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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NO. 333-42213
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEWMARK HOMES CORP.
(Exact Name of Registrant as Specified in Its Charter)
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<C> <C> <C>
NEVADA 1521 76-0460831
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
TERRY C. WHITE
CHIEF FINANCIAL OFFICER AND TREASURER
1200 SOLDIERS FIELD DRIVE 1200 SOLDIERS FIELD DRIVE
SUGAR LAND, TEXAS 76459 SUGAR LAND, TEXAS 76459
TELEPHONE (281) 243-0100 TELEPHONE (281) 243-0100
FAX (281) 243-0771 FAX (281) 243-0771
(Address, Including Zip Code, (Name, Address, Including Zip Code,
and Telephone Number, Including Area Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices) of Agent for Service)
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Copies to:
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<C> <C>
NORMAN R. MILLER, ESQ. THOMAS P. MASON, ESQ.
WOLIN, RIDLEY & MILLER LLP ANDREWS & KURTH L.L.P.
3100 BANK ONE CENTER 4200 TEXAS COMMERCE TOWER
1717 MAIN STREET HOUSTON, TEXAS 77002
DALLAS, TEXAS 75201 TELEPHONE (713) 220-4368
TELEPHONE (214) 939-4906 FAX (713) 220-4285
FAX (214) 939-4949
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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, please 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, 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(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE 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 JANUARY 28, 1998.
2,000,000 SHARES
NEWMARK HOMES CORP.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share will be between $9.00 and $11.00. For information relating to the factors
to be considered in determining the initial public offering price, see
"Underwriting." The Company has applied for quotation of the Common Stock on the
Nasdaq National Market under the symbol "NHCH."
Prior to this offering, the Company has operated as a wholly owned
subsidiary of Pacific USA Holdings Corp. ("Pacific USA"), an indirect wholly
owned subsidiary of Pacific Electric Wire & Cable Co., Ltd. ("Pacific Electric
Wire & Cable"). Pacific Electric Wire & Cable is a limited company incorporated
in Taiwan and whose shares are listed on the Taiwan Securities Exchange. Upon
completion of this offering, Pacific USA will continue to own approximately
82.1% of the outstanding Common Stock of the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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.
<TABLE>
<CAPTION>
=============================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total (3)......................... $ $ $
=============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $600,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $ , $ and
$ , respectively.
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that certificates
representing the shares will be ready for delivery at the offices of Dain
Rauscher Incorporated, Minneapolis, Minnesota, on or about , 1998.
DAIN RAUSCHER INCORPORATED LAIDLAW GLOBAL SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[PHOTOS OF FINISHED HOME (EXTERIOR),
FINISHED HOME (INTERIOR) AND
HOME UNDER CONSTRUCTION]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
specified, the information in this Prospectus has been adjusted to reflect a
92-for-1 split of Common Stock to be paid as a dividend prior to the closing of
this offering and assumes the Underwriters' over-allotment option is not
exercised. Except as otherwise indicated, the information set forth herein does
not give effect to the acquisition of Westbrooke (as defined) effective January
1, 1998. All references in this Prospectus to the "Company" include Newmark
Homes Corp. and its subsidiaries (other than Westbrooke), unless the context
otherwise requires.
THE COMPANY
The Company designs, builds and sells single-family homes in five major
markets within the Southwest and Southeast, including Houston, Austin,
Dallas/Fort Worth, Miami/Ft. Lauderdale and, most recently, Nashville, each of
which has experienced population and job growth above the national average over
the past several years. The Company operated in 47 subdivisions in these
metropolitan areas, and had 452 homes under construction at September 30, 1997.
In addition, as of September 30, 1997, the Company owns or has under option
contract 2,199 lots available for future growth. The Company is also actively
engaged in residential land acquisition and development, which enables it to
provide lots for its homebuilding operations.
The Company offers high-quality homes, designed principally for the
"move-up" and relocation market segments under the Newmark name. Typically,
Newmark homes range in size from 1,700 square feet to over 4,500 square feet and
range in price from $120,000 to $350,000, with an average sales price of
$205,000 for homes closed during the nine months ended September 30, 1997. The
Company also offers custom homes under the Fedrick, Harris Estate Homes name
that range in size from 3,500 square feet to over 7,000 square feet and range in
price from $250,000 to $700,000, with an average sales price of $350,000 for
homes closed during the nine months ended September 30, 1997. Revenues generated
from sales of Fedrick, Harris Estate Homes were 14% and 18% of total
homebuilding revenues for the nine months ended September 30, 1996 and 1997,
respectively.
