or properties or securities of the Company or any of its subsidiaries
or the transactions contemplated by this Agreement, which, in the judgment of
the Representatives, makes it impracticable or inadvisable to offer or deliver
the Firm Stock on the terms contemplated by the Prospectus; (v) if there shall
be any litigation or proceeding, pending or threatened, which, in the judgment
of the Representatives, makes it impracticable or inadvisable to offer or
deliver the Firm Stock on the terms contemplated by the Prospectus; or (vi) if
there shall have occurred any of the events specified in the immediately
preceding clauses (i) - (v) together with any other such event that makes it,
in the judgment of the Representatives, impracticable or inadvisable to offer
or deliver the Firm Stock on the terms contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any
other provisions hereof, if this Agreement shall not become effective by reason
of any election of the Company pursuant to the first paragraph of Section 10 or
shall be terminated by the Representatives under Section 8 or Section 10, the
Company will bear and pay the expenses specified in Section 5 hereof and, in
addition to its obligations pursuant to Section 6 hereof, the Company will
reimburse the reasonable out-of-pocket expenses of the several Underwriters
(including reasonable fees and disbursements of counsel for the Underwriters)
incurred in connection with this Agreement and the proposed purchase of the
Stock, and promptly upon demand the Company will pay such amounts to you as
Representatives.
12. Substitution of Underwriters. If on the First
Closing Date or the Option Closing Date, as the case may be, any Underwriter or
Underwriters shall default in its or their
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<PAGE> 31
obligations to purchase shares of Stock hereunder (otherwise than by reason of
default on the part of the Company), you, as Representatives of the
Underwriters, shall use your reasonable efforts to procure within 48 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set
forth herein, the shares of Stock which the defaulting Underwriter or
Underwriters failed to purchase. If during such 48 hours you, as such
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the shares of Stock agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed ten percent (10%) of the total number of shares
underwritten, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the shares of
Stock which such defaulting Underwriter or Underwriters agreed but failed to
purchase, or (b) if the aggregate number of shares of Stock with respect to
which such default or defaults occur is more than ten percent (10%) of the
total number of shares underwritten, the Company or you, as the Representatives
of the Underwriters, will have the right, by written notice given within the
next 48-hour period to the parties to this Agreement, to terminate this
Agreement without liability on the part of the non- defaulting Underwriters or
the Company.
If the remaining Underwriters or substituted Underwriters are
required hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12, (i) the
Company shall have the right to postpone the Closing Dates for a period of not
more than five (5) full business days in order that the Company may effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of shares to be purchased by the remaining Underwriters or
substituted Underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of its liability to the Company or the other
Underwriters for damages occasioned by its default hereunder. Any termination
of this Agreement pursuant to this Section 12 shall be without liability on the
part of any non-defaulting Underwriter or the Company, except for expenses to
be paid or reimbursed pursuant to Section 5 and except for the provisions of
Section 6.
13. Notices. All communications hereunder shall be in
writing and, if sent to the Underwriters, shall be mailed, delivered or
telegraphed and confirmed to you, as their Representatives c/o Ladenburg
Thalmann & Co. Inc. at 590 Madison Avenue, New York, New York 10022, attention:
David L. Levine, with a copy to Willkie Farr & Gallagher, One Citicorp Center,
153 East
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<PAGE> 32
53rd Street, New York, New York 10022, attention: William N. Dye, except that
notices given to an Underwriter pursuant to Section 6 hereof shall be sent to
such Underwriter at the address furnished by the Representatives or, if sent to
the Company, shall be mailed, delivered or telegraphed and confirmed c/o Saxton
Incorporated, 5440 West Sahara Avenue, Third Floor, Las Vegas, Nevada, 89102,
Attention: Chief Executive Officer, with a copy to Hughes, Hubbard & Reed,
L.L.P., 350 South Grand Avenue, Los Angeles, California 90071, Attention:
Theodore H. Latty.
14. Successors. This Agreement shall inure to the
benefit of and be binding upon the several Underwriters, the Company and their
respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
such persons and for the benefit of no other person; except that the
representations, warranties, covenants, agreements and indemnities of the
Company contained in this Agreement shall also be for the benefit of the person
or persons, if any, who control any Underwriter or Underwriters within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and the indemnities of the several Underwriters shall also be for the benefit
of each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act.
15. Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
giving effect to the choice of law principles thereof.
16. Authority of the Representatives. In connection with
this Agreement, you will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by Ladenburg and Stifel, as
Representatives, will be binding on all the Underwriters.
17. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
18. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements,
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<PAGE> 33
understandings and negotiations with respect to the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and the Representatives.
19. Counterparts. This Agreement may be signed in two
(2) or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
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<PAGE> 34
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter and your acceptance shall constitute a binding
agreement between us.
Very truly yours,
SAXTON INCORPORATED
By:_________________________
Name:
Title:
Accepted and delivered in
New York, New York as of
the date first above written.
LADENBURG THALMANN & CO. INC.
STIFEL, NICOLAUS & COMPANY, INC.
Acting on their own behalf
and as Representatives of the several
Underwriters referred to in the
foregoing Agreement.
By: Ladenburg Thalmann & Co. Inc.
By:______________________________
Name:
Title:
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<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Number of shares of Firm Stock
Name to be Purchased
- ---- ------------------------------
<S> <C>
Ladenburg Thalmann & Co. Inc...
Stifel, Nicolaus & Company, Inc.
Total......................... -----------
2,275,000
</TABLE>
<PAGE> 36
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
[TO COME]
<PAGE> 37
EXHIBIT I
Matters to be covered in opinion
of Hughes Hubbard & Reed LLP(1)
1. The Company and each of its subsidiaries have been duly organized and
are validly existing as corporations, partnerships or limited liability
companies in good standing under the laws of their respective jurisdictions of
organization, are duly qualified to do business and are in good standing as
foreign corporations, partnerships or limited liability companies in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective properties
and conduct the businesses in which they are engaged.
2. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and all of the shares of Stock to be issued and sold by the Company to the
Underwriters pursuant to the Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
for in the Underwriting Agreement, will be duly and validly issued, fully paid
and non- assessable and free of any preemptive or similar rights; and all of
the shares of Common Stock to be issued upon exercise of the Warrants have been
properly reserved for the event of exercise of the Warrants and have been duly
and validly authorized and, when issued and delivered against payment therefor
as provided in the Warrants, will be duly and validly issued, fully paid and
nonassessable; and all of the issued shares of capital stock, partnership
interests, membership interests or other equity interests of each subsidiary of
the Company have been duly and validly authorized and issued and are fully
paid, non-assessable and are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims.
3. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options or warrants to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase
_______________________________
(1) Capitalized terms used herein but not defined shall have the meanings
given such terms in the Underwriting Agreement.
<PAGE> 38
any securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations, except for options granted subsequent to
the date of information provided in the Prospectus pursuant to the Company's
employee and stock option plans as disclosed in the Prospectus. There are no
restrictions upon the voting or transfer of any of the Stock pursuant to the
Company's Certificate of Incorporation or By-laws or any agreement or other
instrument of the Company.
4. To the best of such counsel's knowledge, except as set forth in the
Prospectus, there are no material legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its subsidiaries, could
have a material adverse effect on the Company and its subsidiaries or prevent
or adversely affect the transactions contemplated by the Underwriting
Agreement; and, to the best of such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or other third
parties. To the best of such counsel's knowledge, neither the Company nor any
of its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body or other
governmental agency or body.
5. The Company has the full corporate power and authority to enter into
the Underwriting Agreement and to perform its obligations thereunder (including
to issue, sell and deliver the Stock), and the Underwriting Agreement has been
duly and validly authorized, executed and delivered by the Company. The
Company has the full corporate power and authority to execute and deliver the
Warrants on the terms and conditions set forth in the Underwriting Agreement
and in the Warrants, and such execution and delivery of the Warrants has been
duly and validly authorized and are enforceable against the Company in
accordance with their terms.
6. The execution, delivery and performance of the Underwriting Agreement
and the consummation of the transactions therein contemplated will not result
in a breach or violation of any of the terms or provisions of or constitute a
default under the Certificate of Incorporation, By-laws or other organizational
documents of the Company or any of its subsidiaries, or any indenture,
mortgage, deed of trust, note agreement or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries is a party or
by which it or any of them or any of their properties is or may be bound, or
any law, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
properties or result in the creation of a lien.
-2-
<PAGE> 39
7. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions contemplated by the Underwriting Agreement (except such as may
be required by the NASD or as required by the securities or "Blue Sky" laws of
any jurisdiction as to which such counsel need express no opinion) in
connection with the purchase and distribution of the Stock by the Underwriters
except such as have been obtained or made, specifying the same.
8. The Registration Statement was declared effective under the Securities
Act as of _____________, 1997, the Prospectus was filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations on ____________, 1997 and,
to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose is pending or threatened by the Commission.
9. The Registration Statement and the Prospectus and any amendments or
supplements thereto (except for the financial statements and notes thereto and
related schedules as to which such counsel need express no opinion) comply as
to form in all respects with the requirements of the Securities Act and the
Rules and Regulations.
10. To the best of such counsel's knowledge, there are no contracts,
leases, agreements or other documents which are required by the Securities Act
or by the Rules and Regulations to be described in the Prospectus or filed as
exhibits to the Registration Statement which have not been described in the
Prospectus or filed as exhibits to the Registration Statement. All
descriptions of such contracts, leases, agreements and other documents
contained in the Prospectus are accurate and complete descriptions of such
documents in all material respects.
11. To the best of such counsel's knowledge, no person or entity has the
right to require registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the Registration
Statement or otherwise, except for persons and entities who have expressly
waived such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms and
conditions of such right.
12. The statements in the Prospectus, to the extent they constitute a
summary of documents referred to therein or reflect matters of law or legal
conclusions relating to such law, accurately summarize and fairly present the
information called for with respect to such documents and matter and the legal
and regulatory matters described therein.
-3-
<PAGE> 40
13. Neither the Company nor any of its subsidiaries is an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
14. In respect of all real property described in the Prospectus as being
owned or held under lease by the Company or its direct and indirect corporate
and partnership subsidiaries, such counsel has reviewed the title commitments
of title companies rendered or issued in connection with the purchase of such
property by the Company or its subsidiaries and based upon such review, and its
representation of the Company, its subsidiaries and the transactions relating
thereto, no facts have come to such counsel's attention that have led such
counsel to believe that there is any inaccuracy in such commitments relating to
the real property described in the Prospectus as being owned or held under
lease by the Company or its subsidiaries (such counsel being entitled to rely
in respect of matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that both you and they
are justified in relying upon such certificates).
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any
amendment thereto, as of the time it became effective under the Securities Act
(but after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Securities Act), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, or (ii)
that the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the First Closing Date or the
Option Closing Date, as the case may be, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (except that such
counsel need express no view as to financial statements and notes thereto,
schedules and statistical information therein). With respect to such
statement, such counsel may state that their belief is based upon the
procedures set forth therein, but is without independent check and
verification.
-4-
<PAGE> 1
EXHIBIT 2.1
PLAN OF MERGER UNDER NRS CHAPTER 78 OF MERGING
OF JIM SAXTON, INC., A NEVADA CORPORATION,
INTO SAXTON INCORPORATED, A NEVADA CORPORATION
1. Merger. JIM SAXTON, INC., a Nevada corporation ("Merging
Corporation"), whose address is 5420 W. Sahara Ave., #201, Las Vegas, NV 89102,
shall be merged (the "Merger") into SAXTON INCORPORATED, a Nevada corporation
("Surviving Corporation"), whose address is 5420 W. Sahara Ave., #201, Las
Vegas, NV 89102. Surviving Corporation shall be the surviving corporation of the
Merger.
2. Terms and Conditions. The terms and conditions of the
Merger are as follows:
a. Merging Corporation shall be merged into Surviving
Corporation in accordance with the procedures set forth in Sections 1 through 59
of Senate Bill No. 433, to be codified in Title 7 of Nevada Revised Statutes.
b. The articles of incorporation and bylaws of Surviving
Corporation in effect on the Effective Date shall be the articles of
incorporation and the bylaws of the surviving corporation under this Merger. The
directors and officers of Surviving Corporation on the Effective Date shall be
the directors and officers of the surviving corporation under this Merger.
c. On the Effective Date, any outstanding shares of Merging
Corporation stock which are then owned by Surviving Corporation shall be void,
and each other outstanding share of Merging Corporation stock shall be converted
into one thousand nine hundred sixteen (1,916) shares of Surviving Corporation
common stock (the "Conversion Rate"), fully paid and nonassessable.
3. Manner of Exchange. The manner and basis of converting
shares of Merging Corporation stock into shares of Surviving Corporation stock
shall be as follows:
a. The outstanding shares of Surviving Corporation stock
shall not be changed or converted as a result of the Merger, and following the
Effective Date, all shares of Surviving Corporation then authorized shall remain
authorized shares of Surviving Corporation, and all shares of Surviving
Corporation then outstanding shall remain outstanding, and shall be fully paid
and nonassessable by Surviving Corporation, and shall be subject to all the
provisions of this Plan.
b. On the Effective Date, each common share of Merging
Corporation stock which is then owned of record by Surviving Corporation
shall be void.
<PAGE> 2
c. On the Effective Date, each issued and outstanding
share of Merging Corporation stock, other than any shares owned by Surviving
Corporation, shall be converted into one thousand nine hundred sixteen (1,916)
issued and outstanding shares of Surviving Corporation common stock. Each such
holder of outstanding common shares of Merging Corporation, upon the surrender
to Surviving Corporation of one or more certificates of such shares for
cancellation, shall be entitled to receive one or more certificates for a number
of shares of Surviving Corporation common stock equal to the number of
surrendered shares multiplied by the Conversion Rate. Until so surrendered, each
such certificate representing outstanding shares of Merging Corporation stock
shall represent a like number of shares of Surviving Corporation multiplied by
the Conversion Rate, for all corporate and legal purposes, subject only to the
rights of dissenting stockholders under applicable law.
4. Stockholder Approval. Upon approving this Plan, the board of
directors of Surviving Corporation and Merging Corporation shall each submit and
recommend this Plan for approval by its respective stockholders. Each
stockholder meeting shall be noticed and held on or before December 31, 1995.
5. Effective Date. The Merger shall become effective upon the
later of (a) filing of articles of merger by Surviving Corporation with the
Secretary of State, or (b) December 31, 1995 (the "Effective Date").
6. Conditions to Merger. Anything to the contrary in this Plan
notwithstanding, the Merger shall not be made effective if, prior to the
Effective Date, (i) the boards of directors of Surviving Corporation and Merging
Corporation elect that the Merger be abandoned, (ii) a sufficiently large number
of Merging Corporation stockholders shall have asserted the rights of dissenting
stockholders under Nevada law so as to render it inadvisable, in the sole
opinion of the board of directors of Surviving Corporation, to proceed with the
Merger, or (iii) if any material litigation shall be pending or threatened
against or affecting Surviving Corporation or Merging Corporation, or either's
respective assets, or the Merger, which in the judgement of the board of
directors of either Surviving Corporation or Merging Corporation renders it
inadvisable to proceed with the Merger. If the board of directors of Surviving
Corporation or Merging Corporation elects that the Merger shall not be made
effective as provided under this Paragraph 6, notice shall be given to the
other, and then, or upon the election of both such boards of directors that the
Merger shall not be made effective as provided in (i) of this Paragraph 6, this
Plan shall become void and of no effect, and there shall be no liability on the
part of Surviving Corporation or Merging Corporation, or the board of directors
or stockholders of either.
2
<PAGE> 3
7. Distribution of New Shares. If the Merger becomes effective,
Merging Corporation authorizes Surviving Corporation to take or cause to be
taken such steps as Surviving Corporation may deem necessary or advisable in
order to effect the distribution, on the basis and terms specified in this Plan,
of Surviving Corporation's share certificates which holders of Merging
Corporation shares shall be entitled to receive under the terms of the Merger.
8. Assumption of Obligations and Liabilities. Upon effectuation
of the Merger, Surviving Corporation shall be deemed to have assumed, accepted
and ratified all of the obligations, debts and liabilities of Merging
Corporation in effect as of the Effective Date including, without limiting the
generality of the foregoing, the obligations of Merging Corporation under the
options to purchase an aggregate of 130.3 shares of common stock of Merging
Corporation granted by its board of directors as of December 29, 1994 (the "1994
Options"). Each 1994 Option outstanding as of the Effective Date shall survive
the Merger and shall remain in full force and effect; provided however, that
upon the Effective Date (a) shares issued in connection with the exercise of any
such option shall be shares of common stock of Surviving Corporation, and (b)
the number of shares exercisable pursuant to any such option shall be multiplied
by the Conversion Rate. As soon as practicable following the Effective Date, the
Profit Sharing Plan for Employees of Jim Saxton, Inc. (the "JSI Profit Sharing
Plan") shall be merged into the Saxton Incorporated Employees Stock Ownership
Plan (the "Saxton ESOP") and the assets held in the JSI Profit Sharing Plan
Trust shall be transferred to the Saxton ESOP Trust.
9. Further Documents. To the extent permitted by law, from time
to time, as and when requested by Surviving Corporation or by its successors or
assigns, Merging Corporation shall execute and deliver or cause to be executed
and delivered all such deeds and instruments and to take or cause to be taken
such further or other action as Surviving Corporation may deem necessary or
desirable, in order to vest in and confirm to Surviving Corporation, title to
and possession of any property of Merging Corporation acquired by reason of or
as a result of the Merger, and otherwise to carry out the intent and purposes of
this Plan, and the proper officers and directors of Merging Corporation and the
proper officers and directors of Surviving Corporation are fully authorized in
the name of Merging Corporation or otherwise to take any and all such action.
3
<PAGE> 4
Approved Approved
SAXTON INCORPORATED, a JIM SAXTON, INC., a
Nevada corporation Nevada corporation
By:/s/James C. Saxton By:/s/James C. Saxton
--------------------------- --------------------------
James C. Saxton James C. Saxton
President President
Date: December 26, 1995 Date: December 26, 1995
4
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SAXTON INCORPORATED
The undersigned, being the original incorporator herein named, for the
purpose of forming a corporation under the general corporation laws of the State
of Nevada, does make and file these Articles declaring and certifying that the
facts herein stated are true.
ARTICLE I
NAME
The name of the corporation is SAXTON INCORPORATED.
ARTICLE II
TERM
The term of the corporation shall be perpetual.
ARTICLE III
RESIDENT AGENT & REGISTERED OFFICE
The registered agent for service of process is James C. Saxton, whose
address is 5420 W. Sahara Avenue, Suite 201, Las Vegas, Nevada 89102. The
corporation may maintain offices for the transaction of any business at such
places within or without the State of Nevada as it may from time to time
determine. Corporate business of every kind and nature may be conducted, and
meetings of directors and stockholders held, outside the State of Nevada with
the same effect as if within the State of Nevada.
ARTICLE IV
CAPITAL STOCK
The amount of the total authorized capital stock of the corporation is
Fifty Five Million (55,000,000) shares, $0.001 par value per share, consisting
of Fifty Million (50,000,000) shares of Common Stock and Five Million
(5,000,000) shares of Preferred
<PAGE> 2
Stock. The characteristics distinguishing Preferred Stock from Common Stock
shall be described in a resolution or resolutions of the Board of Directors
adopted prior to issuance of any Preferred Stock. All stock shall be fully paid
and non-assessable, and shall be issued for such consideration as may be fixed
from time to time by the Board of Directors. The Board of Directors may issue
such shares of Common Stock and Preferred Stock in one or more series, at such
price and in such number of each series as may be stated in the resolution(s)
adopted by the Board. No stockholder of the corporation shall have preemptive
rights.
ARTICLE V
BOARD OF DIRECTORS
The Board of Directors shall initially be comprised of two (2) members.
The specific number of directors may from time to time be increased or decreased
in accordance with the bylaws of the corporation; provided, however, that the
number of directors shall in no event be less than two (2) nor more than fifteen
(15). The initial directors, and their respective addresses, are:
<TABLE>
<S> <C>
James C. Saxton 5420 W. Sahara Avenue
Suite 201
Las Vegas, Nevada 89102
Michele Pori 5420 W. Sahara Avenue
Suite 201
Las Vegas, Nevada 89102
</TABLE>
No stockholder of the corporation shall be entitled to cumulative voting of his
or her shares for the election of directors or otherwise.
ARTICLE VI
DIRECTORS' AND OFFICERS' LIABILITY
A director or officer of the Corporation shall not be
2
<PAGE> 3
personally liable to the corporation or its stockholders for damages for breach
of fiduciary duty as a director or officer, but this Article shall not eliminate
or limit the liability of a director or officer for (a) acts or omissions which
involve intentional misconduct, fraud or willful violation of law, or (b) the
payment of distributions in violation of NRS 78.300. If the private corporations
law of Nevada is hereafter amended or interpreted to eliminate or limit further
the liability of a director or officer, the liability of all directors and
officers shall be eliminated or limited to the full extent then so permitted.
ARTICLE VII
INDEMNITY
Subject to Article VI above, each officer and director who may be made a
party to, or threatened to be made a party to, any action, suit or proceeding by
reason of the fact that he or she is or was a director or officer, shall be
indemnified and held harmless by the corporation as provided in the bylaws of
the corporation. In addition, the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding, involving alleged acts
or omissions of such officer or director in his or her capacity as an officer or
director of the corporation, must be paid, by the corporation or through
insurance purchased and maintained by the corporation or through other financial
arrangements made by the corporation, as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf
3
<PAGE> 4
of the director or officer to repay the amount if it is ultimately determined by
a court of competent jurisdiction that he or she is not entitled to be
indemnified by the corporation.
ARTICLE VIII
AMENDMENT
This corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation in the manner
provided by statute, and all rights conferred upon the stockholders are granted
subject to the foregoing reservation. Any repeal or modification of Articles VI
and VII hereof by the stockholders of the corporation shall be prospective only.
ARTICLE IX
POWERS OF DIRECTORS
The Board of Directors shall have all powers conferred by statute,
subject only to any limitations thereon contained in the bylaws of the
corporation.
ARTICLE X
ELECTION NOT TO BE SUBJECT TO CERTAIN STATUTORY PROVISIONS
Pursuant to Section 78.378(1) of Nevada Revised Statutes, the
corporation hereby elects not to be governed by the provisions of NRS 78.378
through 78.3793, inclusive. Pursuant to Section 78.434(1) of Nevada Revised
Statutes, the corporation further elects not to be governed by the provisions of
NRS 78.411 through 78.444, inclusive.
IN WITNESS WHEREOF the undersigned has hereunto set his hand this 12th
day of December, 1995.
4
<PAGE> 5
/s/James C. Saxton
----------------------------------------
James C. Saxton, Incorporator
5420 W. Sahara Avenue
Suite 201
Las Vegas, Nevada 89102
STATE OF NEVADA )
: ss.
COUNTY OF CLARK )
This instrument was acknowledged before me on this 12th day of
December, 1995, by James C. Saxton.
/s/Molly J. Adams
------------------------------
NOTARY PUBLIC
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
JAMES C. SAXTON, with address at 5420 W. Sahara Avenue, Suite 201, Las
Vegas, Nevada 89102, hereby accepts appointment as Resident Agent of SAXTON
INCORPORATED, a Nevada corporation.
DATED this 12th day of December, 1995.
/s/James C. Saxton
------------------------------
James C. Saxton
5
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF MERGER UNDER NRS CHAPTER 78
1. Names. The names and places of incorporation of each
constituent corporation are (i) JIM SAXTON, INC., a Nevada corporation ("Merging
Corporation"); and (ii) SAXTON INCORPORATED, a Nevada corporation ("Surviving
Corporation"). JIM SAXTON, INC. is the merging corporation hereunder, and SAXTON
INCORPORATED is the surviving corporation hereunder.
2. Board Adoption. A plan of merger in which Merging
Corporation merges into Surviving Corporation has been adopted by the board of
directors of each corporation pursuant to Sections 1 through 59 of Senate Bill
No. 433, to be codified in Title 7 of Nevada Revised Statutes.
3. Stockholder Approval. On December 26, 1995, the plan of merger
was submitted and recommended by the board of directors of each corporation for
approval by the stockholders of each corporation pursuant to law. The percentage
of Surviving Corporation votes cast for the plan was 100%. The percentage of
Merging Corporation votes cast for the plan was 100%.
4. Plan of Merger. The complete executed plan of merger is on
file at the registered office of Surviving Corporation. A copy of the plan of
merger will be furnished by Surviving Corporation, on request and without cost,
to any stockholder of any corporation which is a party to the merger.
5. Effective Date. The merger shall be effective upon the later
of (a) filing of these articles of merger with the Secretary of State, or
(b) December 31, 1995.
<PAGE> 2
SAXTON INCORPORATED, a Nevada corporation
By: /s/James C. Saxton
------------------------------------------------
James C. Saxton, President
Date: December 26, 1995
By: /s/Dorothy J. Saxton
------------------------------------------------
Dorothy J. Saxton, Secretary
Date: December 26, 1995
JIM SAXTON, INC., a Nevada corporation
By: /s/James C. Saxton
------------------------------------------------
James C. Saxton, President
Date: December 26, 1995
By: /s/Dorothy J. Saxton
------------------------------------------------
Dorothy J. Saxton, Secretary
Date: December 26, 1995
STATE OF NEVADA )
: ss. [SEAL]
COUNTY OF CLARK )
This instrument was acknowledged before me on this 28th day
of December, 1995, by JAMES C. SAXTON as President of Jim Saxton,
Inc. and of Saxton Incorporated, and by DOROTHY J. SAXTON as
Secretary of Jim Saxton, Inc. and of Saxton Incorporated.
/s/Sharon M. Bullock
-------------------------
Notary Public
2
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
SAXTON INCORPORATED
ARTICLE I
OFFICES
SECTION 1.01 PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation is hereby fixed and located at 5420 West Sahara Avenue Suite
201, Las Vegas, Nevada 89102. The Board of Directors is hereby granted full
power and authority to change said principal executive office from one location
to another. Any such change shall be noted on the By-Laws by the secretary,
opposite this Section, or this Section may be amended to state the new location.
SECTION 1.02 OTHER OFFICES. Other business offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
STOCKHOLDERS
SECTION 2.01 ANNUAL MEETING. An annual meeting of the stockholders of the
corporation shall be held in each year, commencing after the first anniversary
of incorporation, on such day (other than a day which is a legal holiday) and at
such time specified by the Board of Directors, for the purpose of electing
directors of the corporation to serve during the ensuing year and for the
transaction of such other business as may properly come before the meeting.
SECTION 2.02 SPECIAL MEETINGS.
(a) Special meetings of the stockholders may be called by the
chairman, the president or the Board of Directors and shall be called by the
chairman, the president or the Board of Directors at the written request of the
holders of not less than a majority of the voting power of any class of the
corporation's stock entitled to vote.
(b) No business shall be acted upon at a special meeting except
as set forth in the notice calling the meeting, unless one of the conditions for
the holding of a meeting without notice set forth in Section 2.05 shall be
satisfied, in which case any business may be transacted and the meeting shall be
valid for all purposes.
SECTION 2.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its principal executive office or at such other place
in or out of the United States as the Board of Directors may designate. A waiver
of notice signed by stockholders entitled to vote may designate any place for
the holding of such meeting.
SECTION 2.04 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an assistant
secretary or any other individual designated by the Board of Directors shall
sign and deliver written notice of any
<PAGE> 2
meeting at least ten (10) days but not more than sixty (60) days before the date
of such meeting. The notice shall state the place, date and time of the meeting
and the purpose or purposes for which the meeting is called.
(b) In the case of an annual meeting, any proper business may be
presented for action, except that action on any of the following items shall be
taken only if the general nature of the proposal is stated in the notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or officers or between
the corporation and any corporation, firm or association in which one or more of
the corporation's directors or officers is a director or officer or is
financially interested;
(2) Adoption of amendments to the Articles of Incorporation;
or
(3) Action with respect to a merger, share exchange,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) A copy of the notice shall be personally delivered or mailed
postage prepaid to each stockholder of record entitled to vote at the meeting at
the address appearing on the records of the corporation, and the notice shall be
deemed delivered the date the same is deposited in the United States mail for
transmission to such stockholder. If the address of any stockholder does not
appear upon the records of the corporation, it will be sufficient to address any
notice to such stockholder at the registered office of the corporation.
(d) The written certificate of the individual signing a notice
of meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
(e) Any stockholder may waive notice of any meeting by a signed
writing, either before or after the meeting.
SECTION 2.05 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting
consent, either by: (i) a writing on the records of the meeting or filed with
the secretary; or (ii) presence at such meeting and oral consent entered on the
minutes; or (iii) taking part in the deliberations at such meeting without
objection; the doings of such meeting shall be as valid as if had at a meeting
regularly called and noticed.
(b) At such meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of the
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
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<PAGE> 3
(d) Such consent or approval may be by proxy or attorney, but
all such proxies and powers of attorney must be in writing.
SECTION 2.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled to
notice of and to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any distribution or the allotment of any rights,
or entitled to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action, the directors
may fix, in advance, a record date, which shall not be more than sixty (60) days
nor less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action.
(b) If no record date is fixed, the record date for determining
stockholders (i) entitled to notice of and to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; (ii) entitled to express
consent to corporate action in writing without a meeting shall be the day on
which the first written consent is expressed; and (iii) for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote an any meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 2.07 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a different
proportion, stockholders holding at least a majority of the voting power of the
corporation's stock, represented in person or by proxy, are necessary to
constitute a quorum for the transaction of business at any meeting. If, on any
issue, voting by classes is required by the laws of the State of Nevada, the
Articles of Incorporation or these Bylaws, at least a majority of the voting
power within each such class is necessary to constitute a quorum of each such
class.
(b) If a quorum is not represented, a majority of the voting
power so represented may adjourn the meeting from time to time until holders of
the voting power required to constitute a quorum shall be represented. At any
such adjourned meeting at which a quorum shall be represented, any business may
be transacted which might have been transacted as originally called. When a
stockholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
SECTION 2.08 VOTING.
(a) Unless otherwise provided in the Articles of Incorporation,
or in the resolution providing for the issuance of the stock adopted by the
Board of Directors pursuant to authority expressly vested in it by the
provisions of the Articles of Incorporation, each stockholder of record, or
-3-
<PAGE> 4
such stockholder's duly authorized proxy or attorney-in-fact, shall be entitled
to one (1) vote for each share of voting stock standing registered in such
stockholder's name on the record date.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date (including
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact, or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased stockholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name of a
minor, votes may be cast only by the duly appointed guardian of the estate of
such minor if such guardian has provided the corporation with written proof of
such appointment.
(c) With respect to shares standing in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i) in the case of a corporation, by such
individual as the bylaws of such other corporation prescribe, by such individual
as may be appointed by resolution of the board of directors of such other
corporation or by such individual (including the officer making the
authorization) authorized in writing to do so by the chairman of the board of
directors, president or any vice president of such corporation and (ii) in the
case of a partnership, limited liability company or other legal entity, by an
individual representing such stockholder upon presentation to the corporation of
satisfactory evidence of his authority to do so.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast for shares owned by this corporation or its subsidiaries,
if any. If shares are held by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
(i) If only one person votes, the vote of such person
binds all.
(ii) If more than one person casts votes, the act of the
majority so voting binds all.
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<PAGE> 5
(iii) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed cast
proportionately, as split.
(g) If a quorum is present, unless the laws of the State of
Nevada, the Articles of Incorporation or these Bylaws provide for a different
proportion, the affirmative vote of holders of at least a majority of the voting
power represented at the meeting and entitled to vote on any matter shall be the
act of the stockholders. If voting by classes is required for any action of the
stockholders by the laws of the State of Nevada, the Articles of Incorporation
or these Bylaws, the affirmative vote of holders of a least a majority of the
voting power of each such class shall be required unless the laws of the State
of Nevada, the Articles of Incorporation or these Bylaws provide for a different
proportion of each class.
SECTION 2.09 PROXIES. At any meeting of stockholders, any holder of shares
entitled to vote may designate, in a manner permitted by the laws of the State
of Nevada, another person or persons to act as a proxy or proxies. No proxy is
valid after the expiration of six (6) months from the date of its creation,
unless it is coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its creation. Every proxy shall continue in full force and effect until
its expiration or revocation in a manner permitted by the laws of the State of
Nevada.
SECTION 2.10 ABSENTEES' CONSENT TO MEETINGS. Transactions of any meeting
of the stockholders are as valid as though had at a meeting duly held after
regular call and notice if a quorum is represented, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not represented in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not properly included in the notice if such objection
is expressly made at the time any such matters are presented at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
special meeting of stockholders need be specified in any written waiver of
notice or consent, except as otherwise provided in Section 2.04(a) and (b) of
these Bylaws.
SECTION 2.11 TELEPHONIC MEETINGS. Stockholders may participate in a
meeting of the stockholders by means of a telephone conference or similar method
of communication by which all individuals participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 2.11 constitutes
presence in person at the meeting.
SECTION 2.12 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the stockholders may be taken without a meeting if a
written consent thereto is signed by stockholders holding at least a majority of
the outstanding shares or such greater percentage as may be required for such
action by these Bylaws, the Articles of Incorporation or Nevada law. Whenever
action is taken by written consent, a meeting of stockholders need not be called
or notice given. The
-5-
<PAGE> 6
written consent may be signed in counterparts and shall be filed with the
minutes of the proceedings of the stockholders.
ARTICLE III
DIRECTORS
SECTION 3.01 NUMBER, TENURE, AND QUALIFICATIONS. Unless a different number
is required by the laws of the State of Nevada or the Articles of Incorporation
or until changed in the manner provided herein, the Board of Directors of the
corporation shall consist of not less than two (2) nor more than fifteen (15)
individuals who shall be elected at the annual meeting of the stockholders of
the corporation and who shall hold office for one (1) year or until his or her
successor or successors are elected and qualify. A director need not be a
stockholder of the corporation.
SECTION 3.02 CHANGE IN NUMBER. Subject to any limitations in the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, the number
of directors may be changed from time to time by resolution adopted by the Board
of Directors or the stockholders.
SECTION 3.03 REDUCTION IN NUMBER. No reduction of the number of directors
shall have the effect of removing any director prior to the expiration of his
term of office.
SECTION 3.04 RESIGNATION. Any director may resign effective upon giving
written notice to the chairman of the Board of Directors, the president, the
secretary, or in the absence of all of them, any other officer, unless the
notice specifies a later time for effectiveness of such resignation. A majority
of the remaining directors, though less than a quorum, may appoint a successor
to take office when the resignation becomes effective, each director so
appointed to hold office during the remainder of the term of office of the
resigning director.
SECTION 3.05 REMOVAL.
(a) The Board of Directors of the corporation, by majority vote,
may declare vacant the office of a director who has been declared incompetent by
an order of a court of competent jurisdiction or convicted of a felony.
(b) Any director may be removed from office by the vote or
written consent of stockholders representing not less than two-thirds (2/3) of
the voting power of the issued and outstanding stock entitled to vote.
SECTION 3.06 VACANCIES. All vacancies, including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, though less than a quorum unless it is otherwise provided
in the Articles of Incorporation unless, in the case of removal of a director,
the stockholders by a majority of voting power shall have appointed a successor
to the removed director. In the case of the replacement of a director, the
appointed director shall hold office during the remainder of the term of office
of the replaced director and, in the case of an increase in the number of
directors, the appointed director shall hold office until the next meeting of
stockholders at which directors are elected.
SECTION 3.07 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
3.06, the Board of Directors, including directors newly elected,
-6-
<PAGE> 7
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
SECTION 3.08 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the chairman, or if there be no chairman, by the president or
secretary and shall be called by the chairman, the president or the secretary
upon the request of any three (3) directors. If the chairman, or if there be no
chairman both the president and secretary, refuses or neglects to call such
special meeting, a special meeting may be called by notice signed by any three
(3) directors.
SECTION 3.09 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by directors may designate any
place for the holding of such meeting.
SECTION 3.10 NOTICE OF MEETINGS. Except as otherwise provided in Section
3.07, there shall be delivered to all directors, at least forty-eight (48) hours
before the time of such meeting, a copy of a written notice of any meeting by
delivery of such notice personally by mailing such notice postage prepaid or by
telegram. If mailed, the notice shall be deemed delivered two (2) business days
following the date the same is deposited in the United States mail, postage
prepaid. Any director may waive notice of any meeting, and the attendance of a
director at a meeting and oral consent entered in the minutes of the waiver of
notice of such meeting. Attendance for the express purpose of objecting to the
transaction of business thereat because the meeting is not properly called or
convened shall not constitute presence nor a waiver of notice for purposes
hereof.
SECTION 3.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
SECTION 3.12 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present is
the act of the Board of Directors.
SECTION 3.13 TELEPHONIC MEETINGS. Members of the Board of Directors or of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or committee by means of a telephone conference or
similar method of communication by which all persons participating in such
meeting can hear each other. Participation in a meeting pursuant to this Section
3.13 constitutes presence in person at the meeting.
SECTION 3.14 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or of a committee thereof may be
taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
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<PAGE> 8
SECTION 3.15 POWERS AND DUTIES.
(a) Except as otherwise restricted in the laws of the State of
Nevada or the Articles of Incorporation, the Board of Directors has full control
over the affairs of the corporation. The Board of Directors may delegate any of
its authority to manage, control or conduct the business of the corporation to
any standing or special committee or to any officer or agent and to appoint any
persons to be agents of the corporation with such powers, including the power to
subdelegate, and upon such terms as may be deemed fit.
(b) The Board of Directors may present to the stockholders at
annual meetings of the stockholders, and when called for by a majority vote of
the stockholders at an annual meeting or a special meeting of the stockholders
shall so present, a full and clear report of the condition of the corporation.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders or any special meeting properly called for the purpose of
considering any such contract or act, provided a quorum is present.
SECTION 3.16 COMPENSATION. Directors, as such, shall not receive any
stated salary for their services, but by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors; provided, however,
that nothing herein contained shall be construed to preclude any Director from
serving the corporation in any other capacity and receiving compensation
therefore. Members of special or standing committees of the Board of Directors
may be allowed like compensation for attending committee meetings.
SECTION 3.17 BOARD OF DIRECTORS' OFFICERS. At its annual meeting, the
Board of Directors shall elect, from among its members, a chairman who shall
preside at meetings of the Board of Directors. The Board of Directors may also
elect such other officers of the Board of Directors and for such term as it may,
from time to time, determine advisable. Any vacancy in any office of the Board
of Directors because of death, resignation, removal or otherwise may be filled
by the Board of Directors for the unexpired portion of the term of such office.
ARTICLE IV
OFFICERS
SECTION 4.01 ELECTION. The Board of Directors, at its annual meeting,
shall elect a president, a secretary and a treasurer to hold office for a term
of one (1) year or until their successors are chosen and qualify. Any individual
may hold two (2) or more offices. The Board of Directors may, from time to time,
by resolution, elect one (1) or more vice presidents, assistant secretaries and
assistant treasurers and appoint agents of the corporation, prescribe their
duties and fix their compensation.
SECTION 4.02 REMOVAL RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
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<PAGE> 9
SECTION 4.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 4.04 PRESIDENT.
(a) The president shall be the chief executive or operations
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall direct the corporate affairs, with full power to execute
all resolutions and orders of the Board of Directors not expressly delegated to
some other officer or agent of the corporation. If the Chairman of the Board of
Directors elects not to preside or is absent, the president shall preside at
meetings of the stockholders and Board of Directors and perform such other
duties as shall be prescribed by the Board of Directors.
(b) The president shall have full power and authority on behalf
of the corporation to attend and to act and to vote, or designate such other
officer or agent of the corporation to attend and to act and to vote, at any
meetings of the stockholders of any corporation in which the corporation may
hold stock and, at any such meetings, shall possess and may exercise any and all
rights and powers incident to the ownership of such stock. The Board of
Directors, by resolution from time to time, may confer like powers on any person
or persons in place of the president to exercise such powers for these purposes.
SECTION 4.05 VICE PRESIDENTS. The Board of Directors may elect one (1) or
more vice presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
SECTION 4.06 SECRETARY. The secretary shall keep, or cause to be kept, the
minutes of proceedings of the stockholders and the Board of Directors in books
provided for that purpose. The secretary shall attend to the giving and service
of all notices of the corporation, may sign with the president in the name of
the corporation all contracts in which the corporation is authorized to enter,
shall have the custody or designate control of the corporate seal, shall affix
the corporate seal to all certificates of stock duly issued by the corporation,
shall have charge or designate control of stock certificate books, transfer
books and stock ledgers, and such other books and papers as the Board of
Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
SECTION 4.07 ASSISTANT SECRETARIES. The Board of Directors may appoint one
(1) or more assistant secretaries who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the secretary.
SECTION 4.08 TREASURER. The treasurer shall be the chief financial officer
of the corporation, subject to the supervision and control of the Board of
Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer may sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by
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<PAGE> 10
these Bylaws, or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter, or cause to be entered, regularly in the financial
records of the corporation, to be kept for that purpose, full and accurate
accounts of all monies received and paid on account of the corporation and,
whenever required by the Board of Directors, the treasurer shall render a
statement of any or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any director of the corporation and shall
perform all acts incident to the position of treasurer subject to the control of
the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond to
the corporation in such sum and with such security as shall be approved by the
Board of Directors for the faithful performance of all the duties of treasurer
and for restoration to the corporation, in the event of the treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
SECTION 4.09 ASSISTANT TREASURERS. The Board of Directors may appoint one
or more assistant treasurers who shall have such powers and perform such duties
as may be prescribed by the Board of Directors or the treasurer. The Board of
Directors may require an assistant treasurer to give a bond to the corporation
in such sum and with such security as it may approve, for the faithful
performance of the duties of assistant treasurer, and for restoration to the
corporation, in the event of the assistant treasurer's death, resignation,
retirement or removal from office, of all books, records, papers, vouchers,
money and other property in the assistant treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
ARTICLE V
CAPITAL STOCK
SECTION 5.01 ISSUANCE. Shares of the corporation's authorized stock shall,
subject to any provisions or limitations of the laws of the State of Nevada, the
Articles of Incorporation or any contracts or agreements to which the
corporation may be a party, be issued in such manner, at such times, upon such
conditions and for such consideration as shall be prescribed by the Board of
Directors.
SECTION 5.02 CERTIFICATES. Ownership in the corporation shall be evidenced
by certificates for shares of stock in such form as shall be prescribed by the
Board of Directors, shall be under the seal of the corporation and shall be
manually signed by the president or a vice president and also by the secretary
or an assistant secretary; provided, however, whenever any certificate is
countersigned or otherwise authenticated by a transfer agent or transfer clerk,
and by a registrar, then a facsimile of the signatures of said officers of the
corporation may be printed or lithographed upon the certificate in lieu of the
actual signatures. If the corporation uses facsimile signatures of its officers
on its stock certificates, it shall not act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution acting in
those dual capacities countersigns any stock certificates in both capacities.
Each certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that the shares are assessable. All
certificates shall be consecutively numbered. If provided by the stockholder,
the name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered in the stock transfer
records of the corporation.
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<PAGE> 11
SECTION 5.03 SURRENDERED, LOST OR DESTROYED CERTIFICATES. All certificates
surrendered to the corporation, except those representing shares of treasury
stock, shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been canceled, except that in
case of a lost, stolen, destroyed or mutilated certificate, a new one may be
issued therefor. However, any stockholder applying for the issuance of a stock
certificate in lieu of one alleged to have been lost, stolen, destroyed or
mutilated shall, prior to the issuance of a replacement, provide the corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in such amount as it may direct, and upon such terms as the
treasurer or the Board of Directors shall require which shall indemnify the
corporation against any loss, damage, cost or inconvenience arising as a
consequence of the issuance of a replacement certificate.
SECTION 5.04 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors. The
order may provide that a holder of any certificate(s) ordered to be surrendered
shall not be entitled to vote, receive distributions or exercise any other
rights of stockholders of record until the holder has complied with the order,
but the order operates to suspend such rights only after notice and until
compliance.
SECTION 5.05 TRANSFER OF SHARES. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to cancel the older
certificate, issue a new certificate to the person entitled thereto, and record
the transaction upon its books, unless under the Securities Act of 1933 or
otherwise such transfer would be adverse to the best interests of the
corporation or unless the corporation has notice of an adverse claim of the
corporation, to the certificate.
SECTION 5.06 TRANSFER AGENT; REGISTRARS. The Board of Directors may
appoint one or more transfer agents, transfer clerk and registrars of transfer
and may require all certificates for shares of stock to bear the signature of
such transfer agent, transfer clerk and/or registrar of transfer.
SECTION 5.07 STOCK TRANSFER RECORDS. The stock transfer records shall be
closed for a period of at least ten (10) days but not more than sixty (60) days
prior to all meetings of the stockholders, shall be closed for the payment of
distributions as provided in Article VI hereof and during such additional
periods as, from time to time, may be fixed by the Board of Directors, and,
during any such periods, no stock shall be transferable for purposes of Article
VI and no voting rights shall be deemed transferred. Subject to the forgoing
limitations, nothing contained herein shall cause transfers during such periods
to be void or voidable.
SECTION 5.08 MISCELLANEOUS. The Board of Directors shall have the power
and authority to make such rules and regulations not inconsistent herewith as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the corporation's stock.
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<PAGE> 12
ARTICLE VI
DISTRIBUTIONS
Distributions may be declared, subject to the provisions of the laws of
the State of Nevada and the Articles of Incorporation, by the Board of Directors
at any regular or special meeting and may be paid in cash, property, shares of
corporate stock, or any other medium. The Board of Directors may fix in advance
a record date, as provided in Section 2.06, prior to the distribution for the
purpose of determining stockholders entitled to receive any distribution. The
Board of Directors may close the stock transfer books for such purpose for a
period of not more than ten (10) days prior to the date of such distribution.
ARTICLE VII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 7.01 RECORDS. All original records of the corporation shall be
kept by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 7.02 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every director
and officer shall have the absolute right at any reasonable time for a purpose
reasonably related to the exercise of such individual's duties to inspect and
copy all of the corporation's books, records, and documents of every kind and to
inspect the physical properties of the corporation and/or its subsidiary
corporations. Such inspection may be made in person or by agent or attorney.
SECTION 7.03 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
SECTION 7.04 FISCAL YEAR-END. The fiscal year-end of the corporation shall
be such date as may be fixed from time to time by resolution of the Board of
Directors.
SECTION 7.05 RESERVES. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the corporation, or for such other purpose as
the Board of Directors may deem beneficial to the corporation, and the directors
may modify or abolish any such reserves in the manner in which they were
created.
ARTICLE VIII
INDEMNIFICATION AND LIABILITY
SECTION 8.01 CERTAIN DEFINITIONS. For purposes of this Article VIII, (a)
"Indemnitee" shall mean each director or officer who was or is a party to, or is
threatened to be made a party to, or is otherwise involved in, any Proceeding
(as hereinafter defined), by reason of the fact that he or she is or was a
director or officer of the corporation or is or was serving in any capacity at
the request of the corporation as a director, officer, employee, agent, partner,
or fiduciary of, or in any other capacity for, another corporation or any
partnership, joint venture, trust, or other enterprise; and (b)
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<PAGE> 13
"Proceeding" shall mean any threatened, pending or completed action or suit
(including without limitation an action, suit or proceeding by or in the right
of the corporation), whether civil, criminal, administrative or investigative.
SECTION 8.02 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Each Indemnitee shall be indemnified and held harmless by
the corporation for all actions taken by him or her and for all omissions
(regardless of the date of any such action or omission), to the fullest extent
permitted by Nevada law, against all expense, liability and loss (including
without limitation attorneys' fees, judgments, fines, taxes, penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding.
(b) Indemnification pursuant to this Section shall continue as
to an Indemnitee who has ceased to be a director or officer and shall inure to
the benefit of his or her heirs, executors and administrators.
SECTION 8.03 INDEMNIFICATION OF EMPLOYEES AND OTHER PERSONS. The
corporation may, by action of its Board of Directors and to the extent provided
in such action, indemnify employees and other persons as though they were
Indemnitees.
SECTION 8.04 NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification
provided in this Article shall not be exclusive of any other rights that any
person may have or hereafter acquire under any statute, provision of the
corporation's Articles of Incorporation or Bylaws, agreement, vote of
stockholders or directors, or otherwise.
SECTION 8.05 INSURANCE. The corporation may purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and liability and
expenses incurred by him or her in his or her capacity as a director, officer,
employee or agent, or arising out of his or her status as such, whether or not
the corporation has the authority to indemnify him or her against such liability
and expenses.
SECTION 8.06 OTHER FINANCIAL ARRANGEMENTS. The other financial
arrangements which may be made by the corporation may include the following (a)
the creation of a trust fund; (b) the establishment of a program of
self-insurance; (c) the securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the corporation; and
(d) the establishment of a letter of credit, guarantee or surety. No financial
arrangement made pursuant to this subsection may provide protection for a person
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for intentional misconduct, fraud, or a knowing
violation of law, except with respect to advancement of expenses or
indemnification ordered by a court.
SECTION 8.07 OTHER MATTERS RELATING TO INSURANCE OR FINANCIAL
ARRANGEMENTS. Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
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<PAGE> 14
In the absence of fraud (a) the decision of the Board of Directors as to
the propriety of the terms and conditions of any insurance or other financial
arrangement made pursuant to this Article and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and (b) the
insurance or other financial arrangement (i) is not void or voidable; and (ii)
does not subject any director approving it to personal liability for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
SECTION 8.08 AMENDMENT. The provisions of this Article relating to
indemnification shall constitute a contract between the corporation and each of
its directors and officers which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally, any repeal or amendment of this Article which is adverse to any
director or officer shall apply to such director or officer only on a
prospective basis and shall not limit the fights of an Indemnitee to
indemnification with respect to any action or failure to act occurring prior to
the time of such repeal or amendment. Notwithstanding any other provision of
these Bylaws, no repeal or amendment of these Bylaws shall affect any or all of
this Article so as to limit or reduce the indemnification in any manner unless
adopted by (a) the unanimous vote of the directors of the corporation then
serving, or (b) by the stockholders as set forth in Article IX hereof; provided
that no such amendment shall have retroactive effect inconsistent with the
preceding sentence.
SECTION 8.09 CHANGES IN NEVADA LAW. References in this Article to Nevada
law or to any provision thereof shall be to such law as it existed on the date
this Article was adopted or as such law thereafter may be changed; provided that
(a) in the case of any change which expands the liability of directors or
officers or limits the indemnification rights or the rights to advancement of
expenses which the corporation may provide, the rights to limited liability, to
indemnification and to the advancement of expenses provided in the corporation's
Articles of Incorporation and/or these Bylaws shall continue as theretofore to
the extent permitted by law; and (b) if such change permits the corporation,
without the requirement of any further action by stockholders or directors, to
limit further the liability of directors (or limit the liability of officers) or
to provide broader indemnification rights or rights to the advancement of
expenses than the corporation was permitted to provide prior to such change,
then liability thereupon shall be so limited and the rights to indemnification
and the advancement of expenses shall be so broadened to the extent permitted by
law.
ARTICLE IX
AMENDMENT OR REPEAL
SECTION 9.01 AMENDMENT. Except as otherwise restricted in the Articles
of Incorporation or these Bylaws:
(a) Any provision of these Bylaws may be altered, amended or
repealed at the annual or any regular meeting of the Board of Directors without
prior notice, or at any special meeting of the Board of Directors if notice of
such alteration, amendment or repeal be contained in the notice of such special
meeting.
(b) These Bylaws may also be altered, amended, or repealed by
affirmative vote of a majority of the Board of Directors at a duly convened
meeting of the stockholders by the affirmative vote of the holders of a majority
of the voting power of the corporation entitled to vote. The
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<PAGE> 15
stockholders may provide by resolution that any Bylaw provision repealed,
amended, adopted or altered by them may not be repealed, amended, adopted or
altered by the Board of Directors.
CERTIFICATION
The undersigned duly elected secretary of the corporation, does hereby
certify that the foregoing Bylaws were adopted by the Board of Directors on the
26 day of December, 1995.
- --
/s/Michele Pori
----------------------------------------
Michele Pori , Secretary
---------------
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<PAGE> 16
FIRST AMENDMENT TO
BYLAWS
OF
SAXTON INCORPORATED
Pursuant to the resolution of the Board of Directors of the Company
adopted as of January 15, 1996, the first sentence of Section 1.01 of the
Bylaws of Saxton Incorporated is hereby amended to read as follows to reflect
the Company's new location for its principal executive offices:
"The principal executive office of the corporation is hereby
fixed and located at 5440 West Sahara Avenue, Third Floor,
Las Vegas, Nevada 89102."
CERTIFICATION
The undersigned duly elected secretary of the corporation does hereby
certify that the foregoing First Amendment to the Bylaws was adopted by the
Board of Directors as of January 15, 1996.
/S/ MICHELE PORI
----------------------------
Michele Pori, Secretary
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
THIS WARRANT MAY NOT BE SOLD OR TRANSFERRED, EXCEPT UPON SUCH REGISTRATION OR
UPON DELIVERY TO MAKER OF AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER. IN ADDITION, EXCEPT AS
PROVIDED HEREIN, THIS WARRANT MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED BY ANY PERSON FOR A PERIOD OF ONE YEAR UNTIL _________, 1998.
SAXTON INCORPORATED
Warrant for the Purchase of Shares of Common Stock
No. [ ] 227,500 Shares
FOR VALUE RECEIVED, Saxton Incorporated, a Nevada corporation (the
"Company"), hereby certifies that Ladenburg Thalmann & Co. Inc. or its
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on , 1997 and prior to 5:00 P.M., New York City
time, on , 2002, [Two Hundred Twenty Seven Thousand Five Hundred
(227,500)] fully paid and non- assessable shares of the common stock, $.001 par
value per share, of the Company for an aggregate purchase price of $ (computed
on the basis of $________ per share). Hereinafter, (i) said common stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder or under any
other Warrant (as hereinafter defined) are referred to individually as a
"Warrant Share" and collectively as the "Warrant Shares," (iii) the aggregate
purchase price payable for the Warrant Shares hereunder is referred to as the
"Aggregate Warrant Price," (iv) the price payable for each of the Warrant Shares
hereunder is referred to as the "Per Share Warrant Price," (v) this Warrant, all
similar Warrants issued on the date hereof and all Warrants hereafter issued in
exchange or substitution for this Warrant or such similar Warrants are referred
to as the "Warrants", and (vi) the holder of this Warrant is referred to as the
"Holder" and the holder of this Warrant and all other Warrants or Warrant Shares
issued upon the exercise of any Warrant are referred to as the "Holders." The
Aggregate Warrant Price is not subject to adjustment. The Per Share Warrant
Price is subject to adjustment as hereinafter provided, and in the event of any
such adjustment, the number of Warrant Shares shall be adjusted to equal the
number determined by dividing the Aggregate Warrant Price by the Per Share
Warrant Price in effect immediately after such adjustment.
<PAGE> 2
1. Exercise of Warrant. (a) This Warrant may be exercised in whole
at any time or in part from time to time, during the period commencing on
____________, 1997 and ending prior to 5:00 P.M., New York City time, on
___________, 2002 (such period, the "Exercise Period"), by the Holder by the
surrender of this Warrant (with the subscription form at the end of this Warrant
duly executed) at the address set forth in Section 10(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. Payment for Warrant Shares shall be made
by certified or official bank check payable to the order of the Company. If
this Warrant is exercised in part, this Warrant must be exercised for a number
of whole shares of the Common Stock, and the Holder is entitled to receive a new
Warrant covering the Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such exercise and surrender of
this Warrant, the Company will (i) issue a certificate or certificates in the
name of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, if this Warrant is exercised in whole,
in lieu of any fractional share of the Common Stock to which the Holder shall be
entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional share (determined in such reasonable manner as the Board of Directors
of the Company shall determine) and (ii) deliver the other securities and
properties receivable upon the exercise of this Warrant, or the proportionate
part thereof if this Warrant is exercised in part, pursuant to the provisions of
this Warrant.
(b) In lieu of exercising this Warrant in the manner set
forth in Section 1(a) above, this Warrant may be exercised in whole at any time
or in part from time to time during the Exercise Period, by the Holder by
surrendering the Warrant at the address set forth in Section 10(a) hereof,
without payment of any other consideration, commission or remuneration, together
with the subscription form at the end of this Warrant, duly executed. The number
of shares of the Common Stock to be issued by the Company shall be calculated
using the following formula:
<PAGE> 3
X = Y(A-B)
A
Where X = the number of shares of the Common Stock
to be issued to the Holder
Y = the number of shares of the Common Stock
purchasable under this Warrant or, if
this Warrant is being exercised in part,
under the portion of the Warrant being
exercised (at the date of the surrender
of this Warrant and the subscription
form)
A = the Market Price (at the date of the
surrender of this Warrant and the
subscription form)
B = the Per Share Warrant Price (as adjusted
to the date of the surrender of this
Warrant and the subscription form)
If this Warrant is exercised in part pursuant to this Section 1(b), this
Warrant must be exercised for a number of whole shares of the Common Stock, and
the Holder is entitled to receive a new Warrant covering the Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such exercise and surrender of this Warrant, the Company will (i)
issue a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay cash equal
to the fair value of such fractional share (determined in such reasonable
manner as the Board of Directors of the Company shall determine) and (ii)
deliver the other securities and properties receivable upon the exercise of
this Warrant, or the proportionate part thereof if this Warrant is exercised in
part, pursuant to the provisions of this Warrant.
(c) The market price of a share of the Common Stock (the
"Market Price") on any date of determination shall be (i) the last reported sale
price per share of the Common Stock on
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the business day immediately preceding the date of determination as reported on
the Nasdaq National Market (the "National Market"), or (ii) if there is no such
reported sale on the date in question, the average of the closing bid and asked
quotations as so reported on the National Market, or (iii) if the Common Stock
is not then listed on the National Market, the last reported sale price per
share of the Common Stock on such national securities exchange upon which the
Common Stock is then listed, or (iv) if the Common Stock is not then listed on
any national securities exchange, the average of the closing bid and asked
quotations in the over-the-counter market as reported by Nasdaq, or if not so
reported, as reported by the National Quotations Bureau or a similar
organization. In the absence of such quotations, the Board of Directors of the
Company shall determine in good faith the fair market value per share of the
Common Stock, which shall for these purposes be deemed to be the Market Price,
which determination shall be set forth in a certificate executed by an officer
of the Company showing the facts upon which the Market Price is based.
2. Reservation of Warrant Shares; Listing. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times (a)
have authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first refusal
and (b) if the Company hereafter lists the Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. Protection Against Dilution. (a) If, at any time or from time
to time after the date of this Warrant, the Company shall issue or distribute to
the holders of shares of the Common Stock (i) securities, other than shares of
the Common Stock, or (ii) property, other than cash, without payment therefor,
with respect to the Common Stock, then, and in each such case, the Holder, upon
the exercise of this Warrant, shall be entitled to receive the securities and
property which the Holder would hold on the date of such exercise if, on the
date of this Warrant, the Holder had been the holder of record of the number of
shares of the Common Stock subscribed for upon such exercise and, during the
period from the date of this Warrant to and including the date of such exercise,
had retained such shares and the securities and properties receivable by the
Holder during such period. Notice of each such distribution shall be forthwith
mailed to the Holder.
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<PAGE> 5
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall (i) pay a dividend or make a distribution on its
capital stock in shares of the Common Stock, (ii) subdivide its outstanding
shares of the Common Stock into a greater number of shares, (iii) combine its
outstanding shares of the Common Stock into a smaller number of shares or (iv)
issue by reclassification of the Common Stock any shares of capital stock of the
Company, the Per Share Warrant Price shall be adjusted so that the Holder upon
the exercise hereof shall be entitled to receive the number of shares of the
Common Stock or other capital stock of the Company which the Holder would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this Section 3(b)
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(c) Except as provided in Section 3(e), in case the Company
shall hereafter issue or sell any shares of the Common Stock for a consideration
per share less than the Per Share Warrant Price in effect immediately prior to
the date of such issuance or sale, the Per Share Warrant Price shall be adjusted
as of the date of such issuance or sale so that the same shall equal the price
determined by dividing (i) the sum of (A) the number of shares of the Common
Stock outstanding immediately prior to such issuance or sale multiplied by the
Per Share Warrant Price plus (B) the consideration received by the Company upon
such issuance or sale by (ii) the total number of shares of the Common Stock
outstanding after such issuance or sale. Except as provided in Section 3(e), in
case the Company shall hereafter issue or sell any rights, options, warrants or
securities convertible into the Common Stock entitling the holders thereof to
purchase the Common Stock or to convert such securities into the Common Stock at
a price per share (determined by dividing (i) the total amount, if any, received
or receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
the Common Stock issuable upon
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<PAGE> 6
exercise or conversion of such securities) less than the then Per Share Warrant
Price in effect on the date of such issuance or sale, the Per Share Warrant
Price shall be adjusted as of the date of such issuance or sale so that the
same shall equal the price determined by dividing (i) the sum of (A) the number
of shares of the Common Stock outstanding on the date of such issuance or sale
multiplied by the Per Share Warrant Price plus (B) the Total Consideration by
(ii) the number of shares of the Common Stock outstanding on the date of such
issuance or sale plus the maximum number of additional shares of the Common
Stock issuable upon exercise or conversion of such securities. No adjustment
in the Per Share Warrant Price shall be required in the case of (i) the
issuance of up to [ ] shares of the Common Stock upon the exercise of
options outstanding on the date hereof, (ii) the issuance by the Company of the
Common Stock pursuant to the exercise of any Warrant or (iii) the issuance by
the Company of any shares of the Common Stock pursuant to the exercise of the
over-allotment option granted in the Underwriting Agreement, dated ________,
1997, by and between the Company and Ladenburg Thalmann & Co. Inc. and Stifel,
Nicolaus & Company Incorporated, as representatives of the several underwriters
named therein.
(d) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
entity (including any exchange effected in connection with a merger of another
corporation with the Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had this Warrant been exercised immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale or
conveyance and, in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section 3 with
respect to the rights and interests thereafter of the Holder of this Warrant to
the end that the provisions set forth in this Section 3 shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property thereafter deliverable on
the exercise of this Warrant. The above provisions of this Section 3(d) shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances. The issuer of any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant shall be
responsible for all of the agreements and obligations of the Company hereunder.
Notice of any such consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Warrants not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(e) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable
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but as to which the failure to make any adjustment would not fairly protect the
purchase rights represented by this Warrant in accordance with the essential
intent and principles hereof, then, in each such case, the Holders of Warrants
representing the right to purchase a majority of the Warrant Shares subject to
all outstanding Warrants may appoint a firm of independent public accountants
of recognized national standing reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established herein, necessary to
preserve the purchase rights represented by the Warrants. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the Holder of this
Warrant and shall make the adjustments described therein. The fees and
expenses of such independent public accountants shall be borne by the Company.
(f) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of the Common Stock; provided, however, that any
adjustments which by reason of this Section 3(f) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment;
provided further, however, that adjustments shall be required and made in
accordance with the provisions of this Section 3 (other than this Section 3(f))
not later than such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or the Common Stock
issuable upon exercise hereof. All calculations under this Section 3 shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. Anything in this Section 3 to the contrary notwithstanding, the Company
shall be entitled to make such reductions in the Per Share Warrant Price, in
addition to those required by this Section 3, as it in its discretion shall deem
to be advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(g) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall promptly
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized national standing selected by the Board of Directors
of the Company (who may be the regular auditors of the Company) setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or the effect of such modification, a brief statement of the facts
requiring such adjustment or modification and the manner of computing the same,
and cause copies of such certificate to be mailed to the Holders
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<PAGE> 8
of the Warrants. In addition, within thirty (30) days after the end of the
Company's fiscal year next following any such adjustment or modification, the
Company shall, at its own expense, deliver to the Holder of this Warrant a
certificate of a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company (who may be the
regular auditors of the Company) setting forth the same information as required
by such certificate.
(h) If the Board of Directors of the Company shall (i)
declare any dividend or other distribution with respect to the Common Stock,
other than a cash dividend payable otherwise than out of earnings or earned
surplus, (ii) offer to the holders of shares of the Common Stock any additional
shares of the Common Stock, any securities convertible into or exercisable for
shares of the Common Stock or any rights to subscribe thereto or (iii) propose a
dissolution, liquidation or winding up of the Company, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to the
record date fixed for determining stockholders entitled to participate in such
dividend, distribution, offer or subscription right or to vote on such
dissolution, liquidation or winding up.
(i) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of the Common Stock and other capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive and shall be
described in a written notice to the Holder of any Warrant promptly after such
adjustment) shall determine the allocation of the adjusted Per Share Warrant
Price between or among shares or such classes of capital stock or shares of the
Common Stock and other capital stock and any subsequent adjustments made
pursuant to this Section 3 shall apply equally to each such resulting class of
capital stock.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, rights of first refusal or other contractual rights to
purchase securities of the Company, and the Company will take all such actions
as may be necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the then Per
Share Warrant Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all federal and state stamp, original issue or
similar taxes which may be payable in respect of the issuance of any Warrant
Share or certificate therefor.
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5. Registration Under Securities Act of 1933.
(a) The Company agrees that if, at any time during the
period commencing on _________,1997 and ending on _________,2002, (i) the Holder
and/or the Holders of any other Warrants and/or Warrant Shares who or which
shall hold, collectively, not less than 50% of the Warrants and/or Warrant
Shares outstanding at such time and not previously sold pursuant to this Section
5 shall request that the Company file a registration statement under the
Securities Act of 1933, as amended (the "Act"), covering not less than 50% of
the Warrant Shares issued or issuable upon the exercise of the Warrants, and not
so previously sold, the Company will (i) promptly notify each Holder of the
Warrants and each holder of Warrant Shares not so previously sold that such
registration statement will be filed and that the Warrant Shares which are then
held, and/or may be acquired upon exercise of the Warrants by the Holder and
such Holders, will be included in such registration statement at the Holder's
and such Holders' request, (ii) cause such registration statement to cover all
Warrant Shares which it has been so requested to include, (iii) use its best
efforts to cause such registration statement to become effective as soon as
practicable and (iv) take all other action necessary under any federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such registration statement to be
sold or otherwise disposed of, and will maintain such compliance with each such
federal and state law and regulation of any governmental authority for the
period necessary for such Holders to effect the proposed sale or other
disposition. The Company shall be required to effect a registration or
qualification pursuant to this Section 5(a) on one occasion only.
(b) The Company agrees that if, at any time and from time to
time during the period commencing __________,1997 and ending on
___________,2004, the Board of Directors of the Company shall authorize the
filing of a registration statement (any such registration statement being
hereinafter called a "Subsequent Registration Statement") under the Act
(otherwise than pursuant to Section 5(a) hereof, and other than a registration
statement on Form S-8 or other form which does not permit secondary sales or
include substantially the same information as would be required in a form for
the general registration of securities) in connection with the proposed offer of
any of its securities by it or any of its stockholders, the Company will (i)
promptly notify the Holder and each of the Holders, if any, of other Warrants
and/or Warrant Shares not previously sold pursuant to this Section 5 that such
Subsequent Registration Statement will be filed and that the Warrant Shares
which are then held, and/or which may be acquired upon the exercise of the
Warrants, by the Holder and such Holders, will,
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<PAGE> 10
at the Holder's and such Holders' request, be included in such Subsequent
Registration Statement, (ii) upon the written request of a Holder made within
20 days after the giving of such notice by the Company, include in the
securities covered by such Subsequent Registration Statement all Warrant Shares
which it has been so requested to include, (iii) use its best efforts to cause
such Subsequent Registration Statement to become effective as soon as
practicable and (iv) take all other action necessary under any federal or state
law or regulation of any governmental authority to permit all Warrant Shares
which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of, and will maintain such
compliance with each such federal and state law and regulation of any
governmental authority for the period necessary for the Holder and such Holders
to effect the proposed sale or other disposition.
(c) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement or a post-effective amendment to a registration statement, the Company
shall (i) furnish each Holder of any such Warrant Shares and each underwriter of
such Warrant Shares with such copies of the prospectus, including the
preliminary prospectus, conforming to the Act (and such other documents as each
such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
effort to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold, including entering into an underwriting agreement in customary form for
transactions of this nature.
(d) The Company shall pay all expenses incurred in
connection with any registration or other action pursuant to the provisions of
this Section 5, including attorneys' fees and expenses of the Holder(s) of the
Warrant Shares covered by such registration incurred in connection with such
registration or other action, other than underwriting discounts and applicable
transfer taxes relating to the Warrant Shares.
6. Indemnification.
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<PAGE> 11
(a) The Company agrees to indemnify and hold harmless each
selling holder (including, for purposes of this Section 6, any Holder) of
Warrant Shares and each person who controls any such selling holder within the
meaning of Section 15 of the Act, and each and all of them, from and against any
and all losses, claims, damages, liabilities or actions, joint or several, to
which any selling holder of Warrant Shares or they or any of them may become
subject under the Act or otherwise and to reimburse the persons indemnified
above for any legal or other expenses (including the cost of any investigation
and preparation) incurred by them in connection with any litigation or
threatened litigation, whether or not resulting in any liability, but only
insofar as such losses, claims, damages, liabilities or actions arise out of, or
are based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement pursuant to which Warrant
Shares were registered under the Act (hereinafter called a "Registration
Statement"), any preliminary prospectus, the final prospectus or any amendment
or supplement thereto (or in any application or document filed in connection
therewith) or document executed by the Company based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
register or qualify the Warrant Shares under the securities laws thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (ii) the employment
by the Company of any device, scheme or artifice to defraud, or the engaging by
the Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in which
the Company shall participate, in connection with the issuance and sale of any
of the Warrant Shares; provided, however, that (i) the indemnity agreement
contained in this Section 6(a) shall not extend to any selling holder of Warrant
Shares in respect of any such losses, claims, damages, liabilities or actions
arising out of, or based upon, any such untrue statement or alleged untrue
statement, or any such omission or alleged omission, if such statement or
omission was based upon and made in conformity with information furnished in
writing to the Company by a selling holder of Warrant Shares specifically for
use in connection with the preparation of such Registration Statement, any final
prospectus, any preliminary prospectus or any such amendment or supplement
thereto. The Company agrees to pay any legal and other expenses for which it is
liable under this Section 6(a) from time to time (but not more frequently than
monthly) within 30 days after its receipt of a bill therefor.
(b) Each selling holder of Warrant Shares, severally and
not jointly, will indemnify and hold harmless the
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<PAGE> 12
Company, its directors, its officers who shall have signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act to the same extent as the foregoing indemnity from the
Company, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from such Registration
Statement, any final prospects, any preliminary prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing
to the Company by such selling holder specifically for use in connection with
the preparation of the Registration Statement, any final prospectus or the
preliminary prospectus or any such amendment or supplement thereto; provided,
however, that the obligation of any holder of Warrant Shares to indemnify the
Company under the provisions of this Section 6(b) shall be limited to (X) the
product of the Market Price and the number of the Warrant Shares being sold by
the selling holder minus (Y) the product of the Per Share Warrant Price and the
number of such Warrant Shares. Each selling holder of Warrant Shares agrees to
pay any legal and other expenses for which it is liable under this Section 6(b)
from time to time (but not more frequently than monthly) within 30 days after
receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing Section 6(a) or Section 6(b) (an
"Indemnified Party") in respect of which indemnity may by sought against a
person granting indemnification (an "Indemnifying Party") pursuant to such
section, such Indemnified Party shall promptly notify such Indemnifying Party in
writing of the commencement thereof; but the omission so to notify the
Indemnifying Party of any such action shall not release the Indemnifying Party
from any liability it may have to such Indemnified Party otherwise than on
account of the indemnity agreement contained in Section 6(a) or Section 6(b)
hereof. In case any such action is brought against an Indemnified Party and it
notifies an Indemnifying Party of the commencement thereof, the Indemnifying
Party against which a claim is to be made will be entitled to participate
therein at its own expense and, to the extent that it may wish, to assume at its
own expense the defense thereof, with counsel reasonably satisfactory to such
Indemnified Party; provided, however, that if the Indemnified Party shall have
reasonably concluded based upon advice of counsel that there may be legal
defenses available to it and/or other Indemnified Parties which are different
from or additional to those available to the Indemnifying Party, the Indemnified
Party shall have the right to select separate counsel to assume such legal
defenses and otherwise to participate in the defense of such action on behalf of
such Indemnified Party or Parties. Upon receipt of notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense of such
action and approval by the Indemnified Party of counsel, the Indemnifying Party
will
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<PAGE> 13
not be liable to such Indemnified Party under this Section 6 for any legal or
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof unless (i) the Indemnified Party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the Indemnifying Party shall not be liable for the expenses of more than
one separate counsel), (ii) the Indemnifying Party shall not have employed
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party within a reasonable time after notice of commencement of the
action or (iii) the Indemnifying Party has authorized the employment of counsel
for the Indemnified Party at the expense of the Indemnifying Party. An
Indemnifying Party shall not be liable for any settlement of any action or
proceeding effected without its written consent (which consent shall not be
unreasonably withheld).
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 6(a)
or (b) hereof is unavailable in accordance with its terms, the Company and the
selling holder of Warrant Shares shall contribute to the aggregate losses,
claims, damages and liabilities, of the nature contemplated by said indemnity
agreement, incurred by the Company and the selling holder of Warrant Shares, in
such proportions as is appropriate to reflect the relative benefits received by
the Company, on the one hand, and the selling holder of Warrant Shares, on the
other hand, from any offering of the Warrant Shares; provided, however, that if
such allocation is not permitted by applicable law or if the Indemnified Party
failed to give the notice required under Section 6(c), then the relative fault
of the Company and the selling holder of Warrant Shares in connection with the
statements or omissions which result in such losses, claims, damages and
liabilities and other relevant equitable considerations will be considered
together with such relative benefits.
(e) The respective indemnity and contribution agreements by
the Company and the selling holder of Warrant Shares in Sections 6(a), (b), (c)
and (d) hereof shall remain operative and in full force and effect regardless of
(i) any investigation made by any selling holder of Warrant Shares or by or on
behalf of any person who controls such selling holder or by the Company or any
controlling person of the Company or any director or any officer of the Company,
(ii) the exercise of this Warrant or (iii) payment for any of the Warrant
Shares, and shall survive the delivery of the Warrant Shares, and any successor
of the Company, or of any selling holder of Warrant Shares, or of any person who
controls the Company, or of any selling holder of Warrant Shares, as the case
may be, shall be entitled to the
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<PAGE> 14
benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the selling
holders of Warrant Shares contained in Sections 6(a), (b), (c) and (d) hereof
shall be in addition to any liability which the Company and the selling holders
of Warrant Shares may otherwise have.
7. Limited Transferability. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder (a) except in compliance
with the provisions of the Act and any applicable state securities laws and (b)
until the first anniversary of the date hereof except (i) to Ladenburg Thalmann
& Co. Inc. or any successor firm or corporation of Ladenburg Thalmann & Co.
Inc., (ii) to any of the officers of Ladenburg Thalmann & Co. Inc., or of any
such successor firm or corporation, or (iii) in the case of an individual,
pursuant to such individual's last will and testament or the laws of descent
and distribution, and is so transferable only upon the books of the Company
which it shall cause to be maintained for the purpose. The Company may treat
the registered Holder of this Warrant as he or it appears on the Company's
books at any time as the Holder for all purposes. The Company shall permit any
Holder of a Warrant or his or its duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of Warrants. All Warrants issued
upon the transfer or assignment of this Warrant will be dated the same date as
this Warrant, and all rights of the Holder thereof shall be identical to those
of the Holder of this Warrant.
8. Loss, etc., of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
9. Warrant Holder Not Stockholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
10. Communication. No notice or other communication under this
Warrant shall be effective unless, but any notice or other communication shall
be effective and shall be deemed to have been given if, the same is in writing
and is mailed by first-class mail, postage prepaid, addressed to:
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<PAGE> 15
(a) the Company at 5440 West Sahara Avenue, Las Vegas, NV
89102, or such other address as the Company has designated in writing
to the Holder, or
(b) the Holder at Ladenburg Thalmann & Co. Inc., 590
Madison Avenue, New York, New York 10022 or such other address as the
Holder has designated in writing to the Company.
11. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
[Signature Page Follows]
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<PAGE> 16
IN WITNESS WHEREOF, Saxton Incorporated has caused this Warrant to be
signed by its [ ] and its corporate seal to be hereunto affixed and
attested by its Secretary this _____ day of ______________, 1997.
SAXTON INCORPORATED
By: _______________________________
Name:
Title:
ATTEST:
_____________________________
Name:
Title:
[Corporate Seal]
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<PAGE> 17
0184283.04
ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto _______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________________, attorney, to transfer said Warrant on the books
of Saxton Incorporated
Dated: ________________ Signature: _____________________________
Address: _______________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto __________________________ the right to purchase _____________
shares of the Common Stock of Saxton Incorporated covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint __________________________,
attorney, to transfer that part of said Warrant on the books of Saxton
Incorporated
Dated: ________________ Signature: _____________________________
Address: _______________________________
<PAGE> 18
SUBSCRIPTION FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to purchase thereunder,
_____________ shares of the Common Stock of Saxton Incorporated, as provided for
in Section 1 thereof.
The undersigned herewith makes payment for such shares in full at the
price per share provided by such Warrant in the following manner (please check
the type or types of payment and indicate the portion of the aggregate payment
to be paid by each type of payment):
____ Exercise for cash as provided in Section 1(a) of such Warrant.
____ Exercise by surrender of such Warrant (or a portion thereof) in
accordance with Section 1(b) of such Warrant.
Please issue a certificate or certificates for such shares in the name
of, and pay any cash for any fractional share to:
Name ___________________________________
(Please Print Name, Address and Social
Security No. or Taxpayer Identification
No.)
Address ________________________________
________________________________
Social Security No. or
Taxpayer Identification No._____________
Signature ______________________________
NOTE: The above signature should
correspond exactly with the name
on the first page of such
Warrant or with the name of the
assignee appearing in the
assignment form attached to the
Warrant.
<PAGE> 19
And if such number of shares shall not be all the shares purchasable
under the attached Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder and
delivered to the address set forth above.
<PAGE> 1
EXHIBIT 10.1
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE> 2
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - PURPOSE OF THE PLAN--------------------------------------------------------------- I-1
1.01 Designation....................................................................... I-1
1.02 Installation...................................................................... I-1
1.03 Purpose........................................................................... I-1
1.04 Type of Plan...................................................................... I-2
ARTICLE II - DEFINITIONS---------------------------------------------------------------------- II-1
2.01 Account........................................................................... II-1
2.02 Acquisition Loan.................................................................. II-1
2.03 Administrative Committee or Committee............................................. II-1
2.04 Affiliated Company or Affiliated Employer......................................... II-1
2.05 Allocation Date................................................................... II-1
2.06 Beneficiary....................................................................... II-1
2.07 Board of Directors................................................................ II-2
2.08 Break in Employment............................................................... II-2
2.09 Company........................................................................... II-3
2.10 Company Stock..................................................................... II-3
2.11 Company Stock Account............................................................. II-3
2.12 Compensation...................................................................... II-3
2.13 Early Retirement Date............................................................. II-4
2.14 Effective Date.................................................................... II-4
2.15 Employee.......................................................................... II-4
2.16 Employer.......................................................................... II-5
2.17 Entry Date........................................................................ II-6
2.18 ERISA............................................................................. II-6
2.19 Financed Shares................................................................... II-6
2.20 Fiscal Year....................................................................... II-6
2.21 Five Percent Owner................................................................ II-6
2.22 Hours of Service.................................................................. II-6
2.23 Internal Revenue Code............................................................. II-7
2.24 Key Employee...................................................................... II-8
2.25 Loan Suspense Account............................................................. II-8
2.26 Net Profits....................................................................... II-8
2.27 Normal Retirement Age............................................................. II-8
2.28 Other Investment Account.......................................................... II-8
2.29 Participant....................................................................... II-9
2.30 Participating Employer............................................................ II-9
</TABLE>
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<PAGE> 3
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C>
2.31 Period of Separation.............................................................. II-9
2.32 Period of Service................................................................. II-9
2.33 Plan.............................................................................. II-10
2.34 Predecessor Employer.............................................................. II-11
2.35 Plan Year......................................................................... II-11
2.36 Prior Employer Plan............................................................... II-11
2.37 Reemployment Commencement Date.................................................... II-11
2.38 Termination of Employment......................................................... II-11
2.39 Top-Heavy Plan.................................................................... II-11
2.40 Total and Permanent Disability.................................................... II-14
2.41 Trust............................................................................. II-14
2.42 Trustees.......................................................................... II-14
2.43 W-2 Compensation.................................................................. II-14
2.44 Year of Service................................................................... II-14
2.45 Additional Definitions............................................................ II-14
ARTICLE III - PARTICIPATION IN THE PLAN------------------------------------------------------- III-1
3.01 Eligibility....................................................................... III-1
3.02 Eligibility Upon Reemployment..................................................... III-1
3.03 Automatic Participation........................................................... III-2
3.04 Disputes Regarding Eligibility.................................................... III-2
ARTICLE IV - CONTRIBUTIONS-------------------------------------------------------------------- IV-1
4.01 Employer Contributions............................................................ IV-1
4.02 Participant Contributions......................................................... IV-1
4.03 Transfers from Other Qualified Plans.............................................. IV-1
4.04 Rollover Contributions............................................................ IV-2
4.05 Segregation of Rollovers.......................................................... IV-3
ARTICLE V- ALLOCATIONS TO PARTICIPANTS' ACCOUNTS; ALLOCATIONS TO PARTICIPANTS' ACCOUNTS------- V-1
5.01 Existence of Separate Accounts.................................................... V-1
5.02 Company Stock Accounts............................................................ V-1
5.03 Other Investment Account.......................................................... V-1
5.04 Allocation of Contribution and Forfeitures........................................ V-1
5.05 Special Procedures for the Allocation Company Stock to Participant Company
Stock Accounts.................................................................... V-2
5.06 Net Income (or Loss) of the Plan.................................................. V-3
5.07 Investment Diversification of Company Stock Accounts.............................. V-4
</TABLE>
ii
<PAGE> 4
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VI - LIMITATIONS ON ALLOCATIONS....................................................... VI-1
6.01 The Limitations on Allocations in General......................................... VI-1
6.02 Participation in this Plan and Limitations on Allocations......................... VI-1
6.03 Limitations Affecting Other Defined Contribution Plans............................ VI-1
6.04 Limitations Affecting Other Defined Benefits Plans................................ VI-2
6.05 Reduction of Excess Amounts....................................................... VI-2
6.06 Definitions....................................................................... VI-3
ARTICLE VII - RETIREMENT BENEFITS............................................................ VII-1
7.01 Nature of Benefits................................................................ VII-1
7.02 Early Retirement.................................................................. VII-1
7.03 Payment of Retirement Benefits.................................................... VII-1
ARTICLE VIII - DEATH BENEFITS- VIII-1
8.01 Nature of Benefits................................................................ VIII-1
8.02 Designation of Beneficiary........................................................ VIII-1
8.03 Commencement of Death Benefits.................................................... VIII-2
ARTICLE IX - DISABILITY BENEFITS.............................................................. IX-1
9.01 Disability Retirement Benefits.................................................... IX-1
9.02 Determination of Disability....................................................... IX-1
ARTICLE X - BENEFITS UPON TERMINATION OF EMPLOYMENT........................................... X-1
10.01 Vesting Upon Termination of Employment............................................ X-1
10.02 Calculation of Vested Interest in Company Stock Account and Other
Investment Account............................................................... X-1
10.03 Benefits Upon Termination of Employment........................................... X-3
10.04 Early Distribution................................................................ X-3
10.05 Determination of Years of Service................................................. X-4
10.06 Breaks in Employment.............................................................. X-4
10.07 Forfeitures and Allocation to Suspense Accounts................................... X-5
</TABLE>
iii
<PAGE> 5
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XI - PAYMENT OF BENEFITS-------------------------------------------------------------- XI-1
11.01 Retirement, Disability and Death Benefits......................................... XI-1
11.02 Benefits Upon Termination of Employment........................................... XI-1
11.03 Methods of Payment of Benefits.................................................... XI-1
11.04 Immediate Cash Out Option......................................................... XI-2
11.05 Minimum Amounts to be Distributed................................................. XI-3
11.06 Latest Date for Distribution to Begin............................................. XI-3
11.07 Benefit Commencement Date......................................................... XI-3
11.08 Distributions to Beneficiaries of Deceased Participants........................... XI-4
11.09 Reserved.......................................................................... XI-5
11.10 Acceleration of Payments.......................................................... XI-5
11.11 Benefits Payable by Trust......................................................... XI-6
11.12 Reserved.......................................................................... XI-6
11.13 Special Restrictions Applying to Distributions of Company Stock................... XI-6
11.14 Payments to Incompetents.......................................................... XI-6
11.15 Unclaimed Benefits................................................................ XI-6
11.16 Loans to Participants............................................................. XI-7
11.17 Withdrawals prior to Termination of Employment.................................... XI-9
11.18 Withholding on Distributions...................................................... XI-11
ARTICLE XII - PROVISIONS APPLICABLE TO SALARY DEFERRALS--------------------------------------- XII-1
12.01 Rules Applicable to Salary Deferrals.............................................. XII-1
12.02 Special Definitions............................................................... XII-1
12.03 Tax-Deferred Contributions........................................................ XII-4
12.04 Employer Contributions............................................................ XII-7
12.05 Limitations on Contributions for Highly Compensated Employees..................... XII-7
12.06 Distribution of Excess Deferrals, Excess Contributions and
Excess Aggregate Contributions................................................... XII-14
12.07 Special Investment Directions..................................................... XII-21
12.08 Crediting of Tax-Deferred Contributions........................................... XII-22
12.09 Crediting of Employer Matching Contributions...................................... XII-22
12.10 Crediting of Investment Earnings.................................................. XII-22
ARTICLE XIII - BENEFIT CLAIMS PROCEDURES------------------------------------------------------ XIII-1
13.01 Claim for Benefits................................................................ XIII-1
13.02 Request for Review................................................................ XIII-1
13.03 Decision on Request for Review.................................................... XIII-1
</TABLE>
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<PAGE> 6
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XIV - INALIENABILITY OF BENEFITS------------------------------------------------------ XIV-1
14.01 Inalienability of Benefits........................................................ XIV-1
14.02 Divestment for Cause.............................................................. XIV-1
ARTICLE XV - THE TRUSTEES--------------------------------------------------------------------- XV-1
15.01 Trust Agreement................................................................... XV-1
ARTICLE XVI - ADMINISTRATION OF PLAN---------------------------------------------------------- XVI-1
16.01 Appointment of Administrative Committee........................................... XVI-1
16.02 Resignation and Removal........................................................... XVI-1
16.03 General Administrative Power...................................................... XVI-1
16.04 Investment Powers................................................................. XVI-2
16.05 Responsibility for Administration of the Trust Assets............................. XVI-3
16.06 Delegation of Powers.............................................................. XVI-3
16.07 Investment Manager................................................................ XVI-3
16.08 Professional Assistance........................................................... XVI-4
16.09 Actions by the Administrative Committee........................................... XVI-4
16.10 Responsibility of Fiduciary....................................................... XVI-4
16.11 Indemnity......................................................................... XVI-4
16.12 Payment of Expenses............................................................... XVI-5
16.13 Disclosure to Participants........................................................ XVI-5
16.14 Withholding Compliance............................................................ XVI-6
16.15 Accounting Procedures............................................................. XVI-7
16.16 Voting Company Stock.............................................................. XVI-8
16.17 Tendering of Company Stock in Tender Offers....................................... XVI-8
ARTICLE XVII - AMENDMENT OF PLAN-------------------------------------------------------------- XVII-1
17.01 Manner of Amendment............................................................... XVII-1
17.02 Effect Upon Trustees.............................................................. XVII-1
ARTICLE XVIII - PERMANENCE OF THE PLAN-------------------------------------------------------- XVIII-1
18.01 Right to Terminate Plan........................................................... XVIII-1
18.02 Merger or Consolidation of Plan................................................... XVIII-1
18.03 Discontinuance of Contributions................................................... XVIII-1
18.04 Termination of Plan............................................................... XVIII-1
18.05 Rights to Benefits................................................................ XVIII-2
</TABLE>
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SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XIX - STATUS OF EMPLOYMENT RELATIONS.................................................. XIX-1
19.01 Status of Employment Relations.................................................... XIX-1
ARTICLE XX - EXCLUSIVE BENEFIT OF TRUST....................................................... XX-1
20.01 Limitation Upon Reversions........................................................ XX-1
20.02 Limited Reversion to Employer..................................................... XX-1
ARTICLE XXI - INTERPRETATION OF THE PLAN...................................................... XXI-1
21.01 Applicable Law and Conflict....................................................... XXI-1
21.02 Intent of Employer................................................................ XXI-1
21.03 Counterparts...................................................................... XXI-1
21.04 Gender and Number................................................................. XXI-1
21.05 Titles............................................................................ XXI-1
ARTICLE XXII - TOP-HEAVY PLANS XXII-1....................................................
22.01 Special Top-Heavy Rules........................................................... XXII-1
22.02 Vesting Requirement............................................................... XXII-1
22.03 Change in Vesting Schedule for Non-Key Employees.................................. XXII-1
22.04 Minimum Contribution Requirement.................................................. XXII-1
22.05 Limitation on Compensation Requirement............................................ XXII-3
22.06 Effect of Social Security......................................................... XXII-3
ARTICLE XXIII - PARTICIPATING EMPLOYERS....................................................... XXIII-1
23.01 Adoption by Affiliated Employers.................................................. XXIII-1
23.02 Requirements of Participating Employers........................................... XXIII-1
23.03 Designation of the Company as Agent............................................... XXIII-1
23.04 Employee Transfers................................................................ XXIII-2
23.05 Participating Employer Contributions.............................................. XXIII-2
23.06 Amendment......................................................................... XXIII-2
23.07 Participating Employer Discontinuance............................................. XXIII-2
23.08 Committee Authority............................................................... XXIII-3
</TABLE>
vi
<PAGE> 8
ARTICLE I
PURPOSE OF THE PLAN
1.01 DESIGNATION. This Plan is designated the Saxton Incorporated
Employee Stock Ownership Plan.
1.02 INSTALLATION.
(a) This instrument functions as a vehicle into which the Profit
Sharing Plan for Employees of Jim Saxton, Inc. may be merged as
of December 31, 1995, and is adopted to accomplish purposes set
forth in Sections 1.02(b) and (c) below.
(b) This Plan is designed to comply with the requirements of the
Internal Revenue Code of 1986 as amended by the Tax Reform Act
of 1986 (TRA `86), and all subsequent legislation related
thereto.
(c) The Plan is further designed to allow certain salary deferral
provisions to be implemented by separate action of the Board of
Directors as detailed in Article XII.
1.03 PURPOSE.
(a) The purpose of this Plan is to enable participating Employees
to share in the growth and prosperity of the Company (the
"Company") and to provide Participants with an opportunity to
accumulate capital for their future economic security. The
Company plans to accomplish this purpose without deducting
amounts from Participant paychecks and without requiring
Participants to invest their personal funds, except to the
extent that the Code section 401(k) provisions detailed in
Article XII may be applicable.
(b) This Plan will enable Participants to share in growth and
prosperity of the Company through the acquisition of Company
Stock. Therefore, Employer contributions to the Plan are
designed to be invested primarily in Company Stock. This Plan
is also designed to be available as a technique of corporate
financing for the Company. Accordingly, it may be used to
accomplish the following objectives:
I-1
<PAGE> 9
(i) To meet general financing requirements of the Company,
including capital growth and transfers in the ownership
of Company Stock;
(ii) To provide Participants with beneficial ownership of
Company Stock; and
(iii) To receive loans (or other extensions of credit) to
finance the acquisition of Company Stock, with such
loans to be repaid by Employer contributions to the
Plan and dividends received on such Company Stock.
1.04 TYPE OF PLAN.
(a) The Plan is a stock bonus plan under Section 401(a) of the
Internal Revenue Code and an employee stock ownership plan
under Section 4975(e)(7) of the Internal Revenue Code.
(b) All assets of the Plan will be administered, distributed,
forfeited and otherwise governed by the provisions of this
Plan. The Plan is administered by the Administrative Committee
for the exclusive benefit of Participants and their
Beneficiaries.
I-2
<PAGE> 10
ARTICLE II
DEFINITIONS
2.01 ACCOUNT. Any of the two (2) accounts maintained to record the
interest of a Participant under the Plan. The term "Account" shall include a
Participant's Company Stock Account and Other Investment Account and all
sub-accounts of such Participant's Company Stock Account and all sub-accounts of
such Participant's Other Investment Account.
2.02 ACQUISITION LOAN. A loan, or other extension of credit used to
finance the acquisition of Company Stock, which loan may constitute an extension
of credit to the Plan from a party in interest as defined in ERISA.
2.03 ADMINISTRATIVE COMMITTEE OR COMMITTEE. The person or persons
appointed to administer the Plan in accordance with the provisions of Article
XVI. The Administrative Committee, acting as an agent of the Employer, shall be
a "Named Fiduciary" within the meaning of Section 402(a)(2) of ERISA.
2.04 AFFILIATED COMPANY OR AFFILIATED EMPLOYER. The Company and any
corporation which is a member of a controlled group of corporations (as defined
in Section 414(b) of the Code) which includes the Company; any trade or business
(whether or not incorporated) which is under common control (as defined in
Section 414(c) of the Code) with the Company; any organization (whether or not
incorporated) which is a member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes the Company; any "leasing
organization" (as defined in Section 414(n) of the Code) to the extent its
employees constitute "leased employees" (within the meaning of Code Section
414(n)) with respect to a Participating Employer; and any other entity required
to be aggregated with the Company pursuant to regulations under Section 414(o)
of the Code.
2.05 ALLOCATION DATE. The 31st day of December of each year (the last day
of each Plan Year) or such other date(s) that the Committee may elect to
facilitate the provisions of Article XII.
2.06 BENEFICIARY. The person or persons entitled to receive any
benefit under the Plan in the event of a Participant's death.
II-1
<PAGE> 11
2.07 BOARD OF DIRECTORS. The Board of Directors of the Company or its
successor in interest resulting from merger, consolidation or transfer of
substantially all assets, which expressly agrees in writing to continue the
Plan.
2.08 BREAK IN EMPLOYMENT. The separation from Service with the Employer,
all Affiliated Employers or any Predecessor Employer as a result of resignation,
discharge, death, disability or retirement. See also Termination of Employment.
In determining whether and when a Break in Employment has occurred, the
following rules shall apply:
(a) A Break in Employment shall not occur solely by reason of a
leave of absence authorized by the Employer or an Affiliated
Employer in accordance with established nondiscriminatory
policies or a vacation, military or maternity/paternity leave.
Effective August 5, 1993, leaves of absence shall also be
granted in accordance with the requirements of The Family and
Medical Leave Act of 1993. Accordingly, an eligible Employee
with more than one year of continuous service, during which the
Employee worked at least one thousand two hundred and fifty
(1,250) hours, may take up to a total of twelve (12) weeks in a
twelve (12)-month period for unpaid family care leave. An
Employee taking family care leave shall be required to
substitute for family care leave, any of the Employee's accrued
vacation leave or other accrued time off during this period or
any other paid or unpaid time off negotiated with the
Employer. However, an Employee shall not use paid personal or
sick leave during the period of the family care leave unless
mutually agreed to by the Employee and the Employer.
(b) Failure to return to work after the expiration of any leave of
absence shall be considered a resignation effective as of the
earlier of (1) expiration of such leave of absence, or (2) twelve
(12) months following the commencement of such leave of absence,
except in the case of maternity or paternity leave where the initial
one (1)-year period of severance shall not be counted.
(c) A Break in Employment shall not occur solely by reason of a layoff
from the Employer or an Affiliated Employer, but a Break in
Employment shall occur on the earlier of (1) a refusal by the
Employee to return to the employ of the Employer or
II-2
<PAGE> 12
Related Employer, or (2) twelve (12) months following the
commencement of such layoff.
(d) Failure of any Employee on military leave to make application for
reemployment within the period of time during which he is entitled
to retention of reemployment rights under applicable laws of the
United States shall be considered a resignation effective as of the
expiration date of such reemployment rights.
2.09 COMPANY. Saxton Incorporated, and any successor thereto.
2.10 COMPANY STOCK. Shares of common stock of the Company which
shares constitute "Employer Securities" under Section 409(1) of the
Internal Revenue Code.
2.11 COMPANY STOCK ACCOUNT. The separate Account of a Participant
reflecting all Employer contributions to the Plan invested in Company Stock.
2.12 COMPENSATION. The aggregate of all payments for services made by the
Employer to or for the benefit of an Employee during a Plan Year as reflected on
the Employee's W-2 Compensation for the calendar year. The term "Compensation"
shall not include directors' fees, incentive compensation, commissions, auto
expenses, other extra compensation, any contribution by the Employer under this
Plan or any contribution by the Employer under any other plan qualified under
Section 401 of the Code maintained by the Employer that are not reflected on
Form W-2. Compensation shall, however, include any remuneration which may be
currently excluded from the Participant's gross income by reason of the
application of Sections 125, 402(a)(8), 402(h)(l)(B), or 403(b) of the Code.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the Omnibus Budget
Reconciliation Act of 1993 (OBRA `93) annual Compensation limit. The OBRA `93
annual Compensation limit is one hundred fifty thousand dollars ($150,000), as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect
for a calendar year applies to any period, not exceeding twelve (12) months,
over which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of
II-3
<PAGE> 13
fewer than twelve (12) months, the OBRA `93 annual Compensation limit will be
multiplied by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is twelve (12).
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA `93 annual Compensation limit set forth in this provision.
If the Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA `93
annual Compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA `93 annual
Compensation limit is one hundred fifty thousand dollars ($150,000).
Notwithstanding the above provisions to the contrary, Compensation earned
but not paid in a Plan Year may include amounts earned but not paid in a Plan
Year because of the timing of pay periods and pay days if such amounts are paid
during the first few weeks of the next following Plan Year, the amounts are
included on a uniform and consistent basis with respect to all similarly
situated Employees, and no Compensation is included in more than one Limitation
Year.
2.13 EARLY RETIREMENT DATE. The date of a Participant's retirement
prior to his Normal Retirement Date in accordance with the provisions of
Section 7.02.
2.14 EFFECTIVE DATE. December 29, 1995, except in regard to
Elective Deferrals which shall be effective as of the date of activation by
the Board of Directors pursuant to Article XII.
2.15 EMPLOYEE.
(a) Any person who is employed by the Employer as a common law employee.
The term "Employee" does not include any nonresident alien who does
not receive wages, salary or other amounts as compensation from the
Employer for personal services rendered in the United States.
(b) Any Leased Employee shall be treated as an employee of the recipient
employer. Contributions or benefits provided by the leasing
organization which are
II-4
<PAGE> 14
attributable to services performed for the recipient employer shall,
however, be treated as provided by the recipient employer. The
preceding sentence shall not apply to any Leased Employee if such
employee is covered by a money purchase pension plan providing:
(i) A nonintegrated Employer contribution rate of at least ten
percent (10%) of Compensation, as defined in Section 415(c)(3)
of the Code, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable
from the Employee's gross income under Section 125, Section
402(a)(8), Section 402(h) or Section 403(b) of the Code,
(ii) Immediate participation, and
(iii) Full and immediate vesting; and
(iv) Leased Employees do not constitute more than twenty percent
(20%) of the Employer's nonhighly compensated work force.
(c) For purposes of Section 2.15(b), the term "Leased Employee"
means any person (other than an employee of the recipient) who,
pursuant to an agreement between the recipient and any other
person ("Leasing Organization"), has performed services for the
recipient (or for the employer and related persons determined
in accordance with Section 414(n)(6) of the Internal Revenue
Code) on a substantially full-time basis for a period of at
least one (1) year and such services are of a type historically
performed by employees in the business field of the recipient
employer.
2.16 EMPLOYER. The Company and any successor organization or corporation
resulting from the merger, consolidation or transfer of substantially all of its
assets, where such successor shall expressly agree in writing to continue this
Plan. The term "Employer" shall also include any Affiliated Company of the
Company authorized by the Board of Directors of the Company to join this Plan
provided such Affiliated Company expressly agrees in writing to join in this
Plan.
II-5
<PAGE> 15
2.17 ENTRY DATE. The first day of the Plan Year, or the first day of the
payroll period when and if the provisions of Article XII become operable,
coinciding with or following satisfaction of the eligibility requirements set
forth in Article III.
2.18 ERISA. The Employee Retirement income Security Act of 1974, as
amended from time to time. References to any section of ERISA shall include any
successor provision thereto.
2.19 FINANCED SHARES. Shares of Company Stock acquired with the
proceeds of an Acquisition Loan.
2.20 FISCAL YEAR. The accounting period adopted by the Employer for
Federal income tax purposes.
2.21 FIVE PERCENT OWNER. An Employee who owns (or is considered as owning)
within the meaning of Section 318 of the Internal Revenue Code more than five
percent (5%) of the outstanding stock (or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the Company) of
the Company.
2.22 HOURS OF SERVICE.
(a) Each hour for which an Employee is directly or indirectly paid,
or entitled to payment, by the Employer for the performance of
duties, plus each hour for which credit is not otherwise given
for the performance of duties with respect to which back pay is
awarded or agreed to by the Employer, computed without regard
to any mitigation of damages and credited to the Plan Year in
which the Employee performed the duties or with respect to
which the back pay award or agreement pertains;
(b) Each hour, up to a maximum of five hundred-one (501) hours for
any single continuous period, for which an Employee is directly
or indirectly paid, or entitled to payment, by the Employer for
reasons other than the performance of duties (irrespective of
whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty or leave of absence, excluding
any such hours for which payment is made or due under a plan
maintained solely for the purpose of complying with the
applicable workers' compensation, unemployment compensation or
disability
II-6
<PAGE> 16
insurance laws and state disability payments, or which reimburses an
Employee solely for medical or medically related expenses which he
has incurred and credited to the applicable Plan Year. Any hours for
which back pay is awarded for a period during which no duties are
performed shall also be subject to the five hundred-one (501) hours
maximum credit for any single continuous period; and
(c) Each hour, up to a maximum of five hundred-one (501) hours for any
single continuous period, of absence incurred by an Employee for the
purpose of:
(i) Pregnancy,
(ii) Birth of a child,
(iii) Adoption of a child, or
(iv) Caring for a child immediately following birth or an
adoption.
Such Employee shall be treated as having completed either the
number of hours that would have been completed except for such
absence or eight (8) Hours of Service for each normal workday where
normal work hours are not known. Any hours required to be credited
pursuant to this subsection (c) must be credited only (v) in the
Plan Year in which the absence begins, if such crediting is
necessary to prevent a Break in Employment during such Year or (vi)
in the following Plan Year.
(d) Each other hour for which an Employee must be credited, pursuant to
any applicable Federal law.
In determining the number of Hours of Service to be credited
to an Employee for reasons other than the performance of duties, as
well as in determining the Plan Year to which all Hours of Service
should be credited, the rules of Section 2530.200b-2(b) and (c) of
the Department of Labor regulations shall be followed to the extent
such rules are not incorporated in this Plan document.
2.23 INTERNAL REVENUE CODE. The Internal Revenue Code of 1986, as amended
from time to time. References to any section of the Internal Revenue Code or
Code shall include any
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success or provision thereto. References to regulations by the Secretary of the
Treasury shall refer to regulations promulgated under the Internal Revenue Code.
2.24 KEY EMPLOYEE. Any individual characterized as a Key Employee under
Section 416(i) of the internal Revenue Code and the regulations promulgated
thereunder. For the purposes of determining whether an individual is a Key
Employee under Section 416(i) and the regulations promulgated thereunder,
"Compensation" shall mean W-2 Compensation earned by a Participant during a Plan
Year. Any individual not characterized as a Key Employee shall be a Non-Key
Employee.
2.25 LOAN SUSPENSE ACCOUNT. An account on the books and records of
the Plan to which are allocated Plan assets that are not allocated to the
Accounts of Participants.
2.26 NET PROFITS.
(a) As to the Company, the consolidated current and accumulated net
profits for any Plan Year, determined under generally accepted
accounting principles, before provisions for Federal, state and
local income taxes and contributions under the Plan.
(b) As to any other Affiliated Company that joins the Plan, Net Profits
shall mean the current and accumulated earnings and profits of the
Affiliated Company, computed in accordance with generally accepted
accounting principles. but adjusted to eliminate deductions for:
(i) Amounts paid or payable to the Plan during the Plan Year
as the Employer's contribution under the Plan, and
(ii) The Employer's Federal, state and local income taxes with
respect to the Plan Year.
2.27 NORMAL RETIREMENT AGE. The date on which a Participant attains
the later of his sixty-fifth (65th) birthday or the fifth (5th) anniversary
of the date he became a Participant.
2.28 OTHER INVESTMENT ACCOUNT. The separate Account of a Participant
reflecting the Employer's contributions to the Plan and earnings thereon and,
when applicable, any sub-accounts required to administer the Salary Deferral
provisions of the Plan, to the extent funds are not invested in Company Stock.
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2.29 PARTICIPANT. An eligible Employee who becomes a Participant in the
Plan as provided in Article III. A Participant ceases to be a Participant when
all funds in his Accounts under the Plan have been distributed.
2.30 PARTICIPATING EMPLOYER. The Employer and each Affiliated Employer and
any such other business entity which, by written acknowledgment of its
authorized officers and with the written approval of the Employer, elects to
participate in this Plan.
2.31 PERIOD OF SEPARATION. The period of time commencing with the date an
Employee incurs a Break in Employment and ending with the date such Employee is
first credited with an Hour of Service by the Employer or an Affiliated
Employer.
2.32 PERIOD OF SERVICE. The time period commencing with the Employee's
Employment Date and ending on the date a Break in Employment occurs; provided,
however, a Period of Service for these purposes includes a Period of Separation
of less than twelve (12) consecutive months. An Employee who separates from
Service and later resumes employment with the Employer or an Affiliated Employer
following a Period of Separation of twelve (12) consecutive months or longer
shall be treated as a new Employee and shall not be entitled to have the Period
of Service he completed prior to the Break in Employment aggregated with his
Service subsequent to resumption of employment unless:
(a) At the time of his Break in Employment he had a vested interest
in a benefit hereunder provided by Employer contributions;
(b) The Employee resumes employment before his Period of Separation
equals or exceeds sixty (60) consecutive months; or
(c) He resumes employment before his Period of Separation equals or
exceeds his Period of Service completed prior to his Break in
Employment.
If the Employee satisfies either condition (a), condition (b) or condition
(c) of the preceding sentence, his Period of Service completed prior to his
Break in Employment will be aggregated with Service subsequent to resumption of
employment.
Service with Jim Saxton, Inc. and to the extent required under
Section 414(a) of the Code and Regulations issued thereunder, Period of
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Service shall include Service for a Predecessor Employer. "Service" means
an Employee's period of employment with the Employer or an Affiliated
Employer.
2.33 PLAN. The Saxton Incorporated Employee Stock Ownership Plan as set
forth in this instrument as amended from time to time.
2.34 PLAN YEAR. Initially, the period commencing on December 29, 1995 and
ending on December 31, 1995. Thereafter, the twelve (12) consecutive month
period beginning on January 1st and ending on December 31st of each year.
2.35 PREDECESSOR EMPLOYER. Any corporation, partnership, or sole
proprietorship, or a division thereof, a substantial part of the assets of which
are acquired by the Employer either by purchase from, or liquidation, merger or
consolidation of or with, such other corporation, partnership, or sole
proprietorship, which has been designated by the Employer as a Predecessor
Employer for purposes of this Plan and shall in all events include Jim Saxton,
Inc.
2.36 PRIOR EMPLOYER PLAN. The Profit Sharing Plan for Employees of
Jim Saxton, Inc. as in effect on December 31, 1995 the effective date of
its merger into this Plan.
2.37 REEMPLOYMENT COMMENCEMENT DATE. The date an Employee is
reemployed by the Employer following a Break in Employment resulting in
Termination of Employment from the Employer.
2.38 TERMINATION OF EMPLOYMENT. Termination of employment with the
Employer, whether voluntarily or involuntarily, other than by reason of a
Participant's retirement on or after attaining the age of sixty-five (65) years,
his Early Retirement, his sustaining Total and Permanent Disability or his
death.
2.39 TOP-HEAVY PLAN
(a) This Plan in any Plan Year if any of the following conditions
exist:
(i) if the Top-Heavy Ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any Required Aggregation
Group or Permissive Aggregation Group of
plans.
(ii) if this Plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the group of plans exceeds sixty percent
(60%).
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(iii) if this Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the
Top-Heavy Ratio for the Permissive Aggregation Group
exceeds sixty percent (60%).
(b) For the purposes of this Section 2.39 the following definitions
shall apply:
(i) DETERMINATION DATE. In all Plan Years except the first
Plan Year, the last day of the preceding Plan Year. The
Determination Date in the first Plan Year shall be the
last day of that Plan Year.
(ii) PRESENT VALUE. Present value based upon the Top-Heavy
present value assumptions set forth in the Pension Plan.
(iii) PERMISSIVE AGGREGATION GROUP. The Required Aggregation Group
of Plans plus any other plan or plans of the Employer which,
when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Internal Revenue Code.
(iv) REQUIRED AGGREGATION GROUP.
(A) Each qualified plan of the Employer in which at least
one (1) Key Employee participates or participated at any
time during the determination period regardless of
whether the Plan has terminated; and
(B) Any other qualified plan of the Employer which enables a
plan described in Section 2.39(b)(iv)(A) to meet the
requirements of Sections 401(a)(4) or 410 of the
Internal Revenue Code.
(v) TOP-HEAVY RATIO.
(A) If the Employer maintains one (1) or more defined
contribution plans (including any simplified
employee pension plan) and the Employer has not
maintained any defined benefit plan which, during
the five (5) year period ending on the
Determination Date, has or has had accrued
benefits, the Top-Heavy Ratio for this Plan alone
or for the Required or Permissive Aggregation Group
as appropriate is a fraction. The
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<PAGE> 21
numerator of this Top-Heavy Ratio fraction is equal to
the sum of the account balances of all Key Employees as
of the Determination Date (including any part of any
account balance distributed in the five (5)-year period
ending on the Determination Date). The denominator of
this Top-Heavy Ratio fraction is equal to the sum of all
account balances (including any part of any account
balance distributed in the five (5)-year period ending
on the Determination Date). The numerator and
denominator of the Top-Heavy fraction are computed in
accordance with Section 416 of the Internal Revenue Code
and the regulations promulgated thereunder. Both the
numerator and denominator of the Top-Heavy Ratio are
adjusted to reflect any contribution not actually made
as of the Determination Date, but which is required to
be taken into account on that date under Section 416 of
the Internal Revenue Code and the regulations
promulgated thereunder.
(B) If the Employer maintains one (1) or more defined
contribution plans (including any simplified
employee pension plan) and the Employer maintains
or has maintained one (1) or more defined benefit
plans which during the five (5)-year period ending
on the Determination Date has or has had any
accrued benefits, the Top-Heavy Ratio for any
Required or Permissive Aggregation Group as
appropriate is a fraction. The numerator of this
Top-Heavy Ratio fraction is equal to the sum of
account balances under the aggregated defined
contribution plan
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<PAGE> 22
or plans for all Key Employees, (determined in
accordance with Section 2.39(b)(iv)(A) above) and the
Present Value of accrued benefits under the aggregated
defined benefit plan or plans for all Key Employees as
of the Determination Date. The denominator of this
Top-Heavy Ratio fraction is equal to the sum of the
account balances under the aggregated defined
contribution plan or plans for all participants,
(determined in accordance with Section 2.39(b)(iv)(A)
above), and the Present Value of accrued benefits under
the defined benefit plan or plans for all Participants
as of the Determination Date. Both the numerator and the
denominator of this Top-Heavy Ratio fraction are
determined in accordance with Section 416 of the
Internal Revenue Code and the regulations promulgated
thereunder. The accrued benefits under a defined benefit
plan in both the numerator and denominator of the
Top-Heavy Ratio are adjusted for any distribution of an
accrued benefit made in the five (5)-year period ending
on the Determination Date.
(C) For purposes of Sections 2.39(b)(iv)(A) and
2.39(b)(iv)(B) above, the value of account balances
and the present value of accrued benefits in all
Plans for all Plan Years except the first and
second Plan Years of a defined benefit plan will be
determined as of the most recent Valuation Date
that falls within or ends with the twelve (12)
month period ending on the Determination Date. The
value of account balances and the Present Value of
account benefits in the first and second years of a
defined benefit plan will be determined in
accordance with Section 416 of the Internal Revenue
Code and the regulations promulgated thereunder.
The account balances and accrued benefits of a
Participant who is not a Key Employee but who was a
Key Employee in a prior year or who has not been
credited with at least one (1) Hour of Service with
the Employer maintaining the Plan at any time
during the five (5)-year period ending on the
Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent
to which distributions, rollovers, and transfers
are taken into account will be made in accordance
with Section 416 of the Internal Revenue Code and
the regulations thereunder. Deductible employee
contributions will not be taken into
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account for purposes of computing the Top-Heavy Ratio.
For purposes of this Section, accrued benefits
attributable to nondeductible employee contributions
shall be treated as part of the total accrued benefit.
When aggregating plans, the value of account balances
and accrued benefits will be calculated with reference
to the determination dates that fall within the same
calendar year.
(v) VALUATION DATE. For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan
Year. The Valuation Date for the first Plan Year shall
be the last day of that Plan Year.
2.40 TOTAL AND PERMANENT DISABILITY. Physical and/or mental incapacity of
such a nature that it prevents a Participant from engaging in or performing the
principal duties of his customary employment or occupation on a continuing or
sustaining basis.
2.41 TRUST. The trust created by the related Trust document between the
Employer and the Trustees for the purpose of receiving contributions and
holding, investing and reinvesting funds for the benefit of Participants and
their Beneficiaries in accordance herewith.
2.42 TRUSTEES. Any trustee or trustees acting pursuant to the Trust
document for this Plan. The Trustees shall be "Named Fiduciaries" within the
meaning of Section 402(a)(2) of ERISA.
2.43 W-2 COMPENSATION. Compensation as reflected on Internal Revenue
Service Form W-2 which meets the requirements of Code Section 414(s).
2.44 YEAR OF SERVICE. A twelve (12)-month period during which a
Participant does not incur a Break in Service. Years of Service for vesting
purposes shall include Years of Service with an Affiliated Company. For purposes
of determining eligibility to participate, the twelve (12)-month period used to
determine whether an Employee has completed a Year of Service shall be the
initial twelve consecutive month period which begins with the first date on
which an Employee is credited with an Hour of Service and each anniversary
thereof.
2.45 ADDITIONAL DEFINITIONS. In addition to the terms defined in the
foregoing sections of this Article, certain defined terms used solely in
specific sections or articles are defined therein.
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ARTICLE III
PARTICIPATION IN THE PLAN
3.01 ELIGIBILITY.
(a) Each Employee who was a Participant in the Prior Employer Plan on
December 28, 1995 shall be a Participant in this Plan as of December
29, 1995. All other Employees shall be eligible to become a
Participant on the Entry Date coinciding with or next following the
date upon which such Employee has completed one (1) Year of Service
provided such Employee is employed by the Employer on such Entry
Date.
(b) Notwithstanding the foregoing, any Leased Employee or any
Employee included in a unit of employees covered by a
collective bargaining agreement shall be ineligible to
participate in this Plan if retirement benefits were the
subject of good faith bargaining between Employee
Representatives and the Employer in the negotiation of such
agreement unless such agreement expressly provides for
inclusion of such person as a Participant in this Plan. For
this purpose, the term "Employee Representatives" does not
include any organization of which more than half the members
are Employees who are owners of the Employer.
(c) Subsequent to the date the Board of Directors elects to activate the
salary deferral provisions provided in Article XII, each Employee
who has completed ninety (90) days of service shall be eligible to
make a salary deferral election.
3.02 ELIGIBILITY UPON REEMPLOYMENT. A Participant who terminates his
service with the Employer and subsequently is reemployed shall become a
Participant in the Plan as of his Reemployment Commencement Date. Any reemployed
Participant who terminates his service who does not have a nonforfeitable right
to all or a portion of his Company Stock Account or Other Investment Account at
the time of his Termination of Employment
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who is reemployed and who accrues at least one (1) Hour of Service with the
Employer shall become immediately eligible for an allocation of Employer
contributions and forfeitures as of his Reemployment Commencement Date if his
Period of Service following his Termination of Employment does not equal or
exceed the greater of five (5) or the aggregate number of Years of Service
accrued by such former Participant prior to his Termination of Employment. Any
Participant who terminates service, is subsequently reemployed and is not
immediately eligible for an allocation of Employer contributions and forfeitures
upon reemployment under the provisions of this Section 3.02 as set forth above,
shall be eligible for an allocation of Employer contributions and forfeitures in
the Plan Year commencing on the first Entry Date coinciding with or next
following the date upon which such reemployed Participant has completed one (1)
Year of Service with the Employer following reemployment provided such Employee
is employed by the Employer on such Entry Date.
3.03 AUTOMATIC PARTICIPATION. An Employee eligible to participate in this
Plan in accordance with provisions of this Article shall automatically become a
Participant in the Plan on the date he is so eligible. Each such eligible
Employee shall be notified that he is a Participant in the manner and within the
time prescribed by law.
3.04 DISPUTES REGARDING ELIGIBILITY. The Administrative Committee
shall resolve all disputes regarding the eligibility of any Employee to
participate in the Plan.
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ARTICLE IV
CONTRIBUTIONS
4.01 EMPLOYER CONTRIBUTIONS.
(a) Commencing with the Plan Year commencing on the Effective Date, and
for each Plan Year thereafter, the Employer shall contribute to the Trust out of
its Net Profits, if any, an amount determined by the Board of Directors of the
Company. In no event, however, may the total amount contributed in any Plan Year
exceed fifteen percent (15%) of the total Compensation paid or accrued during
the Plan Year less any amounts contributed under Article XII together with the
maximum amount deductible under the "carryover" provisions of Section 404(a)(3)
of the Internal Revenue Code, the maximum amount deductible under Section
404(a)(9) of the Internal Revenue Code as interest and principal payments on any
Acquisition Loan and the amount deductible under the provisions of Section
404(k) of the Code as dividends paid on certain Employer Securities.
Notwithstanding the foregoing, Employer contributions are also subject to any
other restrictions imposed on stock bonus plans and employee stock ownership
plans under Section 404 of the Internal Revenue Code.
(b) Employer contributions may be paid in cash or shares of Company Stock,
as determined by the Employer. The foregoing notwithstanding, Employer
contributions shall be paid in cash to the extent needed to provide the Plan
with cash sufficient to pay any currently maturing obligations under any
Acquisition Loan or to comply with any other requirements contained in this
Plan. Employer contributions for each Plan Year shall be paid to the Trustee not
later than the due date (including any extension) for filing the Employer's
Federal income tax return for the Fiscal Year during or with which such Plan
Year ends.
4.02 PARTICIPANT CONTRIBUTIONS. No Participant shall be required or
permitted to make contributions to the Plan, except to the extent allowed by
Article XII should the Board of Directors activate the Salary Deferral
provisions.
4.03 TRANSFERS FROM OTHER QUALIFIED PLANS. Notwithstanding any other
provision hereof, there may be transferred to the Trustee of this Plan all or
any of the assets held (whether by a trustee, custodian or otherwise) on behalf
of any other plan, excluding any plan subject to
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the Qualified Joint and Survivor Annuity requirement of the Code, which
satisfies the applicable requirements of Sections 401(a) or 403(a) of the
Internal Revenue Code, and which is maintained for the benefit of any persons
who are or are about to become Participants in this Plan. Transferred amounts
shall, at all times, meet the requirements of Code Section 414(l) and,
notwithstanding any other provisions hereof, benefits available under the
transferor plan which are protected under the provisions of Code Section
411(d)(6) shall be provided with respect to the assets transferred to this Plan.
Accordingly, effective as of December 31, 1995, the Predecessor Employer Plan
shall be merged into this Plan and as soon as feasible, the transferred balances
shall be invested in Company Stock.
4.04 ROLLOVER CONTRIBUTIONS. Notwithstanding any other provision hereof,
the Trustee shall be authorized to accept assets from a person who is or is
about to become a Participant in this Plan, provided the transfer of such assets
to this Plan qualifies as a rollover contribution within the meaning of Section
402(c) or Section 403(c) of the Internal Revenue Code.
(a) An amount will qualify as a rollover contribution if it:
(i) Meets the criteria of Section 11.18; or
(ii) Represents the balance to his credit of a conduit
individual retirement plan; and (in either case)
(iii) Is contributed to the Plan within sixty (60) days following
distribution of such amount to him.
(b) An amount will not qualify if:
(i) It includes any amount which constituted or was treated
as a contribution made by the Employee to such plan; or
(ii) It includes any amount which constituted or was treated as
attributable to contributions made on behalf of the Employee
while he was a Key Employee in a Top-Heavy plan.
The Committee shall require the Participant to provide reasonable evidence
that any such amount meets the above requirements. Failure of the Participant to
provide such evidence will preclude the Plan's acceptance of any such amount.
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4.05 SEGREGATION OF ROLLOVERS. Notwithstanding any other provision hereof,
amounts transferred to the Trustee of this Plan pursuant to Sections 4.03 and
4.04 shall be maintained in separate accounts and shall be applied solely for
the benefit of the Participant on whose behalf such amounts were transferred.
Such amounts shall not be applied to provide any accrued benefit provided by
this Plan. Such amounts shall, however, be credited with their proportionate
share of the Trust's realized and unrealized earnings and losses except where
the Trustee or the Participant, with the consent of the Committee, designates a
separate and distinct investment vehicle for those amounts.
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ARTICLE V
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
5.01 EXISTENCE OF SEPARATE ACCOUNTS. Two (2) separate Accounts shall be
maintained by the Administrative Committee to reflect each Participant's
interest in the Plan and such other sub-accounts as necessary to reflect any
Salary Deferral provisions of the Plan.
5.02 COMPANY STOCK ACCOUNT. The Company Stock Account maintained for each
Participant will be credited annually with such Participant's allocable share of
Company Stock purchased and paid for under the Plan or contributed in kind, with
any forfeitures of Company Stock and with any stock dividends on Company Stock
also allocated to such Participant's Company Stock Account.
5.03 OTHER INVESTMENT ACCOUNT. The Other Investment Account maintained for
each Participant will include all assets of the Plan other than Loan Suspense
Account balances, and shares of Company Stock, and will be credited (or debited)
annually with net income (or loss) of the Plan allocated to it in accordance
with Section 5.06, with any cash dividends on Company Stock allocated to such
Participant's Company Stock Account and with his allocable share of Company
contributions in cash and any forfeitures from the Other Investment Accounts of
other Participants. The Other Investment Account will be debited for its share
of any cash payments made under the Plan for the purchase of Company Stock or
for the payment of principal and/or interest on an Acquisition Loan. Any Salary
Deferrals and related Sub-accounts provided pursuant to Article XII shall be
accounted for hereunder.
5.04 ALLOCATION OF CONTRIBUTION AND FORFEITURES.
(a) Subject to the requirements of Section 5.05 and the provisions of
Article XII, if applicable, and Article XXII, Employer contributions
and forfeitures shall be allocated among the Accounts of all
Participants who:
(i) Were employed by the Employer during the Plan Year;
(ii) Have completed one thousand (l000) or more Hours of
Service with the Employer for such Plan Year;
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(iii) Were employed by the Company or an Affiliated Employer on the
last day of the Plan Year or separated prior thereto as a
result of Retirement, Death or Disability; and
(iv) Are not reemployed Participants excluded from eligibility for
an allocation of Employer contributions under the provisions
of Section 3.02.
(b) Subject to the provisions of Section 5.05 and Article XII, if
applicable, the allocation of all Employer contributions and
forfeitures shall be made in accordance with this Section 5.04 in
the proportion that such eligible Participant's Compensation for
such Plan Year while a Participant bears to the total Compensation
of all Participants for such Plan Year.
(c) Subject to the provisions of Section 5.05 and Article XII, if
applicable, the Administrative Committee shall allocate all
forfeitures before allocating any Employer contributions.
Forfeitures shall be allocated to Accounts of other eligible
Participants in accordance with the provisions of Section 5.04(b).
5.05 SPECIAL PROCEDURES FOR THE ALLOCATION OF COMPANY STOCK TO
PARTICIPANT COMPANY STOCK ACCOUNTS.
(a) All Financed Shares shall initially be credited to the Loan
Suspense Account and shall be allocated to the Company Stock
Accounts of Participants only as payments on the Acquisition
Loan are made by the Trustee. The number of Financed Shares to
be released from the Loan Suspense Account for allocation to
each Participant's Company Stock Account for each Plan Year
shall be determined by the Administrative Committee in
accordance with this Section 5.05.
(b) Unless Section 5.05(c) is applicable, the number of Financed
Shares held in the Loan Suspense Account immediately before the
release for the current Plan Year shall be multiplied by a
fraction. The numerator of the fraction shall be the total
amount of principal and interest paid on the Acquisition Loan
for such Loan Suspense Account for that Plan Year. The
denominator of the fraction shall be the sum of the numerator
plus the total payments of principal and interest on the
Acquisition Loan for such Loan Suspense Account projected to be
paid for all
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future Plan Years. For this purpose, the interest to be paid in
future years is to be computed by using the interest rate in effect
as of the Allocation Date.
(c) The Administrative Committee may elect at the time an Acquisition
Loan is incurred or the Acquisition Loan documents may provide for
the release of Financed Shares from the Loan Suspense Accounts based
solely upon the ratio that the payments of principal for each Plan
Year bear to the total principal amount of each respective
Acquisition Loan. This special method may be used to the extent
that:
(i) Each Acquisition Loan provides for annual payments of
principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts
for ten (10) years;
(ii) Interest included in any payment on each Acquisition Loan is
disregarded only to the extent that it would be determined to
be interest under standard loan amortization tables; and
(iii) The entire duration of each Acquisition Loan repayment period
does not exceed ten (10) years, including any term of a
renewal, extension or refinancing of the Acquisition Loan.
5.06 NET INCOME (OR LOSS) OF THE PLAN.
(a) The net income (or loss) of the Plan assets for each Plan Year
will be determined as of the Allocation Date. Each eligible
Participant's share of any net income (or loss) attributable to
all Plan assets will be allocated prior to the allocation of
Employer contributions and forfeitures in the ratio that the
sum of the balances of his Company Stock Account and his Other
Investment Account on the preceding Allocation Date (reduced by
the amount of any distribution from such Accounts during the
Plan Year) bears to the sum of all Company Stock Account and
Other Investment Account balances for all Participants as of
that date.
(b) The net income (or loss) of the Plan includes the increase (or
decrease) in the fair market value of the Plan assets (other
than Company Stock), interest income, dividends and other
income and gains (or loss) attributable to Plan assets (other
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than any dividends on allocated shares of Company Stock) since
the preceding Allocation Date, reduced by any expenses charged
to the Plan for that Plan Year. The computation of the net
income (or loss) of the Plan shall not take into account any
interest paid on any Acquisition Loan.
(c) Any cash dividends received on shares of Company Stock allocated to
Participant's Company Stock Accounts will be allocated to the Other
Investment Accounts of such Participant and invested as soon as
possible in Company Stock. Any cash dividends received on
unallocated shares of Company Stock shall be included in the
computation of net income (or loss) of the Plan.
5.07 INVESTMENT DIVERSIFICATION OF COMPANY STOCK ACCOUNTS.
Although Participant Accounts are normally invested in Employer Securities
through the Company Stock Accounts, this Section, beginning with the Plan Year
commencing on January 1, 2005 (which shall be deemed the tenth (10th)
anniversary of the initial effective date of the ESOP feature of this Plan and
the earliest that any Participant will have ten (10) years of Plan
participation) will permit "qualified Participants" (see subsection 5.07(e)) to
elect to diversify the manner in which their Company Stock Accounts are
invested, except as provided in subsection 5.07(c).
(a) Except as provided in subsection 5.07(c), each qualified
Participant may elect, within ninety (90) days after the end of
each Plan Year which falls within his or her "diversification
period" (see subsection 5.07(e)), to have the "eligible
portion" (see subsection 5.07(e)) of his or her Company Stock
Account invested in one or more of at least three investment
options which may be offered under the Plan in lieu of being
invested in Company Stock. Investment options shall be
selected by the Administrative Committee in accordance with
Section 12.07 and shall be consistent with the requirements of
applicable Treasury Regulations.
(b) If a qualified Participant elects to diversify the investment
of his or her Company Stock Account, the Administrative
Committee shall direct the Trustee to transfer the eligible
portion of the Participant's Company Stock Account from such
Account and invest it in accordance with the option selected by
the Participant.
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Investment in the option selected by the Participant shall be made
no later than ninety (90) days after the end of the election period
in which the option was selected.
(c) The Administrative Committee may elect not to offer the
investment options described in subsection (a), in which case a
qualified Participant shall instead be permitted to elect to
have the amount that would have been eligible for
diversification elections distributed to the Participant in an
immediate lump sum. Distribution shall be made no later than
ninety (90) days after the end of the election period in which
the distribution was elected. Company Stock held in the Plan
for at least eighty-four (84) months shall be distributed
before any other Company Stock is distributed.
(d) Participant elections pursuant to this Section shall be made in
the manner prescribed by the Administrative Committee. A
qualified Participant may modify, revoke or make a new election
at any time within the ninety (90)-day election period. No
election shall be offered to a qualified Participant for a Plan
year if (i) the balance of his or her Company Stock Account is
less than a minimum amount specified by applicable Treasury
Regulations or (ii) the Participant receives (or could elect to
receive) a distribution from his or her Company Stock Account
under the normal distribution provisions of the Plan, the
distribution is or would be made within ninety (90) days after
the end of the Plan Year and the amount distributed is at least
equal to the eligible portion of the Company Stock Account.
Any amount distributed may be rolled over to an individual
retirement account or another qualified employee pension
benefit plan as provided in the case of any eligible rollover
distribution in Section 11.19 following.
(e) Terms used in this Section 5.07 shall have the following
meanings:
(i) "Diversification Period" means the six (6) consecutive Plan
Years beginning with the Plan Year in which an individual
first becomes a qualified Participant and ending with the
sixth (6th) Plan Year thereafter.
V-5
<PAGE> 34
(ii) "Eligible Portion" of Company Stock Account means
twenty-five percent (25%) (fifty percent (50%) in the
case of the last election permitted during the
diversification period) of the portion of that Account
invested in Company Stock as of the last Allocation Date
(see Sections 2.05 and 5.06) preceding the beginning of
the ninety (90)-day election period in question. The
Administrative Committee may, by enacting a Plan rule,
amend the Plan to increase the applicable percentage
specified in this subsection.
(iii) "Qualified Participant" means a Participant or former
Participant whose Company Stock Account has not been
completely distributed and who is at least age fifty-five (55)
and has actively participated in the Employee Stock Ownership
Plan during at least ten (10) Plan Years.
(f) If Company Stock should not be readily tradable on an established
securities market, all valuations of Employer Securities required by
this or any other provision of the Plan shall be made by an
independent appraiser who meets requirements similar to the
requirements of the regulations prescribed under Code Section
170(a)(1).
V-6
<PAGE> 35
ARTICLE VI
LIMITATIONS ON ALLOCATIONS
6.01 THE LIMITATIONS ON ALLOCATIONS IN GENERAL. The provisions of this
Article VI shall be applied to prevent allocations to Participant's Accounts
from exceeding the limitations under Sections 415 and 416 of the Internal
Revenue Code and regulations promulgated thereunder. If there are any
discrepancies between the provisions of this Article VI and Internal Revenue
Code Sections 415 and 416, Internal Revenue Code Sections 415 and 416 shall
prevail. Notwithstanding any other provisions of the Plan, the total Annual
Additions to a Participant's Accounts for any Plan Year shall not exceed the
lesser of the Maximum Permissible Amount or any other limitation contained in
the Plan.
6.02 PARTICIPATION IN THIS PLAN AND LIMITATIONS ON ALLOCATIONS.
(a) If the Participant does not participate in, and has never
participated in, another qualified plan or a Welfare Benefit Fund
adopted by the Employer, the amount of Annual Additions which may be
credited to the Participant's Accounts for any Limitation Year shall
not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in this Plan.
(b) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Administrative Committee may determine
the Maximum Permissible Amount for a Participant on the basis
of a reasonable estimation of the Participant's Compensation
for the Limitation Year, uniformly determined for all
Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year,
the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Participant's actual
Compensation for the Limitation Year.
6.03 LIMITATIONS AFFECTING OTHER DEFINED CONTRIBUTION PLANS.
(a) In the event the Participant is also a Participant in any other
defined contribution plan or Welfare Benefit Fund maintained by
the Employer during the Limitation Year, the total amount of
Annual Additions which may be credited to Participant
VI-1
<PAGE> 36
Accounts under this Plan for any such Limitation Year shall not
exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to the Participant's accounts under the other
plans and Welfare Benefit Funds for the same Limitation Year. If the
Annual Additions with respect to the Participant otherwise
attributable to other defined contribution plans and Welfare Benefit
Funds maintained by the Employer. when added to the Annual Additions
otherwise attributable to this Plan, would cause the Annual
Additions for the Limitation Year to exceed the limitations under
this Article, the amount contributed or allocated under all
qualified plans and Welfare Benefit Funds of the Employer will be
reduced in accordance with Section 6.05 so that the Annual Additions
under all such plans and Welfare Benefit Funds for the Limitation
Year will equal the Maximum Permissible Amount.
(b) Prior to determining the Participants actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible
Amount for a Participant in the manner described in Section 6.02(b).
As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
6.04 LIMITATIONS AFFECTING OTHER DEFINED BENEFIT PLANS. If in addition to
this Plan, the Employer maintains, or at any time maintained one (1) or more
qualified defined benefit plans, the sum of the Defined Contribution Fraction
and the Defined Benefit Fraction with respect to any Participant for a
Limitation Year may not exceed 1.0. The Annual Additions which may be credited
to a Participant's Accounts under this Plan for any Limitation Year will be
limited and reallocated in accordance with the provisions of Section 6.05.
6.05 REDUCTION OF EXCESS AMOUNTS.
(a) If the limitations of this Article VI are exceeded,
contributions, allocations and accrued benefits under this Plan
and any other qualified plan or Welfare Benefit Fund maintained
by the Employer will be limited in a manner designed to
maximize Participant benefits under all of the Employer's
qualified plans and
VI-2
<PAGE> 37
Welfare Benefit Funds. Notwithstanding the foregoing, the amount of
Employer contributions and forfeitures otherwise allocable on behalf
of any Participant under this Plan will be reduced before any
reduction is made in such Participant's accrued benefit under the
Pension Plan. In the event any reduction is required under this Plan
in any Plan Year, such Excess Amount under this Article VI shall be
treated as forfeiture and allocated to the Accounts of Other
Participants to the extent permitted under this Article VI in
accordance with the provisions of Section 5.04.
(b) Any Excess Amount that cannot be allocated in a Plan Year shall be
held in an Excess Amount Suspense Account and allocated in
subsequent Plan Years. Amounts held in the Excess Amount Suspense
Account will be allocated to Participant Accounts in subsequent Plan
Years and shall be treated as forfeitures arising in the year in
which such amounts are allocated to Participant Accounts.
6.06 DEFINITIONS. For purposes of this Article VI, the following
terms shall apply:
(a) ANNUAL ADDITIONS.
(i) The sum of the following amounts allocated on behalf of a
Participant for a Limitation Year:
(A) All Employer contributions (including when
applicable any Tax-Deferred Contributions);
(B) All forfeitures;
(C) All Employee contributions;
(D) Amounts allocated after March 31, 1984 to an "Individual
Medical Account," (as defined in Section 415(l)(l) of
the Internal Revenue Code), which are part of a defined
benefit plan maintained by the Employer; and
(E) Amounts derived from contributions paid or accrued after
December 31, 1985 in taxable years ending after such
date, which are attributable to post-retirement medical
benefits allocated to the
VI-3
<PAGE> 38
separate account of a "Key Employee" under a Welfare
Benefit Fund maintained by the Employer.
(ii) Notwithstanding anything in this Section 6.06(a) to the
contrary, no Employer contributions under the Plan which
are applied by the Trustee (not later than the due date,
including any extension, for filing the Employer's
Federal income tax return for the Fiscal Year during or
for which such Plan Year ends) to pay interest on
Acquisition Loans, and any Financed Shares which are
allocated as forfeitures, shall be characterized as
Annual Additions. This provision shall be applicable
only to Plan Years for which not more than one-third
(1/3) of the Employer contributions applied to pay
principal and/or interest on all Acquisition Loans are
allocated to Participants who are in the Special
Participant Group. The Administrative Committee shall
reallocate such Employer contributions if necessary to
comply with this special limitation.
(iii) A restored forfeiture, a transfer from another qualified
pension plan or a rollover contribution shall not be counted
as part of any Participant's "Annual Addition."
(b) COMPENSATION.
(i) A Participant's earned income, wages, salaries, fees for
professional services and other amounts received for
personal services actually rendered in the course of
employment with the Employer maintaining the Plan
including, but not limited to, commissions paid to
salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips, and bonuses and excluding the following:
(A) Employer contributions to a plan of deferred
compensation to the extent contributions are not
included in gross income of the Employee for the
taxable year in which contributed, or on behalf of
an Employee to a simplified employee pension plan
to the extent such
VI-4
<PAGE> 39
contributions are deductible by the Employee, or any
distribution from a plan of deferred compensation;
(B) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by an Employee becomes freely transferable or is no
longer subject to a substantial risk of forfeiture;
(C) Amounts realized from the sale, exchange or other
disposition of stock received under a qualified stock
option; and
(D) Other amounts which receive special tax benefits, or
contributions made by an Employer (whether or not under
a salary reduction agreement) towards the purchase of an
annuity contract of the type described in Section 403(b)
of the Internal Revenue Code (whether or not the
contributions are excludable from the gross income of
the Employee).
(ii) For the purpose of applying the limitations in this Article,
amounts included as Compensation are those actually paid or
made available to a Participant within the Limitation Year.
(c) DEFINED BENEFIT FRACTION.
(i) A fraction, the numerator of which is the sum of a
Participant's projected annual benefits under all qualified
defined benefit plans (whether or not terminated) maintained
by the Employer, and the denominator of which is the lesser
of:
(A) One hundred twenty-five percent (125%) of the dollar
limitation in effect under Section 415(b)(l)(A) of the
Internal Revenue Code, or
(B) One hundred forty percent (140%) of the participant's
average Compensation for the three (3) highest
consecutive Plan Years during which the Participant was
active in such plan.
(ii) For purposes of this Section 6.06(c), the projected
annual benefit means an annual benefit (adjusted to the
actuarial equivalent of a straight life annuity
VI-5
<PAGE> 40
if expressed in a form other than a straight life or qualified
joint and survivor annuity) under a defined benefit plan,
assuming that the Participant will continue employment until
the later of the Participant's current age or the normal
retirement age under the defined benefit plan, and the
Participant's Compensation for the Limitation Year and all
other relevant factors used to determine benefits under the
defined benefit plan will remain constant for all future
Limitation Years.
(d) DEFINED CONTRIBUTION FRACTION
(i) A fraction the numerator of which is the sum of the
Annual Additions credited to the Participant's Accounts
under the Plan and all other qualified defined
contribution plans (whether or not terminated) of the
Employer for the current and all prior Limitation Years
(including the Annual Additions attributable to the
Participant's voluntary nondeductible contributions to
any qualified defined benefit plans, whether or not
terminated, and Welfare Benefit Funds maintained by the
Employer) and the denominator of which is the sum of the
Maximum Aggregate Amount for current and all prior
Limitation Years of Service with the Employer (regardless
of whether a defined contribution plan was maintained by
the Employer).
(ii) For purposes of this Section 6.06(d), the Maximum Aggregate
Amount in any Limitation Year shall be the lesser of:
(A) One hundred twenty-five percent (125%) multiplied by the
dollar limitation in effect under Internal Revenue Code
Section 415(c)(l)(A), or
(B) Thirty-five percent (35%) of the Participant's
Compensation for such year.
(e) EMPLOYER. The Employer as defined in Section 2.16 of the Plan,
all members of its "Controlled Group of Corporations" (as
defined in Section 414(b) of the Internal Revenue Code and as
modified by Section 415(h) of the Internal Revenue Code), all
commonly controlled trades or businesses under "Common Control"
(as defined
VI-6
<PAGE> 41
in Section 414(c) of the Internal Revenue Code and as modified by
Section 415(h) of the Internal Revenue Code), or all members of the
"Affiliated Service Group" (as defined in Section 414(m) of the
Internal Revenue Code) of which the Employer (as defined in Section
2.16 of the Plan) is a part.
(f) EXCESS AMOUNT. The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(g) EXCESS AMOUNT SUSPENSE ACCOUNT. The separate account
established under this Article for allocation of Excess Amounts
which cannot be allocated to Accounts of other Participants.
(h) LIMITATION YEAR. A calendar year, or any other twelve (12)
consecutive month period elected by the Employer pursuant to a
written resolution adopted by the Employer. All qualified
plans maintained by the Employer must use the same Limitation
Year. If the Limitation Year is amended to a different twelve
(12) consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year in which the
amendment is made.
(i) MAXIMUM PERMISSIBLE AMOUNT.
(i) For a Limitation Year, the lesser of (A) thirty thousand
dollars ($30,000) or such larger amount equal to
twenty-five percent (25%) of the defined benefit dollar
limitation as adjusted for cost-of-living increases
pursuant to Code Section 415(d)(3); or (B) twenty-five
percent (25%) of the Participant's Compensation as
defined in Section 6.06(b). In any Plan Year in which no
more than one-third (1/3) of the Employer contributions
are allocated to the Special Participant Group, the
dollar limitation set forth in the preceding sentence
shall be increased for each Plan Year by the lesser of
the dollar amount otherwise applicable for that Plan Year
as set forth in the first sentence of this Section
6.06(i), or the amount of Company Stock allocated as a
result of Employer contributions to the Participant's
Accounts for such Plan Year.
VI-7
<PAGE> 42
(ii) If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different twelve (12)
consecutive month period, the Maximum Permissible Amount for
the short Limitation Year will be the lesser of:
(A) The applicable dollar limitation set forth in Section
6.06(i)(ii) multiplied by the following fraction:
Number of months in
the short Limitation
Year
------------------------
12
or;
(B) Twenty-five percent (25%) of the Participant's
Compensation for the short Limitation Year.
(j) SPECIAL PARTICIPANT GROUP. Those Participants who are officers
of the Company or of an Affiliated Company, shareholders owning
more than ten percent (10%) of Company Stock as determined
under Section 415(c)(6)(B)(iv) of the Internal Revenue Code or
Employees whose W-2 Compensation for the Plan Year exceeds
sixty thousand dollars ($60,000). The sixty thousand dollars
($60,000) amount shall be adjusted for increases in the cost of
living pursuant to regulations prescribed under Section 415(d)
of the Internal Revenue Code.
(k) WELFARE BENEFIT FUND. Welfare Benefit Fund as the term is
defined in Section 419(e) of the Internal Revenue Code.
VI-8
<PAGE> 43
ARTICLE VII
RETIREMENT BENEFITS
7.01 NATURE OF BENEFITS. A Participant's Company Stock Account and Other
Investment Account shall fully vest on Normal Retirement Date. A Participant who
retires on or after attaining Normal Retirement Date shall be entitled to
receive retirement benefits equal to the total amount in all his Accounts as
determined in accordance with Section 11.01 hereof.
7.02 EARLY RETIREMENT. A Participant whose Company Stock Account and Other
Investment Accounts are fully vested may retire and commence his retirement
benefits at any time after such Participant has attained the age of fifty-five
(55) years. Such a Participant shall be entitled to receive benefits equal to
the amounts in his Accounts as determined in accordance with Section 11.01
hereof.
7.03 PAYMENT OF RETIREMENT BENEFITS. Retirement benefits provided under
this Article VII shall be in accordance with the provisions of Article XI
hereof. Unless a Participant elects otherwise, and subject to the requirements
of Article XI, benefits shall be paid at such time as the Administrative
Committee determines after consulting with the Participant but in no event later
than the sixtieth (60th) day after the later of the close of the Plan Year in
which the Participant attains his Normal Retirement Date or the close of the
Plan Year in which he Participant actually retires.
VII-1
<PAGE> 44
ARTICLE VIII
DEATH BENEFITS
8.01 NATURE OF BENEFITS.
(a) Upon the death of a Participant while in the employ of the Employer
or on authorized leave of absence, his account shall fully vest and
his designated Beneficiary shall be entitled to receive benefits
equal to the total amount in the deceased Participant's Accounts.
(b) Upon the death of a Participant who was not employed by
Employer and was not on an approved leave of absence at the
time of his death, the Participant's designated Beneficiary
shall be entitled to receive benefits equal to the sum of the
deceased Participant's vested interest in his Company Stock
Account as of the date of his death calculated pursuant to
Section 10.01 and the deceased Participant's vested interest in
his Other Investment Account calculated pursuant to Section
10.01.
8.02 DESIGNATION OF BENEFICIARY.
(a) Each person entitled to receive benefits under the Plan may
designate one (1) or more persons to receive the benefits payable
upon his death by delivering a signed, written designation thereof
to the Administrative Committee. Beneficiary designations shall be
made on forms prescribed by and in accordance with procedures
established by the Administrative Committee
(b) If a Participant is married to the same spouse for twelve (12)
or more consecutive months prior to his death, such spouse
shall automatically be the Beneficiary unless the Participant
has designated another Beneficiary in writing, the spouse of
such Participant consented in writing to such designation of
another Beneficiary and the form of benefit to be received and
such consent was witnessed by a Notary Public or Plan
representative. Spousal consent shall not be required to
revoke any Beneficiary designation.
VIII-1
<PAGE> 45
(c) If a participant dies and is survived by a spouse who he has been
married to for at least twelve (12) consecutive months prior to his
death, any Beneficiary designation of a person other than such
surviving spouse shall not be valid unless such surviving spouse
consented to such designation in accordance with the preceding
Section 8.02(b)
(d) Subject to the provisions of this Section 8.02, an individual
may change his Beneficiary designation at any time by
delivering a new, signed, written designation meeting the
requirements of Section 8.02(b) to the Administrative
Committee. Any such designation shall become effective only
upon its receipt by the Administrative Committee. The last
effective designation received by the Administrative Committee
shall supersede all prior designations. A designation of a
Beneficiary shall be effective only if the designated
Beneficiary survives the person making the designation. If a
person entitled to receive benefits under the Plan fails to
designate a Beneficiary, or if no designated Beneficiary
survives such person, such person shall be deemed to have
designated one of the following Beneficiaries in the order
stated below:
(i) His spouse;
(ii) If no spouse is then living, his children (including
adopted children) in equal shares;
(iii) If no spouse or children are then living, his parents in
equal shares;
(iv) If no spouse or children or parents are then living, his
Estate.
(e) Beneficiary designations shall be subject to any restrictions or
limitations that may be imposed under regulations promulgated by the
Secretary of the Treasury.
8.03 COMMENCEMENT OF DEATH BENEFITS. Subject to the requirements of this
Article and Article XI, death benefits shall commence, or be paid in a lump sum,
in accordance with the provisions of Article XI, no later than the later of
sixty (60) days after the last day of the Plan Year within which the
Administrative Committee receives written notice of such Participant's death, or
sixty (60) days after the earliest date on which the amount of such benefits can
be ascertained.
VIII-2
<PAGE> 46
ARTICLE IX
DISABILITY BENEFITS
9.01 DISABILITY RETIREMENT BENEFITS. If a Participant retires by reason of
Total and Permanent Disability while in the Employer's employment, his Company
Stock Account and Other Investment Account shall fully vest and he shall be
entitled to receive a benefit equal to the total amount in all his Accounts, as
determined in accordance with the provisions of Section 11.01. Such benefits
shall be paid in accordance with the provisions of Article XI, no later than the
later of sixty (60) days after the last day of the Plan Year within which the
Administrative Committee receives written notice of such disability retirement,
or sixty (60) days after the earliest date on which the amount of such benefits
can be ascertained.
9.02 DETERMINATION OF DISABILITY. The Administrative Committee shall
determine whether a Participant has suffered Total and Permanent Disability and
its determination in that respect is binding upon the Participant, provided that
the Administrative Committee shall rely upon professional medical advice in
making such determination. In making its determination, the Administrative
Committee may require the Participant to submit to medical examinations by
physicians selected by the Administrative Committee. The provisions of this
Article shall be uniformly and consistently applied to all Participants.
IX-1
<PAGE> 47
ARTICLE X
BENEFITS UPON TERMINATION OF EMPLOYMENT
10.01 VESTING UPON TERMINATION OF EMPLOYMENT.
(a) In the event of a Termination of Employment by a Participant,
such Participant shall be entitled to receive benefits as
provided in this Article. A Participant's benefits upon
Termination of Employment shall be the sum of the Participant's
vested interest in his Company Stock Account with all earnings
thereon as of the last day of the Plan Year preceding the
Termination of Employment and his vested interest in his Other
Investment Account together with all earnings thereon as of the
last day of the Plan Year preceding the Termination of
Employment, except as provided in Section 12.10.
(b) The benefits provided in this Section shall be paid in accordance
with the provisions of Article XI.
10.02 CALCULATION OF VESTED INTEREST IN COMPANY STOCK ACCOUNT AND
OTHER INVESTMENT ACCOUNT.
(a) A Participant's vested interest in the total amount in his Company
Stock Account and the portion of his Other Investment Account not
attributable to Tax Deferred Contributions shall for purposes of
Section 10.01 be determined as follows based on his Entry Date into
either the Prior Employer Plan or this Plan:
<TABLE>
<CAPTION>
Percentage Vested
----------------------- -------------------------
Pre-December 29, 1995 Post-December 28, 1995
Years of Service Entry Date Entry Date
------------------ ----------------------- -------------------------
<S> <C> <C>
Less than 1 0% 0%
1 10% 0%
2 25% 0%
3 40% 20%
4 55% 40%
5 70% 60%
6 85% 80%
7 or more 100% 100%
</TABLE>
X-1
<PAGE> 48
(b) The portion of the Other Investment Account attributable to
Tax-Deferred or Employee Contributions provided under Article XII
shall at all times be one hundred (100) percent vested.
(c) The provisions of Section 10.02(d) shall apply to any
Participant who is reemployed following a Termination of
Employment if such reemployed Participant received a
distribution from his Company Stock Account or Other Investment
Account at a time when he was not fully vested. The provisions
of Section 10.02(d) shall not apply if the Years of Service a
reemployed Participant accrued prior to Termination of
Employment are completely disregarded in calculating such
Participant's vested interest in his Company Stock Account and
Other Investment Account under the provisions of this Article X.
(d) Upon the reemployment of eligible Participants, two (2)
separate subaccounts for the Other Investment Accounts and
Company Stock Accounts shall be established. The first set of
subaccounts shall reflect the reemployed Participant's interest
in his Company Stock Account and Other Investment Account as of
the time of his Termination of Employment. The second set of
subaccounts shall reflect the reemployed Participant's interest
in his Company Stock Account and Other Investment Account as of
his Reemployment Commencement Date. The two (2) sets of
subaccounts shall be maintained until the Participant becomes
one hundred percent (100%) vested. The Participant's benefit
("X") derived from a particular subaccount attributable to his
Years of Service prior to his Termination of Employment) shall
be determined (prior to one hundred percent [100%] vesting) at
the time his participation in the Plan subsequently terminates,
in accordance with the following formula:
X = P(AB + D) - D
(e) For purposes of applying this formula set forth in Section 10.02(d),
"P" is the vested percentage at the time of the subsequent
termination, "AB" is the total of such subaccount balance at that
time and "D" is the amount of his benefit previously distributed.
X-2
<PAGE> 49
10.03 BENEFITS UPON TERMINATION OF EMPLOYMENT.
(a) Unless the Participant is one hundred percent (100%) vested in
his Company Stock Account and one hundred percent (100%) vested
in his Other Investment Account, or if the Participant elects
to receive distribution of his benefits at an earlier date in
accordance with the provisions of Section 10.04, a
Participant's benefits upon Termination of Employment shall be
paid in accordance with Article XI after the last day of the
Plan Year in which the Participant incurs a One Year Period of
Separation coinciding with or following his Termination of
Employment. The portion of a terminating Participant's
Accounts that are not distributable under this Section shall be
allocated to suspense subaccounts and/or forfeited in
accordance with the provisions of Sections 10.07 and 10.08.
(b) The Administrative Committee may cash out any Participant who
incurs a Termination of Employment and pay such benefits to the
Participant in a lump sum. Subject to the requirements of
Article XI, the Administrative Committee must, however, obtain
the consent of the Participant or the Participant and his
spouse if the Participant is married prior to making any lump
sum termination distribution if the value of the termination
distribution ever exceeded three thousand five hundred dollars
($3,500).
10.04 EARLY DISTRIBUTION
(a) The Administrative Committee shall distribute benefits payable to a
Participant upon his Termination of Employment at any time before
the expiration of one (1) calendar year after such Termination of
Employment, without regard to whether the Participant has incurred a
One Year Period of Separation, if either of the conditions set forth
in Section 10.04(b) are satisfied.
(b) Early distributions are permitted under the following
circumstances:
(i) The Participant is one hundred percent (100%) vested in his
Company Stock Account and one hundred percent (100%) vested in
his Other Investment Account at the time of his Termination of
Employment; or
X-3
<PAGE> 50
(ii) The Participant voluntarily elects to receive the
distribution, and the distribution includes the Participant's
entire vested interest in his Company Stock Account and his
entire vested interest in his Other Investment Account.
10.05 DETERMINATION OF YEARS OF SERVICE. For purposes of this Article, in
determining the number of Years of Service of a Participant, all of such
Participant's Period of Service, whether or not continuous, while in the employ
of the Employer shall be counted except for Years of Service set out in Section
10.06.
10.06 BREAKS IN EMPLOYMENT.
(a) In the case of any Participant who incurs a one year Period of
Separation, Years of Service before such Period of Separation shall
not be taken into account until such Participant has completed a
Year of Service after such one (1) or more one year Period of
Separation
(b) For the purpose of determining a Participant's vested percentage,
Year of Service shall be measured by the Plan Year and the following
Periods of Service shall be disregarded:
(i) All Periods of Service prior to the Effective Date of the
Prior Employer Plan for Participants with an Entry Date prior
to December 29, 1995 and one half (1/2) of the first six (6)
Years of Service for Participants with a post December 28,
1995 Entry Date. Service in excess of six (6) years will be
completely disregarded.
(ii) Those Periods of Service of a former nonvested Participant
which relate to a Period of Service prior to his incurring a
Break in Employment, if his Period of Separation exceeds both
his prior Period of Service and sixty (60) consecutive months.
(iii) Any Period of Separation which exceeds twelve (12) consecutive
months.
(c) In the case of any Participant who has no vested amount in his
Accounts under the provisions of Section 10.01 who accrues at
least one (1) Hour of Service prior to incurring a one (1) or
more year Period of Separation, Years of Service
X-4
<PAGE> 51
accumulated prior to incurring such one (1) or more year Period of
Separation shall not be taken into account if the Period of
Separation equals or exceeds the greater of five (5) years or the
aggregate number of Years of Service such Participant accumulated
before incurring such Period of Separation. Such aggregate number of
Years of Service before such Separation shall be deemed not to
include any Years of Service not required to be taken into account
under this Section 10.06 by reason of any prior Period of
Separation.
10.07 FORFEITURES AND ALLOCATION TO SUSPENSE ACCOUNTS.
(a) In the event of a Termination of Employment by a Participant
who has not incurred a one (1)-year Period of Separation during
the Plan Year within which such Termination of Employment
occurs, the nonvested portion of his Accounts shall be
allocated to suspense subaccounts as of the last day of the
Plan Year of such Termination of Employment. In the event of a
Termination of Employment by a Participant who has not incurred
a one (1)-year Period of Separation during the Plan Year within
which such Termination of Employment occurs, the nonvested
portion of his Accounts shall be allocated to suspense
subaccounts as of the last day of the Plan Year immediately
following the Plan Year of such Termination of Employment,
provided that during such following Plan Year the Participant
has incurred a (1)-year Period of Separation. If during such
following Plan Year the Participant does not incur a Break in
Employment,, the Participant shall not be treated as having
sustained a Termination of Employment for purposes of the Plan
and the Participant's vested interest shall be determined in
accordance with the provisions of this Article without regard
to such Termination of Employment.
(b) Any amount allocated to a suspense subaccount pursuant to
Section 10.07(a) shall be permanently forfeited if the
Termination of Employment leads to a five (5) year Period of
Separation as of the last day of the Plan Year in which the
five (5)-year period expires. Any forfeited amounts shall be
allocated to Accounts of eligible Participants in accordance
with the provisions of Section 5.04 and shall be allocated to
such Accounts in addition to Employer contributions under
Article IV.
X-5
<PAGE> 52
(c) In the event a Participant incurs a Termination in Employment which
does not result in a five (5)-year Period of Separation, amounts
segregated in subaccounts shall no longer be segregated into
subaccounts as of the beginning of the Plan Year in which such
Participant resumed participation in this Plan. All segregated
amounts shall share in all investment gains and losses.
(d) Forfeitures arising under this Article X shall first be charged
against a Participant's Other Investment Account. If any forfeitures
have not been charged, any remaining forfeitures shall then be
charged against his Employer Stock Account at the fair market value
of Company Stock (as of the Allocation Date). Financed Shares shall
be forfeited only after other shares of Company Stock have been
forfeited.
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<PAGE> 53
ARTICLE XI
PAYMENT OF BENEFITS
11.01 RETIREMENT, DISABILITY AND DEATH BENEFITS. The Administrative
Committee shall direct the Trustees to distribute the benefits payable to a
Participant or his Beneficiary upon the Participant's retirement on or after his
attaining the age of sixty-five (65) years, upon his attaining his Early
Retirement Date, upon his Total and Permanent Disability or upon his death, as
the case may be, based upon the amount of such Participant's Company Stock
Account and Other Investment Account together with all earnings thereon for the
Plan Year during which such distribution event occurs, or, in the event that the
distribution of such benefits occurs before the end of the Plan Year, as of the
Allocation Date of the preceding Plan Year.
11.02 BENEFITS UPON TERMINATION OF EMPLOYMENT. The Administrative
Committee shall direct the Trustees to distribute the benefits payable to a
Participant upon such Participant's Termination of Employment as provided in
Article X and this Article XI.
11.03 METHODS OF PAYMENT OF BENEFITS.
(a) Subject to the requirements of Article X and this Article XI, the
Administrative Committee shall direct the Trustees to distribute the
Participant's benefits under the Plan in accordance with one (1) or
a combination of the methods of distribution set forth in Section
11.03(b) as determined by the Participant or Beneficiary.
(b) The available methods of distribution are as follows:
(i) A single distribution; or
(ii) Equal or substantially equal monthly, or quarterly or annual
distributions over a fixed period of years not to exceed the
greater of the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and his
designated Beneficiary.
(c) Notwithstanding the foregoing, each Participant shall have the
right to demand that his benefits be distributed entirely in
whole shares of Company Stock except for any amounts provided
by Article XII (fractional shares to be paid in cash). When a
distribution is to be made in shares of Company Stock any
balance in
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<PAGE> 54
a Participant Account not in the form of Company Stock may be
applied to provide shares of Company Stock for distribution at the
then fair market value. If Company Stock to be distributed was
acquired with the proceeds of an Acquisition Loan and consists of
more than one class, substantially the same proportion of each such
class shall be distributed to the Participant. In the event that
Company Stock is not readily tradable on an established market on
the date of its distribution, or at any time within the sixty
(60)-day period following the date of distribution, the Participant
shall have the right to require that the Employer repurchase the
Company Stock at its fair market value by notifying the Employer in
writing that such right is being exercised. Such right shall be
exercisable for a period of sixty (60) days following the date of
distribution.
(d) Subject to the other distribution limitations set forth in this
Article XI, the Administrative Committee shall obtain the
written consent of the Participant, and the Participant's
spouse (if the Participant is married), or, in the case of
death benefits the Participant's Beneficiary, prior to making
any distribution exceeding three thousand five hundred dollars
($3,500). Any subsequent changes in the form of benefits
payable to a Participant require spousal consent. Any
Participant (or spouse in the event of death) who fails to
consent to an immediate distribution of his vested account
balance has elected to defer benefits to the later of age
sixty-two (62) or his Normal Retirement Age.
11.04 IMMEDIATE CASH OUT OPTION.
(a) Section 11.03 notwithstanding, if at any time prior to the first day
of the first period for which an amount is received as an annuity,
the value of the participant's Account balances never had exceeded
three thousand five hundred dollars ($3,500), the entire amount of
the Participant's benefit or death benefit may, at the discretion of
the Administrative Committee, be distributed immediately.
(b) If the value of the Participant's Account balances is greater
than three thousand five hundred dollars ($3,500), or if a
distribution in any amount is made at any time after the first
day of the first period for which an amount is received as a
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<PAGE> 55
distribution, Section 11.03 notwithstanding, the distribution
of such benefits may be distributed immediately if, prior to
such distribution and subject to the other distribution
requirements of this Article XI, the Administrative Committee
obtains written consent signed by the Participant and his
spouse, or, the surviving spouse, if the Participant has died.
11.05 MINIMUM AMOUNTS TO BE DISTRIBUTED.
(a) If the Participant's entire interest is to be distributed in
other than a lump sum, then the amount to be distributed each
year must be at least an amount equal to the quotient obtained
by dividing the Participant's entire interest as of the date of
distribution by the life expectancy of the Participant or the
joint and last survivor expectancy of the Participant and his
designated Beneficiary as the case may be. Life expectancy and
joint and last survivor expectancy shall be computed by the use
of the return multiples contained in Section 1.72-9 of the
Treasury Regulations. For purposes of this computation, the
life expectancy of a Participant or a spouse may be
recalculated no more frequently than annually. The life
expectancy of any designated Beneficiary other than a spouse
may not, however, be recalculated. If the Participant elects a
distribution pursuant to Section 11.03(b)(ii) and the
designated Beneficiary is a person other than the Participant's
spouse, the period over which distribution is to be made must
be such that at least fifty percent (50%) of the present value
of the amount available for distribution is to be paid within
the life expectancy of the Participant.
(b) Notwithstanding the foregoing, the minimum distribution provisions
of this Section 11.05 shall not apply unless the Participant has
attained the age of seventy and one-half (70-1/2) years.
11.06 LATEST DATE FOR DISTRIBUTION TO BEGIN., The payment of a
Participant's benefit must commence not later than April 1 of the calendar year
following the year in which the Participant attains the age of seventy and
one-half (70-1/2) years.
11.07 BENEFIT COMMENCEMENT DATE. Notwithstanding anything herein,
payment of benefits shall commence no later than the latest of the close of
the Plan Year in which:
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<PAGE> 56
(a) The Participant reaches Normal Retirement Age;
(b) The tenth (10th) anniversary of the date on which the
Participant commenced participation occurs; or
(c) The Participant terminates employment.
11.08 DISTRIBUTIONS TO BENEFICIARIES OF DECEASED PARTICIPANTS.
(a) If a Participant dies before any part of his interest under the Plan
has been distributed, his entire remaining interest, subject to
exceptions set forth below, must be distributed within five (5)
years of the Participant's death.
(b) The five (5) year rule set forth in Section 11.08(a) shall not apply
if:
(i) Any portion of the Participant's interest is payable to or for
the benefit of a designated Beneficiary over the life of the
Beneficiary, or a period not extending beyond the life of the
Beneficiary; and
(ii) The distribution begins no later than one (1) year after the
Participant's death or such later date as may be promulgated
by the Secretary of the Treasury or the Secretary's designate;
(c) The five (5) year set forth in Section 11.08(a) shall also not
apply if:
(i) The Beneficiary is the surviving spouse of the
Participant;
(ii) The distribution does not extend beyond the life
expectancy of the surviving spouse; and
(iii) The distribution to the surviving spouse commences no later
than the date on which the Participant would have attained the
age of seventy and one-half (70-1/2) years.
(d) For the purposes of Section 11.08 (a), if the Beneficiary spouse
dies before the commencement of his distributions, distribution of
the Participant's interest under the Plan shall be made to the
designated Beneficiary within the time period that satisfies the
requirements of Section 11.08(a) as if the spouse had been the
Participant.
(e) Any amount paid to the child of the Participant may be treated as if
it had been paid to the surviving spouse if, under the terms of the
designation of Beneficiary
XI-4
<PAGE> 57
executed by the Participant, the amount becomes payable to the
surviving spouse when the child reaches the age of majority, or such
other designated event permitted under regulations promulgated by
the Secretary of the Treasury.
(f) For purposes of this Section 11.08, the amount of any payment
will be calculated by reference to the return multiples
specified in Section 1.72-9 of the Treasury Regulations. Life
expectancy will be calculated at the time payment first
commences, and except as set forth in this paragraph, shall not
thereafter be recalculated. The determination of the amount of
any death benefit made to any nonspouse Beneficiary in any
twelve (12) consecutive-month period following the date death
benefits payable to such nonspouse Beneficiary initially
commenced will be calculated on the basis of life expectancy of
such nonspouse Beneficiary determined as of the date the
payment of death benefits initially commenced to such nonspouse
Beneficiary minus the number of whole years elapsed from the
time the distribution of the Participant's death benefits
payable to such nonspouse Beneficiary initially commenced. The
foregoing notwithstanding, the life expectancy of a Beneficiary
who is also the Participant's surviving spouse may be
recalculated annually utilizing the return multiples set forth
in Section 1.72-9 of the Treasury Regulations.
(g) If a Participant dies after his distribution of benefits under this
Plan has begun, his remaining interest must be distributed at least
as rapidly as such interest was being distributed under the method
in effect on the date of the Participant's death.
11.09 RESERVED.
11.10 ACCELERATION OF PAYMENTS. If benefits are in the form of monthly,
quarterly or annual payments for a fixed period of years in accordance with
Section 11.03(b)(ii) and the Administrative Committee has not purchased an
annuity to distribute such benefits, the payment of any benefits to a
Participant or his Beneficiary shall, upon the written request of the
Participant or Beneficiary, be accelerated and the unpaid balance distributed to
such Participant or Beneficiary in a lump sum.
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<PAGE> 58
11.11 BENEFITS PAYABLE BY TRUST. All benefits payable under the Plan
shall be paid or provided for solely from the Trust. The Employer assumes
no liability or responsibility therefor.
11.12 RESERVED.
11.13 SPECIAL RESTRICTIONS APPLYING TO DISTRIBUTIONS OF COMPANY STOCK.
Shares of Company Stock held or distributed by the Trustee may include such
legend restrictions on transferability as the Company may reasonably require in
order to assure compliance with applicable Federal and state securities laws.
Except as otherwise provided in this Section 11.13, no shares of Company Stock
held or distributed by the Trustee may be subject to a put, call or other
option, buy/sell or similar arrangement. The provisions of this Section 11.13
shall continue to be applicable to Company Stock even if the Plan ceases to be
an employee stock ownership plan under Sections 409 or 4975(e)(7) of the
Internal Revenue Code.
11.14 PAYMENTS TO INCOMPETENTS. If any individual to whom a benefit is
payable under the Plan is a minor, or if the Administrative Committee determines
that any individual to whom a benefit is payable under the Plan is physically or
mentally incompetent to receive such payment and to give a valid release
therefor, payment shall be made to the guardian, committee or other
representative of the estate of such individual which has been duly appointed by
a court of competent jurisdiction. If no guardian, committee or other
representative has been appointed, payment may be made to or applied for the
benefit of the minor or incompetent, the incompetent's spouse, children or other
dependents, the institution or persons maintaining the minor or incompetent, or
any of them, in such proportions as the Administrative Committee from time to
time shall determine; and the release of the person or institution receiving the
payment shall be a valid and complete discharge of any liability of the Plan
with respect to any benefit so paid.
11.15 UNCLAIMED BENEFITS. If, within five (5) years after benefits are due
to a Participant, the Beneficiary or estate of a deceased Participant, the
Administrative Committee is unable to pay such benefits because the Committee
cannot ascertain the Participant's whereabouts or the identity or whereabouts of
his Beneficiary, executor or administrator by mailing to the last known address
shown on the Employer's or the Trustee's records, and neither the Participant,
XI-6
<PAGE> 59
his Beneficiary nor his executor or administrator has made a written claim for
benefits before the expiration of such five (5)-year period such benefits shall
be forfeited and shall be reallocated to the Participant's Accounts as of the
last day of the Plan Year in which such five (5)-year period expires in
accordance with Section 5.04. If the Plan and Trust have been terminated prior
to the reallocation of a forfeited amount, such forfeited amount shall escheat
to the State of Nevada.
11.16 LOANS TO PARTICIPANTS. If a financial emergency arises from such
causes as sickness of a Participant or his family, layoff, divorce or
dissolution of marriage, need to provide adequate housing, need to provide for
education of children or dependents or such other financial need deemed
acceptable by the Committee, the Committee, in its sole discretion and upon
written application of such Participant, may make a loan or loans to such
Participant in an amount aggregating under this Plan or any other Plan
maintained by the Employer not in excess of the lesser of (1) fifty thousand
dollars ($50,000) (reduced by the highest outstanding loan balance during the
one (1)-year period ending on the day before the loan is made over the
outstanding balance of loans from the Plan to the Participant on the date which
such loan is made), or (2) fifty percent (50%) of the sum of the Participant's
vested other Investment Account, including a Participant's Rollover Account, if
any, and the Participant's Tax-Deferred Contributions Account, provided that
such loans:
(a) Are available to all Participants on a reasonably equivalent
basis, and in the same percentage of their vested balances;
(b) Are not made available to Highly Compensated Employees, officers or
shareholders in an amount greater than the amount made available to
other Employees;
(c) Are adequately secured;
(d) Will in all events be due and payable in substantially level
payments made not less frequently than quarterly in five (5) years
or less (unless the loan is used to acquire a dwelling which is used
or to be used within a reasonable time as the principal residence of
the Participant);
(e) Are evidenced by the borrowing Participant's promissory note
(including in the case of a married Participant spousal consent to
such loan) for a fixed term bearing
XI-7
<PAGE> 60
interest at a rate commensurate with the prevailing interest rate
charged on similar commercial loans by persons in the business of
lending money;
(f) If valid consent has been obtained in accordance with
paragraph (g) below, then, notwithstanding any other provision
of this Plan, upon distribution of a Participant's Account, all
notes are due and payable and total amounts unpaid, including
principal and interest, will be deducted from the amount
distributed, but only if such reduction is used as a repayment
of the loan. If less than one hundred percent (100%) of the
Participant's vested Account is payable to the surviving
spouse, then the Account shall be adjusted by first reducing
the vested Account by the amount of the security used as
repayment of the loan, and then determining the benefit payable
to the surviving spouse;
(g) Notwithstanding the above, no portion of a Participant's Account may
be used as security for a loan unless, at the time, the security
interest is entered into, the Participant's spouse (if any) consents
to the use of the Participant's Account as security. Such consent
must:
(i) Acknowledge the effect of the consent; and
(ii) Be signed within the 90-day period ending on the date on
which the loan is to be so secured; and
(iii) Be witnessed by a Plan representative or notary public. Such
consent shall thereafter be binding with respect to the
consenting spouse or any subsequent spouse with respect to
that loan.
A new consent shall be required if the Account is used for
renegotiation, extension or renewal, or other revision for the loan;
(h) Shall be made under specific procedures established by the
Administrative Committee. Such procedures shall include the
basis on which loans will be approved or denied; the
limitations, if any, on the types and amounts of loans offered;
and the events constituting a default and the steps that will
be taken to preserve Plan assets in the event of such default.
For the purposes of this
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<PAGE> 61
Section 11.16, if three (3) monthly payments are not made, or if one
quarterly payment is not made the loan shall be in default.
Notwithstanding (e) above, in no event, except as may otherwise be
required by ERISA, may the interest rate charged for a loan exceed any limit
established under the applicable state usury law. Such loan shall be treated as
an earmarked investment of the borrowing Participant who shall be entitled to
all earnings or losses thereon. In the event a Participant is deemed to be in
default pursuant to written procedures maintained by the Plan, the Plan shall
treat such loan as a deemed distribution of Plan benefits as of the date of such
default with the Participant's vested interest reduced accordingly.
11.17 WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT.
(a) No amounts may be withdrawn from a Participant's Company Stock
Account or other Investment Account while he remains in the
employ of the Employer, except as provided in this Section
11.17 if the Board of Directors allows Salary Deferrals
pursuant to Article XII. If a Participant has attained age
fifty-nine and one-half (59-1/2) years, all amounts that have
been allocated to the Participant's Tax-Deferred Contributions
Account portion of his other Investment Account may be
withdrawn by the Participant upon request to the Committee on
approved forms. Such withdrawals shall be allowed only under
rules uniformly applicable to all Participants and shall
require spousal consent if the Participant is married. Such
spousal consent must acknowledge the effect of the withdrawal,
be signed within the 90-day period preceding the date the
withdrawal is to be made, and be witnessed by a Plan
representative or notary public.
(b) In addition, a distribution of the Tax-Deferred Contributions
(but not Qualified Matching Contributions or Qualified
Non-Elective Contributions) made by a Participant may be made
from such Participant's Tax-Deferred Contributions Account on
account of hardship if the distribution is necessary in light
of immediate and heavy financial need of the Employee
determined in accordance with Code Section 401(k)(2)(b)(IV) and
regulations issued thereunder. Such distribution shall be made
subject to spousal consent as described above. In no
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event shall such distribution include any of the investment gains
earned after December 31, 1988 on such Tax-Deferred Contributions or
any Employer Contribution which was recharacterized or eligible to
be recharacterized to enable the Plan to meet the requirements of
the ADP test in Section 12.05.
A distribution will not be treated as necessary to satisfy an
immediate and heavy financial need of an Employee to the extent the
amount of the distribution is in excess of the amount required to
relieve the financial need or to the extent such need may be
satisfied from other resources that are reasonably available to the
Participant.
(i) In order to receive a distribution under this Section 11.16(b)
a Participant shall be required to submit an appropriate
application to the Committee. Such application shall include
the Participant's written statement that the financial need
cannot be relieved:
(A) Through reimbursement or compensation by insurance
or otherwise,
(B) By reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself cause an
immediate and heavy financial need,
S
(C) By cessation of Elective Deferrals or Employee
Contributions under the Plan, or
(D) By other distributions or nontaxable (at the time of the
loan) loans from plans maintained by the Employer or by
any other employer, or by borrowing from commercial
sources on reasonable commercial terms.
(ii) The Committee shall deem a distribution to be necessary if all
of the following requirements are satisfied:
(A) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant
including the amount necessary to pay income taxes or
penalties resulting from the distribution,
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<PAGE> 63
(B) The Participant has obtained all distributions, other
than hardship distributions, and all nontaxable loans
currently available under all plans maintained by the
Employer,
(C) The Plan, and all other plans maintained by the
Employer, provide that the Participant's Elective
Deferrals and Employee Contributions will be suspended
for at least twelve months (12) after receipt of the
hardship distribution, and
(D) The Plan, and all other plans maintained by the
Employer, provide that the Participant may not make
Elective Deferrals for the Employee's taxable year
immediately following the taxable year of the
hardship distribution in excess of the applicable
limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's
Elective Deferrals for the taxable year of the
hardship distribution.
(E) Unless otherwise allowed by the appropriate income
tax regulations, the following are the only
financial needs which will be considered immediate
and heavy: deductible medical expenses (within the
meaning of Section 213(d) of the Code) of the
Employee, and the Employee's spouse, children, or
dependents, either incurred or required; the
purchase (excluding mortgage payments) of a
principal residence of the Employee; payment of
tuition and related education expenses for twelve
(12) months of post-secondary education for the
Employee, and the Employee's spouse, children, or
dependents; or the need to prevent the eviction of
the Employee from, or a foreclosure on the mortgage
of, the Employee's principal residence.
11.18 WITHHOLDING ON DISTRIBUTIONS. All nonperiodic distributions and
periodic payments shall be subject to the provisions of Section 16.14, hereto,
unless pursuant to Code Section 401(a)(31) and I.T. Regulation Section
1.401(a)(31)-IT the distributee of any eligible rollover distribution elects to
have the distribution paid directly to an eligible retirement plan in a
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<PAGE> 64
direct rollover. Accordingly, in addition to any other required payment
restrictions, the Committee shall, not less than thirty (30) days or more than
ninety (90) days prior to a distribution, provide the distributee with a notice
of his right to have his distribution paid in a direct rollover to an eligible
retirement plan and provide the distributee the means to make such election in
accordance with the following:
(a) If a distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence
less than thirty (30) days after the notice required under Section
1.411(a)-11(c) of the Income Tax Regulations is given, provided
that:
(i) The Plan administrator clearly informs the Participant that
the Participant has a right to a period of at least thirty
(30) days after receiving the notice to consider the decision
of whether or not to elect a distribution (and, if applicable,
a particular distribution option), and
(ii) The Participant, after receiving the notice,
affirmatively elects a distribution.
(b) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under the Provision, a
distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of an eligible rollover
distribution that is at least equal to five hundred dollars ($500)
paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(c) Definitions
(i) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of
the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated Beneficiary, or for a
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specified period of ten (10) years or more; any distribution
to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution
that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(ii) Eligible retirement plan: An eligible retirement plan is
an individual retirement account described in Section
408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover
distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement
account or individual retirement annuity.
(iii) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(iv) Direct rollover: A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the
distributee.
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<PAGE> 66
ARTICLE XII
PROVISIONS APPLICABLE TO SALARY DEFERRALS
12.01 RULES APPLICABLE TO SALARY DEFERRALS. In any Plan Year in which the
Board of Directors has determined to allow Tax-Deferred Contributions, the Plan
must satisfy the requirements set forth in this Article XII.
12.02 SPECIAL DEFINITIONS. The following additional definitions
shall apply:
(a) ELECTIVE DEFERRALS OR TAX-DEFERRED CONTRIBUTIONS. Contributions made
to the Plan during the Plan Year by the Employer, at the election of
the Participant, in lieu of Compensation and shall include
contributions made pursuant to a salary reduction agreement under
the Plan made on behalf of a Participant in accordance with this
Article XII.
(b) EMPLOYEE CONTRIBUTIONS. Contributions to the Plan made by a
Participant that are designated or treated at the time of deferral
or contribution as after-tax employee contributions. Employee
Contributions shall include amounts, if any, attributable to excess
contributions within the meaning of Section 401(k)(8)(B) of the Code
which are recharacterized as Employee Contributions under the
provisions of this Plan.
(c) FAMILY MEMBER. With respect to any Employee, such Employee's
spouse and lineal ascendants or descendants and spouses of such
lineal ascendants or descendants.
(d) HIGHLY COMPENSATED EMPLOYEE. Any Employee who performs services
with respect to the Employer during the Plan Year (the
"determination year") and is described in one or more of the
following groups applicable with respect to the determination
year or the "lookback year" determined pursuant to I. T.
Reg. 1.414(q)1-T. Accordingly, the Employer hereby elects to
make the lookback calculation on the basis of the calendar year
ending with or within the applicable determination year. Such
Employees shall include any Employee who:
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(i) Was at any time a five percent (5%) owner as defined
under Code Section 416(i)(1); or
(ii) Received Compensation from the Employer in excess of
seventy-five thousand dollars ($75,000) (as adjusted pursuant
to Code Section 415(d)); or
(iii) Received Compensation from the Employer in excess of fifty
thousand dollars ($50,000) (as adjusted pursuant to Code
Section 415(d)) and who was in the Top Paid Group of Employees
for such Plan Year or such preceding Plan Year; or
(iv) Was at any time an officer and received Compensation greater
than fifty percent (50%) of the amount in excess of Code
Section 415(b)(1)(A) for such Plan Year or such preceding Plan
Year.
(v) An Employee described in paragraphs (ii), (iii) or (iv)
above for the current Plan Year who was not described in
such paragraphs for the preceding Plan Year shall be
treated as a Highly Compensated Employee for the current
Plan Year only if such Employee is one (1) of the one
hundred (100) Employees who receive the most Compensation
from the Employer during the current Plan Year or he is
an Employee described under (i) above.
(vi) For the purposes of paragraph (iii) above, the term "Top Paid
Group" shall mean the top twenty percent (20%) of active
Employees ranked on the basis of Compensation received from
the Employer during the Plan Year.
(vii) For the purposes of paragraph (iv) above, no more than fifty
(50) Employees or, if less, the greater of three (3) Employees
or ten percent (10%) of the Employees shall be treated as
officers. If for any Plan Year no officer of the Employer is
described under paragraph (iv), the highest paid officer of
the Employer for such Plan Year shall be treated as described
in such paragraph.
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(viii)If any Employee is a Family Member of a five percent (5%)
owner or a Highly Compensated Employee in the group consisting
of the ten (10) Highly Compensated Employees paid the greatest
Compensation during a Plan Year, then such Employee shall not
be considered a separate Employee and any Compensation paid to
such Employee (and any contribution made on behalf of such
Employee) shall be treated as if it were paid to or on behalf
of the five percent (5%) owner or Highly Compensated Employee.
(ix) A former Employee shall be treated as a highly compensated
former Employee if such Employee was a Highly Compensated
Employee when such Employee separated from service, or such
Employee was a Highly Compensated Employee at any time after
attaining age fifty-five (55).
(x) For the purpose of this Section 12.02(d):
(A) The term "Compensation" shall have the meaning given
such term by Code Section 415(c)(3).
(B) Employers aggregated under Code Sections 414(b), (c),
(m), (n), or (o) shall be treated as a single Employer.
(xi) The determination of who is a Highly Compensated
Employee, including the determination of the number and
identity of the Employees in the Top Paid Group, the top
one hundred (100) Employees, the number of Employees
treated as officers and the Compensation that is
considered, will be made in accordance with Code
Section 414(q) and the regulations thereunder except as
specifically provided to the contrary in Code
Section 401(a)(17).
(e) MATCHING CONTRIBUTION. Any contribution to the Plan made by the
Employer for the Plan Year and allocated to a Participant's Company
Stock or Other Investment Account by reason of the Participant's
Employee Contributions, if any, or Elective Deferrals.
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(f) NON-HIGHLY COMPENSATED EMPLOYEE. An Employee of the Employer
who is neither a Highly Compensated Employee nor a Family
Member.
(g) QUALIFIED MATCHING CONTRIBUTIONS. That portion of the Employer
Matching Contributions pursuant to Section 12.04 which are to be
treated as Elective Deferrals for purposes of the Actual Deferral
Percentage ("ADP") test described in Section 12.05(a)(ii).
(h) QUALIFIED NONELECTIVE CONTRIBUTIONS. Contributions (other than
Matching Contributions) made by the Employer pursuant to
Section 4.01(a) which are to be treated as Elective Deferrals
for purposes of the ADP test. Both Qualified Matching
Contributions and Qualified Nonelective Contributions shall be
contributions that the Participant may not elect to receive in
cash earlier than the occurrence of one of those events
applicable to Tax-Deferred Contributions as set forth in
Section 12.03.
(i) TAX-DEFERRED CONTRIBUTIONS ACCOUNT. A Participant's sub-account
within his other Investment Account to which his Tax-Deferred
Contributions, as defined in Section 12.02(a), made pursuant to a
salary reduction agreement are allocated pursuant to Section 12.03.
12.03 TAX-DEFERRED CONTRIBUTIONS.
(a) In order for an Employee to become a Participant in the Salary
Deferral feature of the Plan, such Employee must agree to have the
Employer make Tax-Deferred Contributions on his behalf of at least
one percent (1%) of his Compensation earned on or after the date his
participation commences.
(b) In addition, a Participant may reduce his Compensation and have
the Employer contribute on his behalf as a Tax-Deferred
Contribution in each Plan Year, subject to the limitation on
Annual Additions provided in Article VI and any limitation
pursuant to the provisions of Section 11.17, a minimum of an
additional one percent (1%) of his Compensation up to a
maximum of an amount which, when added to all contributions in
excess of the initial one percent (1%) required for
participation made by such Participant, does not exceed
fourteen percent (14%) of
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such Participant's Compensation for the Plan Year. The rate of his
Tax-Deferred Contribution shall be determined by the Participant on
a form approved by the Committee and filed with the Committee and
shall continue unless changed in the manner hereinafter provided.
All such contributions shall be calculated in integral percentages
of a Participant's Compensation.
All Tax-Deferred Contributions shall be made by regular
payroll deductions. The Employer shall segregate such contributions
from Employer assets as soon as reasonably possible; provided,
however, that the Employer must pay over any contributions to the
Trustee within ninety (90) days after the date received or withheld
from payroll.
A Participant, by written notice to the Committee delivered no
later than thirty (30) days before its effective date, may elect to
change his Compensation reduction rate under this Section 12.03(b)
(but not retroactively) within the limits prescribed hereinabove.
The change in the Participant's contribution rate shall be effective
as of the first day of the payroll period coincident with or next
following the effective date if, and only if, the Participant's
notice is delivered to the Committee thirty (30) days before the
effective date. A Participant may change his contribution rate at
any time to zero percent (0%) (and no other greater or lesser
amount) by an election which will be effective as of the first day
of the payroll period next following the date of receipt of such
notice by the Committee. Upon changing his contribution rate to zero
percent (0%) a Participant will not be allowed to participate in
this Plan for a period of one (l) year following the date
contributions were suspended.
(c) Notwithstanding any other provision in this Plan to the
contrary, no Employee shall be permitted to make Tax-Deferred
Contributions during any calendar year (or other taxable year
of the Employee) which are in excess of the limits set forth
under Code Section 402(g)(1) (nine thousand five hundred
dollars ($9,500) for 1996) multiplied by the Adjustment Factor
as provided by the Secretary of the Treasury and in effect, at
the beginning of such taxable year. For the purpose of
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the preceding sentence only, with respect to any taxable year, a
Participant's Tax-Deferred Contributions shall be the sum of all
Employer contributions made on behalf of such Participant, pursuant
to a deferral election under any qualified cash or deferred
arrangement (CODA) as described in Code Section 401(k); any
simplified employee pension cash or deferred arrangement as
described in Code Section 402(h)(1)(B); any eligible deferred
compensation plan under Code Section 457; any plan as described
under Code Section 501(c)(18), and any Employer contributions made
on the behalf of a Participant for the purchase of an annuity
contract under Code Section 403(b) to a salary reduction agreement.
(d) The interest of each Participant in his or her Tax-Deferred
Contributions Account shall be, at all times, one hundred percent
(100%) vested and nonforfeitable.
(e) When a Participant terminates employment, his Tax-Deferred
Contributions Subaccount shall be distributed to him in the same
manner as his other Investment Account.
Except as provided pursuant to Sections 11.16 and 11.17,
amounts attributable to Elective Deferrals shall not be
distributable to Plan Participants earlier than upon one of the
following events:
(i) The Participant's retirement, death, disability, or
separation from Service with the Employer;
(ii) The Participant's attainment of age fifty-nine and
one-half (59-1/2);
(iii) The termination of the Plan without the establishment of
a successor plan;
(iv) The sale or other disposition by the Employer to an unrelated
employer that does not maintain the Plan, of substantially all
(eighty-five percent (85%) or more) of the assets of the
Employer, provided this paragraph (e) shall not apply with
respect to Participants who continue employment with the
acquiring employer; and
(v) The sale or other disposition by the Employer of its interest
in a subsidiary to an unrelated employer that does not
maintain the Plan, provided this
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paragraph (e) shall apply only with respect to Participants
who continue employment with the subsidiary.
12.04 EMPLOYER MATCHING CONTRIBUTIONS. At the discretion of the Board of
Directors, the Employer may contribute a "Matching Contribution" in an amount
equal to the percentage selected by the Board of the Tax-Deferred Contributions
percentage elected pursuant to Section 12.03 by each Participant for each
payroll period up to a maximum election of six percent (6%) per payroll period.
12.05 LIMITATIONS ON CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
Employer Matching Contributions and Tax-Deferred Contributions made on
behalf of Highly Compensated Employees in accordance with Sections 12.03
and 12.04 respectively shall be subject to limitations described in this
Section 12.05.
(a) For the purpose of this Section 12.05:
(i) "Contribution Percentage" shall mean the ratio (expressed
as a percentage) of:
(A) The sum of the Employee Contributions, if any, and
Matching Contributions made on behalf of a Participant
for the Plan Year to
(B) The Compensation paid to such Participant for the Plan
Year.
The Contribution Percentage shall be determined subject to the
following provisions:
(C) If one or more Highly Compensated Employees
participate in both a cash or deferred arrangement
and a plan subject to the Actual Contribution
Percentage (ACP) test maintained by the Employer, and
as the result of multiple use of the alternative
limits, the Aggregate Limit determined in accordance
with I.T. Reg. 1.401(m)-2 is exceeded, then the ACP
of those Highly Compensated Employees who also
participate in a cash or deferred arrangement shall
be reduced (beginning with such Highly Compensated
Employee whose ACP is the highest) so that the limit
is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage amount
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is reduced shall be treated as an Excess Aggregate
Contribution. The ADP and ACP of the Highly
Compensated Employees shall be determined after any
corrections required to meet the ADP and ACP tests.
(D) For purposes of this Section 12.05(a)(i), the
Contribution Percentage for any Participant who is
a Highly Compensated Employee, and who is eligible
to have Contribution Percentage amounts allocated
to his or her account under two or more plans
subject to Code Section 401(m) that are maintained
by the Employer, shall be determined as if the
total of such Contribution Percentage amounts were
made under each plan. Further, if a Highly
Compensated Employee participates in two (2) or
more cash or deferred arrangements that have
different Plan Years, all cash or deferred
arrangements ending with or within the same
calendar year shall be treated as a single
arrangement.
(E) In the event that this Plan satisfies the
requirements of Code Sections 401(m), 401(a)(4), or
410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if
aggregated with this Plan, then this
Section 12.05(a) shall be applied by determining the
Contribution Percentage of Employees as if all such
plans were a single plan. Other plans may be
aggregated with this Plan in order to satisfy Code
Section 401(m) only if they have the same Plan Year.
(F) For purposes of determining the Contribution
Percentage of a Participant who is a five-percent
(5%) owner or one of the ten most highly paid
Highly Compensated Employees, the Contribution
Percentage amounts and Compensation of such
Participant shall include the Contribution
Percentage amounts and Compensation for the Plan
Year of Family Members. Family Members, with
respect to
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Highly Compensated Employees, shall be disregarded as
separate employees in determining the Contribution
Percentage both for Participants who are Non-Highly
Compensated Employees and Participants who are Highly
Compensated Employees.
(G) For purposes of determining the Contribution
Percentage test, Employee Contributions are
considered to have been made in the Plan Year in
which contributed to the Plan. Matching
Contributions and Qualified Nonelective
Contributions will be considered made for a Plan
Year if made no later than the end of the
twelve(12)-month period beginning on the day after
the close of the Plan Year.
(H) Elective Deferrals may be used in determining the
Contribution Percentage amounts so long as the ADP test
is met before the Elective Deferrals are used in the ACP
test and so long as the ADP test continues to be met
following the exclusion of those Elective Deferrals that
are used to meet the ACP test.
(I) The actual compensation ratios of all eligible
Employees shall be taken into account for the
purposes of the ACP test under this Plan. For this
purpose, eligible Employees shall include each
Employee who would be a Participant under the Plan
and eligible to receive an allocation of Employer
Contributions hereunder, except that such Employee
is not a Plan Participant because:
(1) He has failed to make required contributions,
if any;
(2) He has elected not to participate; or
(3) His compensation is less than a stated dollar
amount, if such amount is a condition of his
participation.
In the case of an eligible Employee who makes no Employee
contributions, his Contribution Percentage shall be deemed to be
zero (0).
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(ii) "Actual Deferral Percentage" (ADP) shall mean the ratio
(expressed as a percentage) of:
(A) The Tax-Deferred Contributions, Qualified Matching
Contributions, and Qualified Nonelective Contributions,
if any, made on behalf of a Participant for the Plan
Year to
(B) The Compensation paid to such Participant for the Plan
Year.
The ADP shall be determined subject to the following
provisions:
(C) The ADP for any Participant who is a Highly
Compensated Employee for the Plan Year, and who is
eligible to have Elective Deferrals (and Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both, if treated as Elective
Deferrals for purposes of the ADP test) allocated
to his or her Accounts under two or more
arrangements described in Code Section 401(k) that
are maintained by the Employer, shall be determined
as if such Elective Deferrals (and, if applicable,
such Qualified Nonelective Contributions or
Qualified Matching Contributions, or both) were
made under a single arrangement. If a Highly
Compensated Employee participates in two (2) or
more cash or deferred arrangements that have
different Plan Years, all cash or deferred
arrangements ending with or within the same
calendar year shall be treated as a single
arrangement.
(D) In the event that this Plan satisfies the
requirements of Code Section 401(k), 401(a), or
410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if
aggregated with this Plan, then this
Section 12.05(a)(ii) shall be applied by determining
the ADP of Employees as if all such plans were a
single plan. Other plans may be aggregated with
the Plan to satisfy Code Section 401(k) only if
they have the same Plan Year.
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(E) For purposes of determining the ADP test, Elective
Deferrals, Qualified Nonelective Contributions and
Qualified Matching Contributions shall be taken
into account under the ADP test for a Plan Year
only if allocated to an Employee as of a date
within that Plan Year. For this purpose, such
allocation shall not be contingent on participation
or performance of services after such date and
actual payment to the Fund shall be made before the
last day of the twelve (12)-month period
immediately following the Plan Year to which such
deferrals or contributions relate.
(F) The actual deferral percentages of all eligible
Employees shall be taken into account for the purposes
of the ADP test under this Plan. For this purpose,
eligible Employees shall include each Employee who would
have been eligible to make an Elective Deferral under
the Plan, except that no Elective Deferral was made
because such Employee:
(1) Was suspended from making an Elective Deferral due
to a distribution, loan or a suspension caused by
the limitations an annual additions of Code
Section 415(c)(l) or 415(e);
(2) Elected not to participate in the Salary
Deferral feature of the Plan; or
(3) Received Compensation less than a stated dollar
amount, if such amount is a condition of his
participation in the Plan.
In the case of an Eligible Employee who makes no
Elective Deferral, his deferral percentage shall be deemed to
be zero (0).
(b) Neither the average ACP nor the average ADP for all Participants who
are Highly Compensated Employees for the Plan Year shall exceed the
greater of:
(i) The average ACP or the average ADP, as applicable, for all
Participants who are Non-Highly Compensated Employees for the
Plan Year multiplied by 1.25; or
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(ii) The average ACP or the average ADP for all Participants who
are Non-Highly Compensated Employees, as applicable,
multiplied by 2.00, provided such averages for the Highly
Compensated Employees do not exceed such averages for
Non-Highly Compensated Employees by more than two (2)
percentage points, or such lesser amount as the Secretary of
the Treasury shall prescribe.
Notwithstanding the above, the tests provided for under
this Section 12.05(b) shall be imposed separately on
contributions and deferrals. Except as provided under
paragraph (e) below, the Plan shall not test under this
Section 12.05(b)(ii) to meet applicable Code requirements for
both contributions and deferrals in the same year.
(c) In the case of a Highly Compensated Employee who is either a five
percent (5%) owner or one of the ten (10) most Highly Compensated
Employees and is thereby subject to the family aggregation rules of
Code Section 414(q)(6):
(1) The Contribution Percentage for the family group (which is
treated as one (1) Highly Compensated Employee) is the greater
of (A) the Contribution Percentage determined by combining the
contributions and Compensation of all eligible Family Members
who are Highly Compensated without regard to family
aggregation, or (B) the Contribution Percentage determined by
combining the Contributions and compensation of all eligible
Family Members.
(2) The ADP for the family group (which is treated as one (1)
Highly Compensated Employee) is the ADP determined by
combining the Elective Deferrals, and Compensation and amounts
treated as elective contributions of all eligible Family
Members.
Except to the extent taken into account in this paragraph (c), the
contributions, Compensation, Elective Deferrals, and amounts treated
as elective contributions of all Family Members shall be disregarded
for determining either the ACPs or ADPs
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for the groups of Highly Compensated Employees and Non-Highly
Compensated Employees.
(d) The term "Compensation" shall have the meaning given such term by
Code Section 415(c)(3).
(e) If the test described in paragraph (b)(ii) above is used for both
contributions and deferrals in the same Plan Year, the Aggregate
Limit as defined below shall not be exceeded.
(i) The "Aggregate Limit" for the purposes of this
Section 12.05(e) shall mean the greater of:
(A) The sum of:
(1) One hundred twenty-five percent (125%) of the
greater of the Relevant Actual Deferral Percentage
or the Relevant Actual Contribution Percentage,
and
(2) Two (2) percentage points plus the lesser of the
Relevant Actual Deferral Percentage or the
Relevant Actual Contribution Percentage. In no
event, however, shall this amount exceed twice the
lesser of the Relevant Actual Deferral Percentage
or the Relevant Actual Contribution Percentage; or
(B) The sum of:
(1) One hundred twenty-five percent (125%) of the
lesser of the Relevant Actual Deferral
Percentage or the Relevant Actual
Contribution Percentage, and
(2) Two (2) percentage points plus the greater of the
Relevant Actual Deferral Percentage or the
Relevant Actual Contribution Percentage. In no
event, however, shall this amount exceed twice the
lesser of the Relevant Actual Deferral Percentage
or the Relevant Actual Contribution Percentage.
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(ii) For the purposes of this Section 12.05(e):
(A) Relevant Actual Deferral Percentage shall mean the ADP
of the group of eligible Non-Highly Compensated
Employees for the Plan Year; and
(B) Relevant Actual Contribution Percentage shall mean the
ACP of the eligible group of Non-Highly Compensated
Employees for the Plan Year.
(f) The determination and treatment of the Contribution Percentage, the
Tax-Deferred Contributions and the ADP of a Participant shall at all
times satisfy I.T. Reg. 1.401(k)-1, 1.401(m)-1, 1.401(m)-2 and such
other requirements as may be required by the Secretary of Treasury.
12.06 DISTRIBUTION OF EXCESS DEFERRALS, EXCESS CONTRIBUTIONS AND
EXCESS AGGREGATE CONTRIBUTIONS. The Committee shall determine, as soon
as is reasonably possible after the close of each Plan Year, Employer
Matching Contributions pursuant to Section 12.04 and Tax-Deferred
Contributions pursuant to Section 12.03, if applicable, which will
result in Excess Deferrals, Excess Contributions, or Excess Aggregate
Contributions for any Participant. In addition, prior to the close of
each Plan Year the Committee, upon a determination that the ADP test
will not be met for such Plan Year, may direct at any time that an
individual Highly Compensated Employee's future Tax-Deferred
Contributions be reduced or stopped in order to avoid accumulating Excess
Deferrals or Excess Contributions under the Plan.
Notwithstanding any other provisions of this Plan, Excess Deferrals,
Excess Contributions, Excess Aggregate Contributions and income allocable
thereto shall be distributed to Participants as described in this
Section 12.06.
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(a) For the purpose of this Section 12.06:
(i) "Excess Deferrals" shall mean amounts of Elective Deferrals,
Qualified Matching Contributions, and Qualified Nonelective
Contributions for a calendar year
that:
(A) The Participant requests be distributed pursuant to
the claims procedure set forth in Section 12.06(b)
below; or
(B) The Committee determines to be, pursuant to I. T. Reg.
1.401(k)-1, Excess Deferrals.
(ii) "Qualified Matching Contributions" and "Qualified Nonelective
Contributions" shall mean contributions reclassified pursuant
to Section 12.02(g) and Section 6.05 for the purpose of
meeting the ADP test. Such reclassification shall be permitted
only if the following requirements are met:
(A) Employer Contributions, including those Qualified
Nonelective Contributions treated as Elective Deferrals
for purposes of the ADP test must satisfy the
requirements of Code Section 401(a)(4).
(B) Employer Contributions, excluding those Qualified
Matching Contributions and Qualified Nonelective
Contributions treated as Elective Deferrals for purposes
of the ADP test, must satisfy the requirements of Code
Section 401(a)(4).
(C) Those Qualified Matching Contributions and Qualified
Nonelective Contributions treated as Elective Deferrals
for purposes of the ADP test shall not be taken into
account for purposes of satisfying the requirements of
Code Section 401(m).
(D) Except as provided in paragraphs (A) and (C),
Qualified Matching Contributions and Qualified
Nonelective Contributions treated as Elective
Deferrals for the purposes of the ADP test shall
not be taken into account in determining whether
any other contributions or benefits satisfy Code
Section 401(a)(4) or in determining whether
XII-15
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Employee Contributions or other matching Employer
Contributions meet the requirements of Code
Section 401(m).
(E) Qualified Nonelective Contributions may not be treated
as Elective Deferrals if the effect of such treatment is
to increase the difference between the ADP for the group
of eligible Highly Compensated Employees and the ADP of
all other Eligible Employees.
(F) The Qualified Nonelective Contributions must satisfy the
requirements of I.T. Reg. 1.401(k)-1(b)(6)(i) for the
Plan Year as if such contributions were Elective
Deferrals;
(G) Qualified Matching Contributions and Qualified
Nonelective Contributions must be taken into account
during the Plan Year in which they are deemed made; and
(H) Any other applicable conditions described in I.T. Reg.
1.401(m)-1(b)(2) are satisfied.
(iii) "Excess Contributions" shall mean amounts described in Section
401(k)(8)(B) of the Code. The amount of Excess Contributions
for a Highly Compensated Employee shall be determined in the
following manner:
(A) First, the ADP of the Highly Compensated Employee with
the highest ADP shall be reduced to the extent necessary
to satisfy the ADP test or cause such ratio to equal the
ADP of the Highly Compensated Employee with the next
highest ratio. This process shall be repeated until the
ADP test is satisfied.
(B) The amount of Excess Contributions for a Highly
Compensated Employee shall then equal the total of
Elective Deferrals or other contributions taken into
account for the ADP test minus the product of the
Employee's contribution ratio as determined above and
the Employee's Compensation.
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(C) In the case of a Highly Compensated Employee whose
ADP is determined under the family aggregation
rules prescribed by regulations, the determination
of the amount of Excess Contributions for the
family unit shall be made by combining the
Contributions and Compensation of all Family
Members and then reducing the ADP in accordance
with the leveling methods described in
paragraphs (A) and (B) of this
Section 12.06(a)(iii). Excess Contributions shall
be determined by taking into account the
Contributions of all eligible Family Members and
shall be allocated among such Family Members in
proportion to their Elective Deferrals.
(iv) "Excess Aggregate Contributions" shall mean amounts described
in Section 401(m)(6)(B) of the Code. The amount of Excess
Aggregate Contributions for a Highly Compensated Employee
shall be determined in the following manner:
(A) First, the ACP of the Highly Compensated Employee with
the highest ACP shall be reduced to the extent necessary
to satisfy the ACP test or cause such ratio to equal the
ACP of the Highly Compensated Employee with the next
highest ratio. This process shall be repeated until the
ACP test is satisfied.
(B) The amount of the Excess Aggregate Contribution for a
Highly Compensated Employee shall then equal the total
amount of Employee Contributions, Employer Matching
Contributions, and other contributions taken into
account for the ACP test minus the product of the
Employee's contribution ratio as determined above and
the Employee's Compensation.
(C) In the case of a Highly Compensated Employee whose
ACP is determined under the family aggregation
rules prescribed by regulations, the determination
of Excess Aggregate Contributions shall be made by
combining the Contributions and Compensation of
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all Family Members and then reducing the ACP in
accordance with the leveling method described in
paragraphs (A) and (B) of this Section 12.06(a)(iii).
Excess Aggregate Contributions shall be determined by
taking into account the Contributions of all eligible
Family Members and shall be allocated among such Family
Members in proportion to their Contributions.
(b) A Participant may determine that deferrals in excess of the
limits imposed by Code Section 402(g) have been made. Such
Participant may request a distribution of such Excess Deferral
amounts by submitting a claim in writing to the Committee no
later than March 1, specifying the Participant's Excess
Deferral amount for the preceding calendar year. Such claim
shall include the Participant's written statement that if such
amounts are not distributed, such Excess Deferral amounts, when
added to amounts deferred under other plans or arrangements as
described in Sections 401(k), 408(k), or 403(b) of the Code,
exceed the limit imposed on the Participant by Section 402(g)
of the Code for the year in which the deferral occurred.
Notwithstanding the above, a Participant shall be deemed to
have made the designation for the distribution of Excess Deferrals
at any time the Committee determines that the limits of Code Section
402(g) would be exceeded by the Plan or the plan of any Affiliated
Company.
(c) Notwithstanding any other provision of the Plan to the contrary:
(i) Excess Deferrals and income allocable thereto shall be
distributed after the date on which the Plan received the
Excess Deferral, but no later than the April 15 following
the calendar year during which such Excess Deferral was
made. Any such distribution shall be designated by the
Plan as a distribution of Excess Deferrals. Excess
Deferrals to be distributed with respect to an Employee
for an Employee's taxable year shall be reduced by any
Excess Contributions previously distributed or
recharacterized with
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respect to such Employee for the Plan Year ending within such
taxable year.
(ii) A Participant's Excess Contributions and income allocable
thereto, shall be distributed to the Participant, if
administratively feasible, not later than two and
one-half (2-1/2) months following the close of the Plan
Year in which such Excess Contributions were made, but in
any event, no later than the last day of the Plan Year
following the close of the Plan Year in which the Excess
Contributions were made. If such excess amounts are
distributed more than two and one-half (2-1/2) months
following the close of the Plan Year in which such excess
amounts arose, a ten percent (10%) excise tax will be
imposed on the Employer with respect to such amounts.
The amount of Excess contributions to be recharacterized
or distributed with respect to an Employee for a Plan
Year shall be reduced by any Excess Deferrals previously
distributed to such Employee for the Employee's Taxable
Year ending with or within such Plan Year.
(iii) A Participant's Excess Aggregate Contributions and income
allocable thereto shall be distributed to each Participant, if
administratively feasible, not later than two and one-half
(2-1/2) months following the close of the Plan Year in which
such Excess Aggregate Contributions were made, but in any
event, no later than the last day of the Plan Year following
the close of the Plan Year in which the Excess Aggregate
Contributions were made. If such excess amounts are
distributed more than two and one-half (2-1/2) months
following the close of the Plan Year in which such amounts
arose, a ten percent (10%) excise tax will be imposed on the
Employer with respect to such amounts.
(d) The allocable income required to be distributed in accordance with
Section 12.06(c) shall be equal to the sum of the income allocable
to the applicable year in accordance with the procedures detailed in
Article V.
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(i) Income shall include all earnings and appreciation, including
such items as interest, dividends, rent, royalties, gains or
losses from the sale of property, appreciation or depreciation
in the value of stocks, bonds, annuity and life insurance
contracts, and other property, without regard to whether such
appreciation or depreciation has been realized.
(ii) No income shall be allocable to periods between the end of the
applicable year and the date of distribution.
(iii) The Committee shall not be liable to any Participant (or his
Beneficiary, if applicable) for any losses caused by
misestimating the amount of any Excess Deferrals, Excess
Contributions, or Excess Aggregate Contributions and
income allocable to such excess.
(e) Excess Contributions distributed under this Section 12.06 shall
first be treated as distributions from the balance of the
Participant's Tax-Deferred Contributions Sub-account and shall
be treated as distributed from the balance of the Participant's
Other Investment Account only to the extent such Excess
Contributions exceed the balance in the Participant's
Tax-Deferred Contributions Sub-account. Excess Aggregate
Contributions shall be distributed from the Participant's
Tax-Deferred Contributions Sub-account and the balance of the
Participant's Other Investment Account in proportion to the
Participant's Employee Contributions, if any, and Employer
Matching Contributions for the Plan Year.
(f) In any year where the Plan allows after-tax Employee
Contributions, a Participant's Excess Contributions may be
recharacterized as an amount distributed to the Participant and
then contributed by the Participant to the Plan.
Recharacterized amounts will remain nonforfeitable and subject
to the same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated
Employee, to the extent that such amount, in combination with
other Employee Contributions made by that Employee, would
exceed any stated limit under the Plan on Employee
Contributions.
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Recharacterization must occur no later than two and one-half
(2-1/2) months after the last day of the Plan Year in which such
Excess Contributions arose and is deemed to occur no earlier than
the date the last Highly Compensated Employee is informed in writing
of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in which the Participant would have received
them in cash.
12.07 SPECIAL INVESTMENT DIRECTIONS. All Tax-Deferred and Employer
Matching contributions shall be invested in such vehicles as directed by
the Participant pursuant to the following provisions of this Plan.
Each Participant shall have the right to elect from among one or more
separate and distinct investment vehicles designated, from time to time, by the
Committee, the percentage of his allocated contribution which he wishes to have
invested in each vehicle. The Committee, at its discretion, may make available
to the Participants one (1) or more of the following investment options:
(a) A "Money Market Fund" wherein monies contributed by the Participant
will be invested in a Money Market Certificate with a bank and/or
savings and loan association;
(b) A "Fixed Income Fund" wherein monies contributed by the Participant
may be invested in guaranteed interest-type contracts issued by an
insurance company licensed to do business in the State of Nevada or
such other type of investments geared to provide maximum protection
of capital with a reasonable rate of return thereon;
(c) An "Equity Fund" wherein monies contributed by the Participant will
be invested primarily in common stocks and such other securities or
investment opportunities which provide for capital appreciation; and
(d) Such other investment vehicle, which, in the opinion of the
Committee, may be appropriate to meet the investment goals of a
substantial portion of active Participants.
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Participants shall be permitted to change their election of an investment
vehicle and/or the percentage to be allocated to each option out of future
contributions at each Allocation Date of the Plan. Participants may change the
options in which their prior contributions are invested not more often than four
(4) times a year. Such change shall be effective only as of an Allocation Date
unless the Committee, in its sole discretion, agrees to another date.
Participants must notify the Committee of any such change in writing, not later
than sixty (60) days prior to the date the change is to be effective.
12.08. CREDITING OF TAX-DEFERRED CONTRIBUTIONS. Tax-Deferred Contributions
and Qualified Nonelective Contributions made by the Employer on behalf of
Participants shall be allocated to their Tax-Deferred Contributions Sub-accounts
as of the Allocation Date by which such contributions were withheld by the
Employer.
12.09. CREDITING OF EMPLOYER MATCHING CONTRIBUTIONS. As of each Allocation
Date, the Employer Matching Contribution, reduced by any forfeitures of prior
Matching Contributions for the Plan Year ending on such Date, shall be allocated
among and credited to the other investment accounts of the persons entitled to
share in such amounts in accordance with the matching provision of Section
12.04.
12.10. CREDITING OF INVESTMENT EARNINGS. As of each Allocation
Date, investment earnings and/or losses of Sub-accounts maintained pursuant
to this Article XII shall be allocated on a pro-rata basis.
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ARTICLE XIII
BENEFIT CLAIMS PROCEDURES
13.01 CLAIM FOR BENEFITS. Any claims for benefits under the Plan shall be
made in writing to the Administrative Committee. If such claim for benefits is
wholly or partly denied, the Administrative Committee shall, within thirty (30)
days after receipt of the claim, notify the Participant or Beneficiary, as the
case may be, of the denial of the claim. Such notice of denial shall be in
writing in a manner calculated to be understood by the Participant or
Beneficiary and shall contain the specific reason or reasons for denial of the
claim, a specific reference to the pertinent Plan provisions upon which the
denial is based, a description of any additional material or information
necessary to perfect the claim along with an explanation of why such material or
information is necessary, and an explanation of the claim review procedure, in
accordance with the provisions of this Article.
13.02 REQUEST FOR REVIEW. The Participant or his Beneficiary may file a
Request for Review with the Employer within sixty (60) days of the issuance of a
decision by the Administrative Committee. The Employer may grant additional time
for filing such Request, in its sole discretion, upon written request by the
Participant or his Beneficiary.
13.03 DECISION ON REQUEST FOR REVIEW. A written decision on the Request
for Review shall be issued by the Employer within sixty (60) days of receipt or,
in special circumstances where a hearing or other action is required, one
hundred twenty (120) days. If the Employer's decision is a denial of benefits,
the finding shall state the reason(s) therefor and the applicable provision of
the Plan substantiating such denial.
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ARTICLE XIV
INALIENABILITY OF BENEFITS
14.01 INALIENABILITY OF BENEFITS. Except as provided in a qualified
domestic relations order as defined in Section 414(p) of the Internal Revenue
Code, to enforce a Federal tax levy made pursuant to Internal Revenue Code
Section 6331, or for the collection on a judgment resulting from an unpaid tax
assessment by the United States, the right of any Participant or Beneficiary to
any benefit under the Plan or Trust shall not be subject to voluntary or
involuntary transfer, alienation or assignment, and, to the fullest extent
permitted by law, shall not be subject to attachment, execution, garnishment or
other legal or equitable process. Except as provided in this Section, if a
Participant or Beneficiary who is receiving or who is entitled to receive
benefits under the Plan attempts to assign, transfer or dispose of his right, or
if an attempt is made to subject his right to any process set out above, such
assignment, transfer or other disposition shall be null and void.
14.02 DIVESTMENT FOR CAUSE. The interest in the Plan of a Participant or
Beneficiary shall be governed solely by the terms of the Plan, and no such
interest shall be subject to divestment for any cause except as otherwise
specifically provided in the Plan.
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ARTICLE XV
THE TRUSTEES
15.01 TRUST AGREEMENT. The Trustees shall receive and hold the
assets of the Plan as provided in the related Trust document.
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ARTICLE XVI
ADMINISTRATION OF PLAN
16.01 APPOINTMENT OF ADMINISTRATIVE COMMITTEE. The Administrative
Committee shall consist of three (3) members appointed by the Board of
Directors of the Company.
16.02 RESIGNATION AND REMOVAL. Any member of the Administrative Committee
may resign upon ten (10) days prior written notice to the Board of Directors of
the Company. The Company, by action of its Board of Directors, may remove any
member on the Administrative Committee at any time, with or without cause, and
in its sole discretion may appoint a successor member to the Administrative
Committee following the resignation or removal of a member. While a vacancy
exists, the remaining member(s) of the Administrative Committee may perform any
act the Administrative Committee is authorized to perform. If there are no
members on the Administrative Committee, the Board of Directors of the Company
shall assume all powers of the Administrative Committee until one (1) or more
new members are appointed to the Administrative Committee.
16.03 GENERAL ADMINISTRATIVE POWER.
(a) The Administrative Committee acting as the agent of the Company
shall have all powers necessary to administer the Plan in accordance
with its terms, including the power to construe the Plan and
determine all questions that may arise thereunder.
(b) The Administrative Committee shall establish a funding policy
and method for directing the Trustee to acquire Company Stock
in a manner that is consistent with the objectives of the Plan
and the requirements of ERISA. So long as there is a generally
recognized market for Company Stock, the fair market value of
Company Stock acquired by the Trustee shall be based upon the
price prevailing on a national securities exchange or a price
not less favorable to the Plan than the offering price
established by the current bid and asking prices quoted by
persons independent of the Company, pursuant to Section
3(18)(A) of ERISA.
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16.04 INVESTMENT POWERS.
(a) It is the intent of the Company that on December 29, 1995 or as
soon as practicable thereafter, Plan assets will be invested by
the Trustee primarily in Company Stock in accordance with
directions from the Administrative Committee. Employer
contributions (and other Plan assets except amounts in the
Tax-Deferred Contributions Sub-account) may be used to acquire
shares of Company Stock from Company shareholders (through
open-market purchases or privately negotiated transactions) or
from the issuer. All purchases of Company Stock by the Trustee
shall be made only as directed by the Administrative Committee
and at prices which do not exceed the fair market value of
Company Stock. So long as there is a generally recognized
market for Company Stock, the fair market value acquired by the
Trustee shall be based upon the price prevailing on a national
securities exchange or a price not less favorable to the Plan
than the offering price established by the current bid and as
quoted by persons independent of the Company, pursuant to
Section 3(l8)(A) of ERISA.
(b) The Administrative Committee may direct the Trustee to invest and
hold up to one hundred percent (100%) of Plan assets in Company
Stock.
(c) The Administrative Committee may direct the Trustee to incur
Acquisition Loans from time to time to finance the acquisition of
Company Stock (Financed Shares) or to repay a prior Acquisition
Loan.
(d) An Acquisition Loan shall be for a specific term, shall bear a
reasonable rate of interest and shall not be payable on demand
except in the event of default. An Acquisition Loan may be
secured by a pledge of the Financed Shares acquired with the
proceeds thereof (or with the proceeds of a prior Acquisition
Loan which is being refinanced). No other Plan assets may be
pledged as collateral for an Acquisition Loan, and no lender
shall have recourse against Plan assets other than any Financed
Shares remaining subject to pledge. Any pledge of Financed
Shares must provide for the release of the shares so pledged as
payments on the Acquisition Loan are made by the Trustee and
such Financed Shares are allocated
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to Participants' Company Stock Accounts under Article V. Payment of
principal and/or interest on any Acquisition Loan shall be made by
the Trustee (as directed by the Committee) only from Employer
contributions paid in cash to enable the Trust to repay such
Acquisition Loan, from any earnings attributable to such Employer
contributions and from any cash dividends received by the Trust on
such Financed Shares.
(e) The Administrative Committee may direct the Trustees to invest
or reinvest assets not invested in Company Stock in any kind of
investment specifically including, but not by way of
limitation, real and personal property, mortgages and
participation interests in mortgages, commercial paper,
corporate and governmental obligations of every kind, corporate
stocks (preferred or common), common trust assets (including
any common or collective trust assets or pooled investment fund
maintained by any of the Trustees for investment by qualified
retirement plans) and interest-bearing accounts at any
commercial bank or insured savings and loan association
(including a Trustee or an affiliate).
16.05 RESPONSIBILITY FOR ADMINISTRATION OF THE TRUST ASSETS. Subject to
the direction of the Administrative Committee, the Trustees shall be responsible
for the management and investment of the Trust assets as provided in the Trust
Agreement and this Article XVI.
16.06 DELEGATION OF POWERS. The Administrative Committee may appoint such
assistants, representatives or delegates as it deems necessary for the effective
exercise of its duties in administering the Plan. The Administrative Committee
may delegate to such assistants, representatives or delegates any ministerial
and discretionary powers and duties (other than powers to manage or control the
assets of the Plan), as it deems appropriate. The Administrative Committee may
allocate any of its responsibilities under the Plan to any one (1) or more
members of the Administrative Committee.
16.07 INVESTMENT MANAGER. Notwithstanding any other provisions of the
Plan, the Administrative Committee, at any time and from time to time, may
delegate any portion or all of its responsibility to invest and manage the
assets of the Plan to an Investment Manager or Managers, within the meaning of
Section 3(38) of ERISA Any such delegation shall be
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reviewed periodically by the Administrative Committee and shall be terminable
upon such notice as the Administrative Committee, in its sole discretion, deems
reasonable and prudent under the circumstances. The Administrative Committee
shall promptly notify the Trustee of its appointment or removal of an Investment
Manager or Managers and shall furnish the Trustee with written evidence of any
appointment or removal as requested by the Trustee.
16.08 PROFESSIONAL ASSISTANCE. The Administrative Committee may engage the
services of professional consultants, accountants, attorneys, investment
advisors, physicians or other professionals it deems necessary or appropriate
for carrying out its duties under the Plan.
16.09 ACTIONS BY THE ADMINISTRATIVE COMMITTEE. All actions of the
Administrative Committee shall be taken pursuant to the decision of a majority
of the then members of the Administrative Committee. Directives of the
Administrative Committee to the Trustees shall be in writing and signed by a
member of the Administrative Committee. The Administrative Committee shall act
solely in the interest of the Participants and Beneficiaries and with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of affairs of a like character and with like aims. In the event
the Administrative Committee exercises any discretionary authority under the
Plan with respect to a Participant who is a member of the Administrative
Committee, such discretionary authority shall be exercised solely and
exclusively by those members of the Administrative Committee other than such
Participant, or, if such Participant is the sole member of the Administrative
Committee, such discretionary authority shall be exercised solely and
exclusively by the Board of Directors of the Company.
16.10 RESPONSIBILITY OF FIDUCIARY. The Trustees and members of the
Administrative Committee and their assistants, representatives or delegates
shall be free from all liability for their acts and conduct in the
administration of the Plan and Trust except for acts of willful misconduct and
except for any responsibility or liability for any act, obligation or duty under
Part 4 of Subtitle B of Title I of ERISA.
16.11 INDEMNITY. To the extent not insured against by any insurance
company pursuant to provisions of any applicable policy, and to the further
extent permissible by law, the Company shall indemnify and hold harmless the
members of the Administrative Committee and
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their assistants, representatives and delegates from any and all claims,
demands, suits and proceedings in connection with the Plan or Trust that may be
brought by or on behalf of any employee of the Employer, Participant or
Beneficiary, or by any other person, corporation, entity, governmental agency or
instrumentality; provided, however, that such indemnification shall not cover
acts of willful misconduct or gross negligence.
16.12 PAYMENT OF EXPENSES. The members of the Administrative Committee and
their assistants, representatives or delegates shall be entitled to
reimbursement for all reasonable costs, charges and expenses incurred in the
administration of the Plan including, without limitation, reasonable fees for
accounting, legal and other services rendered; and such fees and reimbursements
may be paid by the Employer and if not so paid shall be paid from, and give rise
to, a lien upon Plan assets. The Employer may pay such charges and expenses and
receive reimbursement for such amounts from the Plan. Notwithstanding any other
provision of the Plan or Trust, no person who is a "Disqualified Person" within
the meaning of Section 4975(e)(2) of the Internal Revenue Code who receives
full-time pay from the Employer shall receive compensation from Plan assets
except for reimbursement of expenses properly and actually incurred.
16.13 DISCLOSURE TO PARTICIPANTS.
(a) SUMMARY PLAN DESCRIPTION. The Company shall furnish each Participant
with a copy of the summary plan description as required by Section
102(a)(l) and 104(b)(l) of ERISA. Such summary plan description
shall be updated from time to time as required under ERISA and
Department of Labor Regulations thereunder.
(b) SUMMARY ANNUAL REPORT. Within nine (9) months after each Allocation
Date, the Company shall furnish each Participant with the summary
annual report of the Plan required by Section 104(b)(3) of ERISA in
the form required by Regulations of the Department of Labor.
(c) ANNUAL STATEMENT. Following each Allocation Date, the Company
shall furnish each Participant with a statement reflecting the
following information:
(i) The balances (if any) in his Accounts as of the preceding
Allocation Date;
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(ii) The amount of Employer contributions and forfeitures
(including amounts allocated pursuant to Article XII)
allocated to his Accounts for the Plan Year;
(iii) The adjustments to his Accounts to reflect his share of
dividends (if any) on Company Stock and the net income or loss
of the Trust for the Plan Year;
(iv) The new balances in his Accounts, including the number of
shares of Company Stock allocated to his Accounts, and the
fair market value of Company Stock as of the Allocation Date;
and
(v) His number of Years of Service and his vested percentage in
his Account balances as of the Allocation Date.
(d) ADDITIONAL DISCLOSURE. The Company shall make available for
examination by any Participant copies of the Plan, and the
latest annual report of the Plan filed on Form 5500 with the
Internal Revenue Service. Upon written request of any
Participant, the Company shall furnish copies of such documents
and may make a reasonable charge to cover the cost of
furnishing such copies, as provided in regulations of the
Department of Labor.
16.14 WITHHOLDING COMPLIANCE. The Administrative Committee shall comply
with the requirements of Section 3405 of the Internal Revenue Code and the
regulations thereunder with respect to the withholding of Federal income tax
from any Plan distribution. Accordingly, the Committee shall have the following
power and duty:
(a) To withhold, and be liable for, payment of the tax required to
be withheld from any benefits paid in accordance with the
provisions of this Plan, unless the Participant or Beneficiary
who is payee for such benefits shall elect to have withholding
not apply to such payments. Such election, where otherwise
allowable, shall remain in effect until revoked by the
elector. The maximum amount to be withheld shall not exceed
the sum of the amount of money and the fair market value of
other property (within the meaning of applicable law) received
in payment of benefits unless otherwise required by law;
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(b) (i) To notify the Participant or Beneficiary who is payee of
any periodic payments, otherwise subject to withholding,
of the right to elect not to apply withholding to such
payments. Notice shall be given no earlier than six (6)
months before, and no later than, the date of the first
(1st) periodic payment subject to withholding. Notice of
the right to make and revoke such election shall be given
to payees not less frequently than once each calendar year.
(ii) To notify the Participant or Beneficiary who is payee of any
nonperiodic distribution otherwise subject to withholding of
the right to elect that withholding shall not apply to such
distribution. Notice shall be given no later than the date of
distribution or at such earlier date as may be prescribed by
the Secretary of the Treasury.
(iii) To notify the payee of mandatory withholding requirements in
effect for years beginning after December 31, 1992 where
appropriate statutory rollover requirements have not been met.
(c) To direct the payor of authorized disbursements from the Trust to
withhold payment of the tax required to be withheld by law. In such
case, and if the payor is supplied with such information as required
by regulations, then the payor shall be liable for payment of the
tax withheld.
16.15 ACCOUNTING PROCEDURES.
(a) The Administrative Committee shall establish accounting
procedures for the purpose of making the allocations to
Participants' Accounts.
(b) The Administrative Committee shall maintain adequate
records of the aggregate cost basis of Company Stock
allocated to each Participant's Accounts. The
Administrative Committee shall also keep separate records
of the source of each share of Company Stock purchased by
the Trust. Such records shall reflect whether a share of
Company Stock was newly issued by the Company and, if so,
whether the Company shareholders approved such issuance.
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(c) The Administrative Committee shall also keep records of all
Financed Shares and of Employer contributions (and any
earnings thereon) made for the purpose of enabling the Trust
to repay any Acquisition Loans.
(d) From time to time, the Administrative Committee may
modify the accounting procedures for the purpose of
achieving equitable and nondiscriminatory allocations
among the Accounts of Participants in accordance with the
general concepts of the Plan, the provisions of Article V
and Article XII, if applicable, the applicable
requirements of the Internal Revenue Code, ERISA and the
Company's charter.
16.16 VOTING COMPANY STOCK. All Company Stock held under the Plan shall be
voted by the Trustee in the manner described in this Section. Each Participant
shall be entitled to direct the Trustee as to the exercise of any voting rights
attributable to shares of Company Stock allocated to his Accounts. Each
Participant entitled to voting rights shall be supplied with a proxy statement
and a form for indicating his voting instructions to the Trustee. Any shares of
Company Stock for which voting instructions are not received from Participants
shall not be voted, but shares of Company Stock which are not allocated to
Participants' Accounts shall be voted by the Trustee in the manner directed by
the Administrative Committee. The foregoing notwithstanding, the exercise of
voting rights in connection with the tender of shares of Company Stock following
a tender offer shall be governed by the provisions of Section 16.17 of this
Plan. Notwithstanding anything to the above to the contrary, as provided in Code
Section 409(e), where Company Stock does not constitute a registration-type
class of securities, a Participant's voting rights shall only extend with
respect to any corporate matter which involves the voting of such shares with
respect to the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of all assets
of a trade or business, or such similar transaction as the Secretary of the
Treasury may prescribe in regulations.
16.17 TENDERING OF COMPANY STOCK IN TENDER OFFERS.
(a) In the event there is a tender offer for shares of Company
Stock, each Participant shall have the right to authorize the
Trustee to tender shares of Company Stock
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allocated to his Company Stock Account. Unless a Participant
affirmatively authorizes the Trustee in writing to tender shares
of Company Stock allocated to his Company Stock following a tender
offer, the Trustee may not tender any of the shares of Company
Stock allocated to such Participant's Company Stock Account in a
tender offer.
(b) The Administrative Committee shall have the right to authorize the
Trustee to tender shares of Company Stock which have not been
allocated to the Company Stock Accounts of Participant. Unless the
Administrative Committee affirmatively authorizes the Trustee in
writing to tender unallocated shares of Company Stock following a
tender offer, the Trustee may not tender any allocated shares of
Company Stock in a tender offer.
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ARTICLE XVII
AMENDMENT OF PLAN
17.01 MANNER OF AMENDMENT.
(a) The Company may amend the Plan at any time and from time to time by
action of its Board of Directors. No amendment shall have the effect
of eliminating an optional form of benefit or reducing the Account
balances of any Participant nor shall any amendment have the effect
of reducing any then-vested percentage of accrued benefits of any
Participant as computed in accordance with the vesting schedule
under Article X.
(b) If the vesting schedule is amended and such amendment would at any
time decrease the vested percentage of accrued benefits that any
Participant would have been entitled to receive had the vesting
schedule not been so amended, then each such Participant who has
completed at least three (3) Years of Service with the Employer
shall be permitted during the period described below to elect to
have his vested percentage of accrued benefits computed without
regard to such amendment. Written notice of such amendment and of
the availability of such election must be given to each Participant
who has a right to exercise such election. Such election shall be
irrevocable, must be made in writing and may be exercised only
during the period beginning on the date the amendment is adopted and
ending on the latest of sixty (60) days after the day the amendment
is adopted or sixty (60) days after the day the Participant is
issued written notice of the amendment.
Notwithstanding the first two (2) paragraphs of this Section, the Employer
may amend this Plan to the extent necessary to conform the Plan to the
requirements of applicable laws, regulations or rulings.
17.02 EFFECT UPON TRUSTEES. Notwithstanding any other provision hereof, no
amendment of the Trust shall become effective without the prior written consent
of the Trustees if the effect thereof would be to alter the rights,
responsibilities, powers or duties of the Trustees.
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ARTICLE XVIII
PERMANENCE OF THE PLAN
18.01 RIGHT TO TERMINATE PLAN. The Company contemplates that the Plan
shall be permanent and that it shall be able to make contributions to the Plan.
Nevertheless, in recognition of the fact that future conditions and
circumstances cannot be foreseen, the Company reserves the right to terminate
the Plan at any time.
18.02 MERGER OR CONSOLIDATION OF PLAN. The Plan may not be merged or
consolidated with, nor its assets or liabilities transferred to, any other plan
or trust unless each Participant could, if the Plan were then terminated,
receive a benefit immediately after the merger, consolidation or transfer which
is equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer, if the Plan had then
terminated.
18.03 DISCONTINUANCE OF CONTRIBUTIONS. Whenever the Employer determines
that it is impossible or inadvisable for it to make further contributions as
provided in the Plan, it may, by resolution of its Board of Directors,
permanently discontinue all further contributions to the Plan without
terminating its Trust. A certified copy of such resolution shall be delivered to
the Administrative Committee and to the Trustee. Thereafter, the Administrative
Committee and the Trustee shall continue to administer all the provisions of the
Plan which are necessary and remain in force other than the provisions relating
to contributions by the Employer. The Trust, however, shall remain in existence
and all of the provisions of the Plan relating to the Trust shall remain in
force.
18.04 TERMINATION OF PLAN. Any termination of the Plan shall be by
resolution of the Board of Directors of the Company. A certified copy of such
resolution shall be delivered to the Administrative Committee and the Trustees.
Upon such termination and after payment of all expenses and an appropriate
adjustment of the Retirement Accounts of all Participants to reflect such
expenses, Trust asset profits or losses, and allocation of any previously
unallocated funds to the date of termination, as provided hereunder, the
Participants shall be entitled to receive the amount then credited to their
respective Accounts in the Trust assets. The Administrative
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Committee may pay such amounts in cash or in assets of the Trust in accordance
with the Plan's rules regarding distributions.
18.05 RIGHTS TO BENEFITS. Upon full or partial termination of the Plan or
complete discontinuance of contributions by the Employer the right of each
affected Participant to the amount credited to his Accounts at such time shall
be nonforfeitable without reference to any formal action on the part of the
Company, the Administrative Committee or the Trustee.
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ARTICLE XIX
STATUS OF EMPLOYMENT RELATIONS
19.01 STATUS OF EMPLOYMENT RELATIONS. The adoption and maintenance of the
Plan shall not be deemed to constitute a contract between the Employer and any
Employee or to be consideration for, or any inducement or condition of, the
employment of any person. Nothing herein contained shall be deemed to give any
Employee the right to be retained in the employ of the Employer, to affect the
right of the Employer in the discipline or discharge of any Employee at any
time, to give the Employer the right to require any Employee to remain in its
employ or to affect any Employee's right to terminate his employment at any
time.
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ARTICLE XX
EXCLUSIVE BENEFIT OF TRUST
20.01 LIMITATION UPON REVERSIONS. Except as provided in Section 20.02, the
assets of the Plan shall not inure to the benefit of the Employer and shall be
held for the exclusive purposes of providing benefits to Participants or their
Beneficiaries and defraying reasonable expenses of administering the Plan as
provided hereunder.
20.02 LIMITED REVERSION TO EMPLOYER.
(a) Notwithstanding anything contained herein to the contrary, amounts
contributed by the Employer hereunder may be returned to the
Employer under any of the conditions set forth in Section 20.02(b).
(b) The Employer shall be entitled, subject to the conditions
established under Internal Revenue Service Ruling 91-4, to recover
any contributions made to the Plan:
(i) If such contributions were conditioned on the initial
qualification of the Plan and;
(A) The Commissioner of Internal Revenue, or his
delegate, makes an initial determination, with
respect to the exempt status of the Trust for
Federal income tax purposes and the deductibility
of contributions by Employer for its income tax
purposes, that the Plan does not meet the
requirements of the Internal Revenue Code with the
result that the Trust is not exempt from Federal
income tax and the contributions of the Employer to
the Trust are not deductible in determining its
Federal income tax; and
(B) The application for determination relating to the
initial qualification is filed by the due date of the
Employer's return for the taxable year in which the Plan
is adopted, and
(C) The contribution is returned within one (1) year of
the denial of the contribution; or
(ii) In error as a result of a mistake in fact; or
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(iii) Conditioned upon the contribution being allowed as a
deduction for Federal income tax purposes and such
deduction is disallowed;
(iv) Remaining in a Suspense Account after termination of the Plan
which cannot be allocated to Participants.
(v) The permissible recovery under (ii) must be made within one
(1) year from the date the contribution was made to the Plan,
and under (iii) must be made within one (1) year from the date
of disallowance of tax qualification or tax deduction.
(vi) Reversions due to a mistake of fact or the disallowance
of a deduction with respect to a contribution that was
conditioned on its deductibility shall be permitted only
if the surrounding facts and circumstances indicate that
the contribution of the amount that subsequently reverts
to the Employer is attributable to a good faith mistake
of fact or, in the case of the disallowance of the
deduction, a good faith mistake in determining the
deductibility of the contribution.
(vii) The maximum amount that may be returned to the Employer in the
case of a mistake of fact or the disallowance of a deduction
is the excess of (A) the amount contributed, over, as
relevant, (B) (1) the amount that would have been contributed
had no mistake of fact occurred, or (2) the amount that would
have been contributed had the contribution been limited to the
amount that is deductible after any disallowance by the
Internal Revenue Service.
(viii)Earnings attributable to the excess contribution may not be
returned to the Employer, but losses attributable to such
contribution shall reduce the amount returned.
(ix) If the return of the amount attributable to the mistaken
or nondeductible contribution would cause the Account of
any Participant to be reduced to an amount which is less
than the amount which would have been in the Account of
such Participant had the mistaken or nondeductible amount
not
XX-2
<PAGE> 106
been contributed, the amount returned to the Employer shall be
limited so as to avoid such reduction. Notwithstanding the
preceding sentence, in the case of a reversion due to initial
disqualification of the Plan, the entire assets of the Plan
attributable to Employer contributions may be returned to the
Employer.
XX-3
<PAGE> 107
ARTICLE XXI
INTERPRETATION OF THE PLAN
21.01 APPLICABLE LAW AND CONFLICT. The Plan shall be construed,
administered and governed in all respects in accordance with the Internal
Revenue Code, ERISA and other applicable Federal laws and with the laws of the
State of Nevada. To the extent there are any conflicts between the provisions of
the Plan and any instrument or document issued pursuant to the Plan, the
provisions of the Plan shall control, except where the Trust Agreement may
specifically provide otherwise.
21.02 INTENT OF EMPLOYER. It is the intent of the Employer that the Plan
shall comply with the provisions of Sections 401 and 501 of the Internal Revenue
Code, the requirements of ERISA and corresponding provisions of any subsequent
laws, and the provisions of the Plan shall be construed accordingly. It is the
further intent of the Employer that effective as of July 1, 1995 the Plan will
comply with the requirements of Section 4975(e)(7) of the Internal Revenue Code.
21.03 COUNTERPARTS. This Plan may be executed in counterparts. Each
counterpart shall have the effect of an original.
21.04 GENDER AND NUMBER. Whenever appropriate, words used in the Plan in
the singular may mean the plural, words used in the plural may mean the
singular, words used in the masculine may mean the feminine, and words used in
the feminine may mean the masculine.
21.05 TITLES. Titles and section headings in this Plan are furnished for
convenience only, and in the event of any conflict, the text of Plan rather than
such title or section headings shall control.
XXI-1
<PAGE> 108
ARTICLE XXII
TOP-HEAVY PLANS
22.01 SPECIAL TOP-HEAVY RULES. In any Plan Year in which the Plan is a
Top-Heavy Plan, the Plan must satisfy the vesting, minimum contribution, and
limitations on compensation requirements set forth in this Article XXII.
22.02 VESTING REQUIREMENT. For any Plan Year in which the Plan is a
Top-Heavy Plan, the Top-Heavy Plan Alternate Vesting Schedule set forth below
shall apply with respect to the calculation of each Participant's vested
interest provided, however, that if the application of the vesting provisions
contained in Article X result in a Participant qualifying for a higher vested
benefit with respect to such Participant, the Top-Heavy Alternate Vesting
Schedule set forth below shall not apply.
<TABLE>
<CAPTION>
Top-heavy plan alternative vesting schedule
-----------------------------------------------
Years of Service with Nonforfeitable
the Employer percentage
------------------------- --------------------
<S> <C> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
22.03 CHANGE IN VESTING SCHEDULE FOR NON-KEY EMPLOYEES. If the Plan
becomes a Top-Heavy Plan and subsequently ceases to be a Top-Heavy Plan, the
vesting schedule set forth in Section 22.02 above, if applicable, shall continue
to apply in calculating the vested benefit of any Participant who had
accumulated at least five (5) years of Vesting Service as of the last day of the
Plan Year in which the Plan is Top-Heavy. For all other Participants, the
vesting schedule in Section 22.02 shall apply only to benefits as of the last
day of the Plan Year in which the Plan is a Top-Heavy Plan.
22.04 MINIMUM CONTRIBUTION REQUIREMENT.
(a) For each Plan Year in which the Plan is a Top-Heavy Plan, the
Employer's contribution on behalf of each Participant who is not a
Key Employee shall be not less than the lesser of:
XXII-1
<PAGE> 109
(i) Three percent (3%) of such Participant's W-2 Compensation
or
(ii) The highest percentage of W-2 Compensation not in excess of
the limitation set forth in Section 22.05 under the Plan on
behalf of any Key Employee.
(b) In addition, if the Plan is a Top-Heavy Plan because it is
required to be aggregated with a defined benefit plan pursuant
to the provisions of Section 416(g) of the Internal Revenue
Code by virtue of enabling such defined benefit plan to meet
the requirements of Sections 40l(a)(4) or 410 of the Internal
Revenue Code, then for each Plan Year in which the Plan is a
Top-Heavy Plan the Employer shall contribute on behalf of each
Participant who is not a Key Employee an amount equal to three
percent (3%) of such Participant's W-2 Compensation.
(c) If this Plan is a Top-Heavy Plan because it is required to be
aggregated with a defined benefit plan pursuant to the
provisions of Section 416(g) of the Internal Revenue Code, the
Employer must satisfy the provisions of this Article XXII with
respect to each Participant who is not a Key Employee and who
has completed at least one thousand (1,000) Hours of Service
during an accrual computation period regardless of the level of
such Participant's Compensation.
(d) If this Plan is a Top-Heavy Plan, the Employer must satisfy the
minimum contribution requirement set forth in this Section 22.04
with respect to a Participant who is not a key Employee of such
Employer regardless of whether the Participant declines to make a
mandatory contribution if required by the terms of this Plan in the
future.
(e) The minimum contribution requirement set forth in this Section
22.04 shall apply regardless of whether the Employer has any
Net Profit with respect to a particular Plan Year. The
provisions of this Section 22.04 shall not apply with respect
to any reemployed Participant with respect to a particular Plan
Year if such reemployed Participant is ineligible to share in
the allocation of Employer contributions and forfeitures for
such Plan Year.
XXII-2
<PAGE> 110
22.05 LIMITATION ON COMPENSATION REQUIREMENT. In any Plan Year in which
the Plan is a Top-Heavy Plan, the maximum amount of an Employee's W-2
Compensation that may be taken into account under the Plan shall be One Hundred
Fifty Thousand Dollars ($150,000) subject to increases in the cost of living in
accordance with the provisions of Section 401(a)(17) of the Code.
22.06 EFFECT OF SOCIAL SECURITY. For purposes of this Article XXII, and
anything to the contrary contained in the Plan notwithstanding, the Plan must
satisfy the vesting and minimum benefit requirements set forth herein without
taking into account contributions or benefits under Chapters 2 or 12 of Title II
of the Social Security Act, or any other Federal or state law.
XXII-3
<PAGE> 111
ARTICLE XXIII
PARTICIPATING EMPLOYERS
23.01 ADOPTION BY AFFILIATED EMPLOYERS. With the consent of the Company,
any Affiliated Employer may adopt this Plan and all of the provisions hereof,
and participate herein and be known as a Participating Employer, by properly
executing a document evidencing said intent and will of such Participating
Employer.
23.02 REQUIREMENTS OF PARTICIPATING EMPLOYERS.
(a) Each Participating Employer shall be required to use the same
Trustee as selected pursuant to Section 2.42.
(b) The Trustee, subject to the provisions of the Trust document, shall
commingle, hold and invest as one, all contributions received.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he or she be an Employee of
the Employer or an Affiliated Employer, shall not affect such
Participant's rights under the Plan, and all amounts credited
to such Participant's Accounts, as well as his accumulated
Years of Service with the transferor or predecessor, and his
length of participation in the Plan, shall continue to his
credit.
(d) All rights and values forfeited by termination of employment shall
inure to Participants subject to Article V.
(e) Any expenses of the Plan which are to be paid by the Employer or
borne by the Plan shall be paid by each Participating Employer in
the same proportion that the total amount standing to the credit of
all Participants employed by such Employer bears to the total
standing to the credit of all Participants.
23.03 DESIGNATION OF THE COMPANY AS AGENT. With respect to all of its
relations with the Funding Agent and Administrator for the purpose of this Plan,
each Participating Employer shall be deemed to have designated irrevocably the
Company as its agent. Unless the context of the Plan clearly indicates the
contrary, the word "Employer" shall be deemed to include each Participating
Employer as related to its adoption of the Plan.
XXIII-1
<PAGE> 112
23.04 EMPLOYEE TRANSFERS. In the event an Employee transfers between
Participating Employers, the Employee involved shall carry with him his
accumulated Service and eligibility. No such transfer shall effect a termination
of employment hereunder, and the Participating Employer to which the Employee is
transferred shall thereupon become obligated hereunder with respect to such
Employee in the same manner as was the Participating Employer from whom the
Employee was transferred.
23.05 PARTICIPATING EMPLOYER CONTRIBUTIONS. All contributions made by a
Participating Employer, as provided for in this Plan, shall be determined
separately by each Participating Employer, and shall be paid to and held by the
Funding Agent for the exclusive benefit of the Employees of such Participating
Employer and the Beneficiaries of such Employees, subject to all the terms and
conditions of this Plan. On the basis of the information furnished by the
Employer, the Committee shall keep separate books and records concerning the
affairs of each Participating Employer hereunder and as to the Accounts and
credits of the Employees of each Participating Employer.
23.06 AMENDMENT. Amendment of this Plan by the Employer, at any time,
pursuant to Section 17.01, shall be deemed to be an amendment by each
Participating Employer, provided, however, that if such amendment affects the
individual duties or liabilities of any Participating Employer, such amendment
shall not be effective as to such Participating Employer until such
Participating Employer has submitted a properly executed document evidencing its
consent to such amendment.
23.07 PARTICIPATING EMPLOYER DISCONTINUANCE. Any Participating Employer
shall be permitted to discontinue or revoke its participation in the Plan. At
the time of any such discontinuance or revocation, satisfactory evidence thereof
and of any applicable conditions imposed shall be delivered to the Committee.
The Committee shall thereafter cause to be transferred, delivered and assigned
Plan assets allocable to the participants of such Participating Employer to such
new Trustee as shall have been designated by such Participating Employer. If no
successor is designated, the Committee shall retain such assets for the
Employees of said Participating Employer, pursuant to the provisions of the
Trust instrument. In no such event shall any part of the corpus or income of the
Plan as it relates to such Participating Employer be
XXIII-2
<PAGE> 113
used for or diverted for purposes other than for the exclusive benefit of the
Employees of such Participating Employer, except as otherwise provided herein.
23.08 COMMITTEE AUTHORITY. The Committee shall have authority to make any
and all necessary rules or regulations binding upon all Participating Employers
and all Participants to effect the purposes of this Article XXIII.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officers this 29th day of December, 1995.
SAXTON INCORPORATED
(Company)
By: /s/ MICHELE SAXTON PORI
----------------------------------
Title: SECRETARY
-------------------------------
By: /s/ JAMES C. SAXTON
----------------------------------
Title: PRESIDENT
-------------------------------
XXIII-3
<PAGE> 114
TRUST AGREEMENT
FOR THE
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE> 115
TRUST AGREEMENT
FOR THE
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - ESTABLISHMENT OF TRUST----------------------------------- 1
A. Trust Established; Accepted------------------------------ 1
B. Trustee Responsibility------------------------------------ 1
C. Combination with Assets of Other Trust-------------------- 2
ARTICLE II - INVESTMENT AUTHORITY AND DUTY--------------------------- 3
A. General Investment Powers and Duties---------------------- 3
B. Special Investment Powers--------------------------------- 3
C. Transfer of Investment Authority and Duty----------------- 4
ARTICLE III - OTHER POWERS OF TRUSTEE-------------------------------- 7
ARTICLE IV - OTHER DUTIES OF TRUSTEE--------------------------------- 11
A. Life Insurance-------------------------------------------- 11
B. Books and Records----------------------------------------- 12
C. Valuations------------------------------------------------ 12
D. Distributions--------------------------------------------- 13
ARTICLE V - RESIGNATION OR REMOVAL OF TRUSTEE------------------------ 14
ARTICLE VI - TAXES, EXPENSES AND COMPENSATION OF THE TRUSTEE--------- 15
A. Taxes----------------------------------------------------- 15
B. Expenses and Compensation--------------------------------- 15
ARTICLE VII - AMENDMENT---------------------------------------------- 16
ARTICLE VIII - MISCELLANEOUS----------------------------------------- 17
A. Co-Fiduciary Liability------------------------------------ 17
B. Nonliability of Insurance Carrier------------------------- 17
C. Irrevocability-------------------------------------------- 17
D. Request for Instructions---------------------------------- 18
E. Spendthrift Clause---------------------------------------- 18
F. Diversion of Assets Prohibited---------------------------- 18
G. Gender and Number----------------------------------------- 18
H. Applicable Law; Severability----------------------------- 18
I. Definitions----------------------------------------------- 19
J. Plan and Trust Agreement Constitute Integrated Program---- 19
K. Headings-------------------------------------------------- 19
L. Counterparts---------------------------------------------- 19
M Indemnity------------------------------------------------- 19
</TABLE>
<PAGE> 116
TRUST AGREEMENT
FOR THE
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT, entered into this _____ day of December 1995 by Saxton
Incorporated (hereinafter referred to as "the Employer") and Douglas W. Hensley,
an individual, as trustee (hereinafter referred to as "the Trustee"), is
intended to provide for the funding of the Saxton Incorporated Employee Stock
Ownership Plan (hereinafter referred to as "the Plan") successor to the Profit
Sharing Plan for Employees of Jim Saxton, Inc. (hereinafter referred to as "the
Prior Employer Plan"), which has heretofore been adopted by the Employer, and to
accomplish this purpose, the Employer and the Trustee hereby agree as follows:
ARTICLE I
ESTABLISHMENT OF TRUST
A. TRUST ESTABLISHED; ACCEPTED
The Employer hereby establishes with the Trustee named above, pursuant to
the provisions of the Plan, a trust of such funds as from time to time
shall be deposited with the Trustee by or on behalf of the Employer or the
Participants in the Plan, together with income generated by the funds. The
Trustee hereby agrees to receive and hold such assets in trust in
accordance with the terms of this agreement. Except as otherwise provided
herein, the Trustee shall have exclusive authority and discretion to manage
and control such assets. The Trust created hereby shall be known as the
Saxton Incorporated Employee Stock Ownership Trust and may receive assets
from the Prior Employer Plan's Trust.
B. TRUSTEE RESPONSIBILITY
(1) In carrying out each of its responsibilities under this Trust, the
Trustee shall act solely in the interest of the Participants and
Beneficiaries and
(a) For the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable
expenses of administering the Plan;
1
<PAGE> 117
(b) With the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct
of an enterprise of like character and with like aims; and
(c) In accordance with the documents and instruments governing the
Plan insofar as such documents and instruments are consistent with
the provisions of Title I of the Employee Retirement Income
Security Act of 1974 (PL 93-406), hereinafter referred to as
"ERISA."
(2) The Trustee shall be responsible only for sums actually received by it
as the Trustee hereunder and shall be under no obligation or duty, and
shall have no right, to compute any amount to be paid to it pursuant to
the Plan or to collect any sums from the Employer.
(3) The Plan shall be administered by the Administrative Committee provided
for in the Plan (hereinafter "the Committee") and the Trustee shall not
be responsible for the administration of the Plan.
C. COMBINATION WITH ASSETS OF OTHER TRUST
The Trustee may combine the assets of this Trust for investment purposes
with the assets of any other trust established by the Employer pursuant to
provisions of any qualified employee benefit plan. In such event, the
Trustee shall keep separate records of the amounts allocable to each such
Trust.
2
<PAGE> 118
ARTICLE II
INVESTMENT AUTHORITY AND DUTY
A. GENERAL INVESTMENT POWERS AND DUTIES
(1) The Trustee shall exercise its authority to invest and reinvest the
assets of the Plan in accordance with the standard established in
Paragraph B of Article I.
(2) The Trustee shall diversify the investments of the Plan so as to
minimize the risk of large losses unless it is clearly prudent not to
do so.
(3) The Trustee shall not maintain the indicia of ownership of any Trust
assets outside the jurisdiction of the district courts of the United
States, except to the extent allowed by Department of Labor
regulations.
(4) Within the limitations of the foregoing, the Trustee is authorized to
acquire, sell and exchange every kind of investment, specifically
including, but not by way of limitation, real and personal property,
commercial paper, corporate obligations of every kind, and stocks,
preferred or common, provided, however, that the Trustee shall not
engage in any prohibited transactions within the meaning of Section 406
or 407 of ERISA or Section 4975(c) of the Internal Revenue Code unless
such transaction is exempt under Section 408 or 414(c) of ERISA.
B. SPECIAL INVESTMENT POWERS
(1) The Trustee shall have full power and authority to transfer money and
other assets of the Trust to itself as Trustee of any investment fund
or funds consisting exclusively of assets of exempt pension or profit
sharing trusts. In such event, the instrument or instruments creating
such investment fund or funds shall become a part hereof as fully as if
set forth at length herein. Money and other assets of the Trust
invested in said fund or funds shall be held and administered by the
Trustee strictly in accordance with the terms and under the powers
granted in said instrument or instruments. The combining of money and
other assets of the Trust with money and other assets of other
qualified trusts in such fund or funds is specifically authorized.
(2) The Trustee is specifically authorized to invest Trust assets in
deposits which bear a reasonable interest rate in a Company or similar
financial institution supervised by the
3
<PAGE> 119
United States or a state, notwithstanding the fact that such Company or
financial institution is a fiduciary of the Plan.
(3) The Trustee may invest up to one hundred percent (100%) of the assets
of the Plan at fair market value, in "qualifying employer securities"
as defined in Section 407(d) of ERISA and as further amplified in
Article III hereof. Such investment may be made notwithstanding the
diversification requirements set forth above in accordance with the
Plan's status as an Employee Stock Ownership Plan. If more than one
Investment Manager is appointed by the Board of Directors or the
Committee, the Board of Directors or the Committee, as the case may be,
shall direct that only one Investment Manager has the power to invest
and reinvest its portion of the Trust Fund in "qualifying employer
securities," and it shall then be the responsibility of that Investment
Manager to see that the limitation set forth in this paragraph is not
exceeded, and neither the Trustee nor any other Investment Manager
shall have any responsibility therefor. Notwithstanding the foregoing,
no contributions to the Plan by Participants shall be invested in
employer securities.
C. TRANSFER OF INVESTMENT AUTHORITY AND DUTY
(1) The Employer may, by resolution of its Board of Directors, remove from
the Trustee and transfer to the Committee appointed pursuant to Article
VIII of the Plan or to an Investment Manager or Managers the authority
and duty to manage, acquire or dispose of all or a portion of the Trust
assets. In addition, if such authority has been transferred to the
Committee, the Committee, by appropriate action, may appoint an
Investment Manager to manage, acquire or dispose of all or a portion of
the Trust assets. As used herein, the term "Investment Manager" means a
person or organization who satisfied the requirements of Section 3(38)
of ERISA and has provided written acknowledgment to the employer and
the Trustee that he has done so.
(2) If the Board of Directors transfers the authority to manage, acquire or
dispose of Trust assets to the Committee or to an Investment Manager or
Managers, the Committee, Investment Manager or Managers, as the case
may be, shall exercise such authority in strict conformity with the
requirements and standards referred to and set
4
<PAGE> 120
forth in Paragraph A of this Article II for the exercise of such
authority by the Trustee.
(3) If the Board of Directors transfers the authority to manage,
acquire or dispose of Trust assets to the Committee,
(a) The Trustee shall follow the written directions of the
Committee with respect to management, acquisition or disposal
of Trust assets (the Trustee may consent to accept oral
directions for the purchase or sale of securities subject to
confirmation in writing) and the Trustee shall not be liable
for any loss which may result by reason of any act or failure
to act, provided such act or failure to act results from
compliance with proper directions of the Committee, which are
made in accordance with the terms of the Plan and which are
not contrary to Title I of ERISA; and
(b) The Committee may employ such persons or organizations to render
advice or perform other services with respect to its
responsibilities as it determines to be necessary or appropriate;
however, unless such person or organization is appointed as an
Investment Manager, he shall not be authorized to direct the
Trustee as to investments and shall have no discretionary
authority over the assets of the Plan.
(4) If an Investment Manager is appointed by the Board of Directors or by
the Committee, the Trustee shall follow the written directions of the
Investment Manager with respect to management, acquisition or disposal
of Trust assets. The Trustee may consent to accept oral directions for
the purchase or sale of securities, subject to confirmation in writing.
The Trustee shall be under no duty to question, or make inquiries as
to, any act or direction of any Investment Manager taken as provided
herein, or any failure to give directions, or to review the securities
held as a result of directions by the Investment Manager, or to make
any suggestions to the Investment Manager with respect to investment
and reinvestment of, or disposing of investments in, the Trust. The
Trustee shall not be liable for any acts or omissions of any Investment
Manager, or be under any obligation to invest or otherwise manage any
assets of the Trust Fund. Accordingly, the Trustee shall be under no
liability for any
5
<PAGE> 121
loss of any kind which may result by reason of any act or failure to
act, provided such act or failure to act is in accordance with any
directions of the Investment Manager or is by reason of inaction in the
absence of written directions from the Investment Manager.
(5) In selecting and retaining an Investment Manager, the Board of
Directors or the Committee, as the case may be, shall act solely in the
interest of the Participants and Beneficiaries and with the care,
skill, prudence and diligence under the circumstances then prevailing
that a prudent man would use in the conduct of an enterprise of a like
character and with like aims. The Board or the Committee, as the case
may be, shall periodically review the performance of the Investment
Manager. The Board of Directors or the Committee may revoke its
appointment of an Investment Manager by notice to the Investment
Manager and to the Trustee. Unless the notice designates a new
Investment Manager, it shall state whether responsibility for the
investment and management of the assets of the Trust have been
transferred back to the Trustee or assumed by the Committee, as the
case may be.
6
<PAGE> 122
ARTICLE III
OTHER POWERS OF TRUSTEE
The Trustee shall have all powers necessary to hold in trust and administer all
funds contemplated hereby, including, but not by way of limitation, the power:
A. To collect and receive the income of the Trust and any and all money,
securities and other property, of whatsoever kind or nature, due to,
owing or belonging to the Trust.
B. To hold uninvested, without liability for interest thereon, subject to the
requirements of Section 408(b)(6) of ERISA, any monies in any bank,
including any banking department of any Trustee, or in any insured savings
and loan association or company.
C. To have, respecting bonds, shares of stock and other securities, all of
the rights, powers and privileges of an owner, including the holding of
securities in its own name or in the name of a nominee, with or without
disclosure of the Trust, voting, giving proxies, making payments of
calls, assessments or other sums deemed by the Trustee expedient for
the protection of the Trust, exchanging securities, selling or
exercising subscription rights, exercising conversion rights,
consenting to and participating in foreclosures, reorganizations,
consolidations, mergers, liquidations, pooling agreements and voting
trusts, and assenting to corporate sales, leases and encumbrances
subject to the provisions of paragraphs K and L hereafter.
D. To extend the time of payments of any obligation at any time owing to the
Trust; to deposit any securities or other property with any protective,
reorganization or similar committee; to delegate discretionary powers
thereto; and to pay and agree to pay a portion of the expenses and
compensation thereof and any assessments levied with respect to any such
securities or other property so deposited.
E. To settle, compromise or submit to arbitration any claims, debts or damages
due or owing to or from the Trust; to commence to defend legal proceedings
for or against the Trust; and to represent the Trust in all proceedings in
any court of law or equity or before any other body or tribunal.
F. To enforce any mortgage, deed of trust, pledge or other security interest
held hereunder and to purchase at any sale thereunder any property subject
thereto.
7
<PAGE> 123
G. To create reserves of cash or other assets of the Trust for the payment
of expenses, or for distribution pursuant to the Plan or for any other
purposes in connection with this agreement.
H. To sue or defend in connection with any and all securities or other
property at any time received or held by or for the Trust, and all costs
and attorneys' fees in connection herewith shall be a charge against the
Trust.
I. To employ agents, including without limitation, appraisers, attorneys
and accountants.
J. To specifically perform the following in regard to Employer stock:
(1) Acquire Company Stock from Company shareholders or from the
Company.
(2) Borrow from any lender to finance the acquisition of Company Stock,
provided that such borrowing shall comply with the requirements of the
Plan and the following specific provisions:
(a) Any promissory note executed by the Trustee to purchase shares of
Company Stock must bear a reasonable rate of interest;
(b) Any collateral pledged to the creditor shall consist only of the
shares of Company Stock acquired with the proceeds of such
promissory note or shares of Company Stock that were pledged as
collateral in connection with a prior promissory note of the
Trustee that was repaid with the proceeds of the current
promissory note;
(c) Under the terms of any such promissory note or other documents
executed by the Trustee in connection therewith, the creditor
shall not have recourse against the Trust assets except that a
promissory note may permit recourse with respect to the
collateral pledged as security for the promissory note,
contributions other than of Company Stock made to meet the
Trustee's obligations under the promissory note, and earnings
attributable to such collateral and the investment of such
contributions;
(d) Any promissory note or security agreement executed by the Trustee
pursuant thereto shall provide for the release of shares of
Company Stock from encumbrance in a manner permitted by Treasury
Regulations under Section 4975(e)(7) of the Internal Revenue
Code of 1986, as amended;
8
<PAGE> 124
(e) Payments made during a Plan Year by the Trustee from the Trust
with respect to a promissory note shall not exceed the sum of
contributions other than shares of Company Stock made to the
Trust to meet its obligations under such promissory note, and
earnings attributable to shares of Company Stock purchased
with such promissory note and held in a Loan Suspense Account
and the earnings of which are attributable to the investment
of such contributions, reduced by payments made under such
promissory note in prior Plan Years.
(3)Contract or otherwise enter into transactions between itself, as
Trustee, and the Company or any Company shareholder for the purpose of
acquiring or selling Company Stock.
K. All Company Stock held under the Trust shall be voted by the Trustee in
the manner described in this paragraph. Each Participant shall be
entitled to direct the Trustee as to the exercise of any voting rights
attributable to shares of Company Stock allocated to his Accounts in
accordance with Section 16.16 of the Plan. Each Participant entitled
to voting rights shall be supplied with a proxy statement and a form
for indicating his voting instructions to the Trustee. Any shares of
Company Stock for which voting instructions are not received from
Participants shall not be voted, but shares of Company Stock which are
not allocated to Participants' Accounts shall be voted by the Trustee
in the manner directed by the Administrative Committee. The foregoing
notwithstanding, the exercise of voting rights in connection with the
tender of shares of Company Stock following a tender offer shall be
governed by the provisions of Paragraph L following.
L.(1)In the event there is a tender offer for shares of Company Stock, each
Participant shall have the right to authorize the Trustee to tender shares
of Company Stock allocated to his Company Stock Account. Unless a
Participant affirmatively authorizes the Trustee in writing to tender
shares of Company Stock allocated to his Company Stock Account following a
tender offer, the Trustee may not tender any of the shares of Company Stock
allocated to such Participant's Company Stock Account in a tender offer.
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<PAGE> 125
L.(2)The Administrative Committee shall have the right to authorize the Trustee
to tender shares of Company Stock which have not been allocated to the
Company Stock Accounts of Participants. Unless the Administrative Committee
affirmatively authorizes the Trustee in writing to tender unallocated
shares of Company Stock following a tender offer, the Trustee may not
tender any allocated shares of Company Stock in a tender offer.
10
<PAGE> 126
ARTICLE IV
OTHER DUTIES OF TRUSTEE
A. LIFE INSURANCE
As directed in writing by the Committee, and subject to such direction, the
Trustee shall have the following duties with respect to any investments in
life insurance and annuity contracts:
(1) The Trustee may apply in writing for contract(s) of life insurance
and/or annuity to be issued on the life of any Participant in the Plan
in an amount to be determined by the Committee on a uniform and
nondiscriminatory basis, provided that no such policy shall be
purchased unless the Plan specifies that such death benefit shall be
limited to an incidental amount. Any such policy shall be of a form
customarily used for such employee benefit trusts, issued by any legal
reserve life insurance company selected by the Committee and qualified
to do business in the State of Nevada. Each such policy shall be a
contract between the insurance company and the Trustee, and shall be
held by the Trustee as an asset of the Trust.
(2) The Trustee shall exercise all rights, options and benefits provided by
any policy or permitted by any insurance company with respect to any
policy issued by it, including the right to change any provision which
shall become operative upon the termination of employment of any
Participant. When a Participant's employment is terminated by
retirement, disability, death or otherwise, the Trustee may convert
such policy into an annuity contract or cash for the benefit of the
Trust or may, with the written direction of the Committee, assign and
deliver the policy to the Participant. No Participant shall have the
right to direct the Trustee with respect to any policy held in the
Trust on his life without proceeding through the Committee.
(3) At the written direction of the Committee, the Trustee shall pay the
premiums on any policy held in the Trust, except that the Trustee shall
have no duty to pay premiums hereunder unless there are sufficient
assets available in the Trust. Purely as a matter of convenience and to
facilitate the payment of premiums hereunder, the Employer may pay
contributions, for such premiums or for deposit with the Insurer, as
11
<PAGE> 127
appropriate, directly to the Insurer and such payment shall be deemed a
contribution to the Trust to the same extent as if payment had been
made to the Trustee. All such contributions shall be accompanied by
written instructions from the Employer, accounting for the manner in
which they are to be credited, the amount of each such credit which is
an Employer contribution and the amount, if any, which is a Participant
contribution. The Trustee shall accumulate dividends, receive dividends
in cash or apply dividends in reduction of premiums. Any dividends
payable with respect to any policy as to which there shall be no
further premiums due shall be paid in cash to the Trustee and added to
the Trust.
(4) The Trustee, on the direction of the Committee, shall designate the
Beneficiary under any such policy, change such Beneficiary from time to
time, state the method of settlement to be effective upon the maturity
of any policy and change any such method of settlement. No Participant
shall have the right to direct the Trustee with respect to the
Beneficiary or method of settlement of any such policy, the
Participant's rights in this respect being limited to those specified
in the Plan.
(5) The Trustee, on the direction of the Committee, shall have the specific
authority to sell, transfer or otherwise dispose of any life insurance
policy to the Employer, the insured Participant or a relative of the
insured Participant all in accordance with Prohibited Transaction
Exemption 92-6.
B. BOOKS AND RECORDS
The Trustee shall keep accurate and detailed accounts of all investments,
receipts and disbursements, and any other transactions engaged in by the
Trust, and all accounts, books and records relating thereto shall be open
to inspection at all reasonable times by the Committee or its designated
representative. Such accounts, books and records shall be kept in such
manner so as to facilitate the collection of information by the Committee
for filing the reports required under Part 1 of Subtitle B, Title I of
ERISA.
C. VALUATIONS
Within ninety (90) days after the end of each fiscal year of the Employer,
within ninety (90) days after the removal or resignation of any Trustee,
and whenever so requested in writing by the Committee, the Trustee shall
value the assets of the Trust and shall file with the
12
<PAGE> 128
Committee a written statement reflecting the fair market value of the
assets and liabilities of the Trust and the receipts and disbursements of
the Trust since the last statement filed with the Committee. If the
Trustee, in making any such valuation, shall determine that the Trust
consists, in whole or in part, of property not traded freely on a
recognized market, or that information necessary to ascertain the fair
market value thereof is not readily available to the Trustee, and if the
Employer has transferred investment authority to the Committee or to an
Investment Manager pursuant to Paragraph C of Article II hereof, the
Trustee may request the Committee or the Investment Manager, as the case
may be, to instruct the Trustee as to the fair market value of such
property for all purposes under the Plan, and in such event, the fair
market value placed upon such property by the Committee or the Investment
Manager shall be binding and conclusive. If the Committee or the Investment
Manager shall fail or refuse to instruct the Trustee as to the fair market
value of such property within a reasonable time after receipt of the
Trustee's request, the Trustee shall take such action as it deems necessary
or advisable to ascertain the fair market value of such property.
D. DISTRIBUTIONS
The Trustee shall, from time to time, on the written directions of (a) the
Committee or (b) any person or persons to whom the Committee may have
delegated its duties with respect to the payment of benefits, make
distribution from the Trust to such persons, in such manner, in such
amounts, and for such purposes, as may be specified in such directions.
Consistent with the fiduciary standard applicable to the Trustee set forth
in Article I hereof and in accordance with the assignment of fiduciary
duties under the Plan, the Trustee shall incur no liability for any
distribution made by it pursuant to the directions of the Committee. The
Trustee may make any payment required to be made by it hereunder by mailing
its check for the amount thereof to the person to whom such payment is to
be made at the address furnished by the Committee, or if no such address
shall have been furnished, to such person in care of the Employer at its
principal office.
13
<PAGE> 129
ARTICLE V
RESIGNATION OR REMOVAL OF TRUSTEE
Any Trustee may resign at any time upon the giving of sixty (60) days' written
notice to the Employer and any Trustee may be removed by the Employer at any
time upon the giving of sixty (60) days' written notice. The resignation or
removal shall become effective upon the receipt of the written notice, and
thereupon the Employer shall appoint a successor Trustee or Trustees, which may
be a corporation, one or more individuals or a combination thereof.
Notwithstanding the foregoing, however, no resignation or removal of a Trustee
shall be effective until a successor has been appointed and the appointment has
been accepted. Any successor Trustee shall have the same rights, powers and
duties as he would have had as an original Trustee.
14
<PAGE> 130
ARTICLE VI
TAXES, EXPENSES AND COMPENSATION OF THE TRUSTEE
A. TAXES
The Trustee shall deduct from and charge against the assets of the Trust
any taxes paid by it which may be imposed upon the Trust or the income
thereof or which the Trustee is required to pay with respect to the
interest of any person therein, in which latter event such deduction and
charge shall be against the account or accounts of such person.
B. EXPENSES AND COMPENSATION
The Employer shall pay to the Trustee annually its expenses in
administering the Trust, including, without limitation, fees paid to
attorneys, accountants or appraisers, and, in the case of a corporate
Trustee only, the Employer shall also pay to the Trustee reasonable
compensation for its services as a Trustee hereunder at a rate to be agreed
upon in writing from time to time. The Trustee shall have a lien on the
assets of the Trust for such expenses and compensation, and the same may be
withdrawn from the Trust unless paid by the Employer.
15
<PAGE> 131
ARTICLE VII
AMENDMENT
Subject to the provisions of Articles XVII and XVIII of the Plan, the Board of
Directors reserves the right to terminate this Trust at any time without the
consent of the Trustee or of any Beneficiary, and the Trust shall be amended by
a written agreement between the Employer and the Trustee.
16
<PAGE> 132
ARTICLE VIII
MISCELLANEOUS
A. CO-FIDUCIARY LIABILITY
Each fiduciary under the Plan and this Trust shall be solely responsible
for his own acts or omissions. No fiduciary shall have any liability for a
breach of fiduciary responsibility of another fiduciary with respect to the
Plan and Trust unless he participates knowingly in such breach, has actual
knowledge of such breach and fails to take reasonable remedial action to
remedy said breach or, through his negligence in performing his own
specific fiduciary responsibilities which give rise to his status as a
fiduciary, he has enabled such other fiduciary to commit a breach of the
latter's fiduciary responsibility.
B. NONLIABILITY OF INSURANCE CARRIER
No Insurance Carrier which shall issue any policy as provided in Section
IV-A, above, shall be a party to this Trust, or have any responsibility for
the validity of this Trust. The liability of any such Insurance Carrier
shall be only as provided in any policy which it may issue. Any Insurance
Carrier shall be fully protected from all liability in accepting premium
payments from the Trustee and in making payments to or on the direction of
the Trustee, without liability as to the application of such payments. Such
Insurance Carrier shall be fully protected in dealing with the Trustee as
the sole owner of policies held under this Trust, and shall not be liable
in assuming that the Trust has not been amended or terminated until notice
of any amendment or termination of the Trust has been received by the
Insurance Carrier at its home office. No amendment of the Trust shall
deprive the Insurance Carrier of any protection except as to policies
issued by it after receipt at its home office of notice of the terms of
such amendment. The Insurance Carrier shall be fully protected in dealing
with the Trustee according to the latest notification received by it at its
home office.
C. IRREVOCABILITY
Except for such amendments as are permitted under Article VII above, the
Trust created under this agreement is irrevocable. Nevertheless, the
Employer may at any time in its sole
17
<PAGE> 133
and absolute discretion discontinue making contributions to the Trust or
terminate the Trust in accordance with the provisions of the Plan.
D. REQUEST FOR INSTRUCTIONS
In addition to instructions relating to valuation, at any time the Trustee
may, by written request, seek instructions from the Committee on any matter
and may await the written instructions from the Committee without incurring
any liability whatsoever. If at any time the Committee should fail to give
directions to the Trustee, the Trustee may act, and shall be protected in
acting, without such directions, in such manner as in its discretion seems
appropriate and advisable under the circumstances for carrying out the
purposes of this Trust.
E. SPENDTHRIFT CLAUSE
Except as it may be otherwise provided in Article XX of the Plan, no
benefits under this agreement shall be subject in any manner to be
anticipated, alienated, sold, transferred, assigned, pledged, encumbered or
charged; any attempt to so anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void, nor shall any such
benefits in any manner be liable for or subject to the debts, contracts,
liabilities or torts of the person entitled to such benefits as herein
provided for him.
F. DIVERSION OF ASSETS PROHIBITED
Except as provided in Articles XVIII and XX of the Plan, no portion of the
assets in the Trust shall revert to or become the property of the Employer
or be diverted to purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
G. GENDER AND NUMBER
As used in this agreement, the masculine, feminine or neuter gender, the
singular or plural number and the use of the collective or the separate
shall each be deemed to include the others whenever the context so
indicates.
H. APPLICABLE LAW; SEVERABILITY
This agreement shall be construed in accordance with ERISA and other
pertinent Federal laws, and the laws of the State of Nevada. If any
provision of this agreement is held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other
18
<PAGE> 134
provision, and this agreement shall be construed and enforced as if such
provisions had not been included.
I. DEFINITIONS
The definitions set forth in the Plan are incorporated herein by this
reference.
J. PLAN AND TRUST AGREEMENT CONSTITUTE INTEGRATED PROGRAM
This Trust Agreement and the Plan are parts of a single, integrated
employee benefit system and shall be construed together. In the event of
conflict between the terms of this Trust Agreement and the Plan, such
conflict shall be resolved in favor of this Trust Agreement.
K. HEADINGS
Headings in this Trust are inserted for convenience or reference only and
any conflict between such headings and the text shall be resolved in favor
of the text.
L. COUNTERPARTS
This Trust Agreement and any amendments thereto may be executed in an
original and any number of counterparts, each of which shall be deemed to
be an original of one and the same instrument.
M. INDEMNITY
To the extent not insured against by any insurance company pursuant to
provisions of any applicable policy, and to the further extent permissible by
law, the Company shall indemnify and hold harmless any individual Trustee from
any and all claims, demands, suits and proceedings in connection with the Plan
or Trust that may be brought by or on behalf of any employee of the Employer,
Participant or Beneficiary, or by any other person, corporation, entity,
governmental agency or instrumentality; provided, however, that such
indemnification shall not cover acts of willful misconduct.
19
<PAGE> 135
IN WITNESS WHEREOF, the Employer and Trustee hereby execute this Trust
Agreement.
Dated: December 29th, 1995.
--
SAXTON INCORPORATED
(EMPLOYER)
By: /s/ JAMES C. SAXTON
--------------------------------------
President
By: /s/ MICHELE SAXTON PORI
--------------------------------------
Secretary
Accepted this 29th day of December 1995.
--
TRUSTEE
ACCEPTED:
/s/Douglas W. Hensley
--------------------------------------
Douglas W. Hensley
20
<PAGE> 1
Exhibit 10.1.1
SAXTON INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
PLAN AMENDMENT I
The undersigned, constituting all of the directors of a corporation
organized under the laws of the State of Nevada, hereby unanimously consent to
and adopt the following resolutions.
WHEREAS, Saxton Incorporated (hereinafter the "Employer"), maintains
the Saxton Incorporated Employee Stock Ownership Plan (hereinafter the "Plan");
and
WHEREAS, pursuant to Article XVII, the Employer may amend the Plan from
time to time;
WHEREAS, because of the transitory nature of Laborers and their lack of
continuity with the Employer, no business purpose would be served in providing
stock benefits to Laborers
NOW THEREFORE, BE IT RESOLVED, that Section 3.01(b) of the Plan shall
be amended effective as of December 29, 1995 to add the following sentence to
the end of such section:
Furthermore, effective December 29, 1995, an employee newly hired in
the capacity of a Laborer shall be ineligible to participate in the Plan.
Executed this 10th day of December, 1996.
---- --------
SAXTON INCORPORATED
By: /s/James C. Saxton
--------------------------------
By: /s/Dorothy J. Saxton
--------------------------------
By: /s/Michele Saxton Pori
--------------------------------
By: /s/Lee-Ann Saxton
--------------------------------
<PAGE> 2
By: /s/James C. Saxton II
--------------------------------
By:
--------------------------------
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of March 10,
1997, by and between Saxton Incorporated, a Nevada corporation (the "Company"),
and James C. Saxton ("Executive").
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 three-year period commencing on the date hereof (such
period, subject to earlier termination or extension as provided herein, being
referred to as the "Period of Employment"). Commencing on the date three years
after the date hereof, 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 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, 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. 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 place of performance by Executive
of his duties hereunder shall be in Las Vegas, Nevada, 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 that area.
3. Compensation.
(a) Salary and Bonuses. As compensation for his services
hereunder, the Company shall pay Executive, during the Period of Employment,
annual base salary in the amount of $360,000, 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 the Agreement, the annual base salary payable hereunder shall be
increased to an amount equal to 103% of the annual base salary of the
immediately preceding year or such greater amount as shall be determined by the
Board of Directors in its discretion. 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.
<PAGE> 2
(b) Fringe Benefits. Executive shall receive employment fringe
benefits not less favorable than those made available to the Company's most
senior executives. In addition, the Company shall, (i) upon the request of
Executive, provide Executive with an executive automobile for his use and
possession, the expenses of which shall be borne by the Company, (ii) obtain,
and pay all premiums payable with respect to, a $2.5 million life insurance
policy for the benefit of the heirs of the Executive, and (iii) obtain, and pay
all premiums payable with respect to, a long-term disability policy reasonably
acceptable to Executive.
(c) Expenses. 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.
(d) 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 most senior executives except as provided in the following sentences. The
Company acknowledges that Executive currently has 30 weeks of accrued vacation.
Executive may take such accrued vacation from time to time provided that it
shall be taken at all times mutually satisfactory to Executive and Company.
Moreover, in the event of the early termination of this Agreement by the
Company pursuant to Section 4(a) hereof, Executive shall be paid in cash for
any accrued vacation time.
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. Upon termination of the Period
of Employment pursuant to the preceding sentence, the Company shall continue to
pay to Executive or his estate, as the case may be, the entire compensation
otherwise payable to him under Section 3(a) hereof for the greater of one year
or the remaining Period of Employment (without giving effect to any future
available renewals of the term hereof).
(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
2
<PAGE> 3
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, within 30 days of
such termination, a cash severance payment, with no duty by Executive to
mitigate such payment, in an amount equal to, the entire compensation otherwise
payable to him under Section 3(a) hereof for the greater of two years or the
remaining Period of Employment (without giving effect to any future available
renewals of the term 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 assignment to Executive of any duties or responsibilities
which in the reasonable judgment of Executive are inconsistent in any respect
with Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
2, or any other action by the Company which in the reasonable judgment of
Executive results in a substantial diminishment in such position, authority,
duties or responsibilities; (ii) the Company's requiring relocation of
Executive, without his prior written consent, to a place of employment other
than Las Vegas, Nevada, except for travel reasonably required in the
performance of Executive's responsibilities; or (iii) 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.
5. Confidentiality and Non-Competition.
(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
3
<PAGE> 4
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 one year 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 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 miles of any location in
which the Company or any Affiliate does business or in which Executive has
knowledge that the Company or any of its Affiliates contemplates doing
business; 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 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 months prior
to, the time of the solicitation.
(c) Executive agrees that the remedy at law for any breach by
him of this Section 5 will be inadequate and that the Company shall be entitled
to injunctive relief.
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:
If to the Company
Saxton Incorporated
5440 West Sahara Avenue
Third Floor
Las Vegas, Nevada 89102
Attention: General Counsel
Facsimile No.: (702) 221-1127
4
<PAGE> 5
If to Executive:
Mr. James C. Saxton
c/o Saxton Incorporated
5440 West Sahara Avenue
Third Floor
Las Vegas, Nevada 89102
Facsimile No.: (702) 221-1127
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 mercer,
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
5
<PAGE> 6
modify such covenants and enforce such provisions as to scope, time and
geographical area as it deems equitable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
SAXTON INCORPORATED
By: /s/ James C. Saxton
--------------------------------
James C. Saxton, President
/s/ James C. Saxton
-----------------------------------
JAMES C. SAXTON
6
<PAGE> 1
Exhibit 23.1
The Board of Directors and Stockholders
Saxton Incorporated:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- -------------------------
Las Vegas, Nevada
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
FINANCIAL STATEMENTS OF SAXTON INCORPORATED AT DECEMBER 31, 1996 AND FOR THE
YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,590
<SECURITIES> 0
<RECEIVABLES> 18,491
<ALLOWANCES> 369
<INVENTORY> 6,970
<CURRENT-ASSETS> 0
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<BONDS> 41,633
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 67,957
<SALES> 59,924
<TOTAL-REVENUES> 63,847
<CGS> 47,290
<TOTAL-COSTS> 48,074
<OTHER-EXPENSES> 4,524
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<INTEREST-EXPENSE> 2,895
<INCOME-PRETAX> 8,500
<INCOME-TAX> 2,517
<INCOME-CONTINUING> 5,983
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</TABLE>
<PAGE> 1
Exhibit 99
March 25, 1997
James C. Saxton
Chairman of the Board of Directors
Saxton Incorporated
5440 West Sahara Avenue, Third Floor
Las Vegas, Nevada 89102
Dear Mr. Saxton:
I hereby consent to being named in the Registration Statement of Saxton
Incorporated as a proposed director of that company.
Sincerely,
/s/ Robert L. Seale
Robert L. Seale
<PAGE> 2
March 25, 1997
James C. Saxton
Chairman of the Board of Directors
Saxton Incorporated
5440 West Sahara Avenue, Third Floor
Las Vegas, Nevada 89102
Dear Mr. Saxton:
I hereby consent to being named in the Registration Statement of Saxton
Incorporated as a proposed director of that company.
Sincerely,
/s/ Marc S. Hechter
Marc S. Hechter
<PAGE> 3
March 25, 1997
James C. Saxton
Chairman of the Board of Directors
Saxton Incorporated
5440 West Sahara Avenue, Third Floor
Las Vegas, Nevada 89102
Dear Mr. Saxton:
I hereby consent to being named in the Registration Statement of Saxton
Incorporated as a proposed director of that company.
Sincerely,
/s/ Douglas W. Hensley
Douglas W. Hensley
<PAGE> 4
March 25, 1997
James C. Saxton
Chairman of the Board of Directors
Saxton Incorporated
5440 West Sahara Avenue, Third Floor
Las Vegas, Nevada 89102
Dear Mr. Saxton:
I hereby consent to being named in the Registration Statement of Saxton
Incorporated as a proposed director of that company.
Sincerely,
/s/ Timothy J. Adams
Timothy J. Adams
<PAGE> 5
March 25, 1997
James C. Saxton
Chairman of the Board of Directors
Saxton Incorporated
5440 West Sahara Avenue, Third Floor
Las Vegas, Nevada 89102
Dear Mr. Saxton:
I hereby consent to being named in the Registration Statement of Saxton
Incorporated as a proposed director of that company.
Sincerely,
/s/ Bernard J. Mikell, Jr.
Bernard J. Mikell, Jr.