The Company's production homebuilding operation is positioned to compete
with high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. Newmark homes give the homebuyer the ability to select various design
features in accordance with their personal preferences. Through a volume
building approach, the Company's custom homes generally offer more value than
those offered by local, lower-volume custom builders, primarily due to the
Company's effective purchasing, construction and marketing programs. While most
design modifications are significant to the homebuyer, they typically involve
relatively minor adjustments that allow the Company to maintain construction
efficiencies and result in greater profitability due to increased sales prices
and margins. The Company believes that its ability to meet the design tastes of
prospective homebuyers at competitive prices distinguishes itself from many of
its competitors.
The Company's subsidiary, Newmark Home Corporation ("Newmark"), was founded
in 1983 in Houston, Texas. The Company achieved annual profitability from
inception despite the adverse economic conditions that prevailed in Texas in the
late 1980's and early 1990's. Seven of the Company's ten executive officers and
key employees have worked together at the Company for more than ten years, and
all of the Company's executive officers and key employees have worked together
for more than four years. The Company has developed and implemented a balanced,
disciplined approach to land purchases and home construction. This balanced
approach has focused on purchasing, construction, marketing, market analysis,
economic and financial forecasting, management information systems and
accounting. The Company believes the experience of its executive officers and
key employees and its disciplined approach to its business have been key factors
in the Company's success.
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STRATEGY
The Company's objective is to provide its customers with homes that offer
both quality and value, while seeking to maximize its return on invested
capital. The key elements of this strategy include:
- GROWTH MARKETS. The Company's primary markets have each experienced
population and job growth in excess of the national average over the past
several years. The Company believes that there are significant growth
opportunities in these markets. The Company also continues to evaluate new
markets that would satisfy the Company's profitability, investment return
and other criteria.
- SOPHISTICATED MARKETING. The Company employs sophisticated and
comprehensive marketing programs, including telemarketing, an Internet web
site and a virtual reality CD-ROM home tour. The Company executes its
overall marketing strategy through advertising campaigns tailored to local
markets, including coordination of realtor promotions, subdivision grand
openings, showcase presentations for custom homes, the Company's
newsletters, realtors' newsletters, product bulletins, billboards, local
newspaper advertisements and other direct sales activities.
- FOCUS ON RELOCATION MARKET. In markets with a significant number of
relocation buyers, the Company aggressively competes with resales of
existing homes, primarily by making available to potential buyers
completed or nearly completed homes.
- MANAGEMENT TRAINING. The Company aggressively recruits and hires new
management trainees, typically with some construction experience,
following graduation from college and trains these new hires for
increasing levels of responsibility within the Company. Through continuous
"on the job" experience and classroom training, these associates become
knowledgeable, experienced candidates for middle management positions. The
Company believes that one of its strengths is its depth of middle
management.
- DECENTRALIZED OPERATIONS WITH EXPERIENCED MANAGEMENT. The Company
believes that the in-depth knowledge of its experienced management in
local markets enables the Company to better serve its customers. Each of
the Company's operating divisions focuses on a single market, and local
management is responsible for preliminary site selection and negotiation
of option contracts in accordance with Company policy.
- CENTRALIZED PURCHASING. The Company utilizes centralized purchasing to
leverage its purchasing power into volume discounts, a practice which
reduces costs, ensures timely deliveries and reduces the risk of supply
shortages due to allocations of materials. In addition, the Company has
negotiated favorable price arrangements with several high quality national
and regional suppliers.
- COST MANAGEMENT. The Company controls its divisional overhead costs by
centralizing administrative and accounting functions, eliminating the need
for redundant functions at the city level, and by automating and
integrating its information systems. The Company also controls costs
through the efficient design of its homes and by obtaining favorable
pricing, where possible, from subcontractors and other suppliers of goods
and services.
- LIMITED REAL ESTATE EXPOSURE. The Company seeks to maximize its return on
capital and limit its exposure to changes in land valuation by obtaining
options to purchase lots whenever feasible. The Company also seeks to
limit its exposure to real estate inventory risks by (i) closely
monitoring its unsold inventory of new homes and the stage of completion
of homes under construction on an ongoing basis, (ii) centralizing control
for the start of new homes and (iii) closely monitoring local job market
and demographic trends, housing preferences and related economic
developments. See "Business -- Strategy."
ACQUISITION OF WESTBROOKE
Effective January 1, 1998, the Company acquired Westbrooke Communities,
Inc. and its affiliated entities ("Westbrooke"). Westbrooke, founded in 1976, is
a leading builder of single-family homes in the South Florida market.
Westbrooke's homes are designed primarily to appeal to first time and move-up
home buyers, with homes ranging in size from 1,300 square feet to over 3,500
square feet and ranging in price from $108,000 to $240,000,
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with an average sales price of $175,000 for the nine months ended September 30,
1997. Westbrooke operated in four subdivisions and had 304 homes under
construction as of September 30, 1997. The Company expects the acquisition of
Westbrooke to significantly enhance its competitive position in the South
Florida area. See "Acquisition of Westbrooke."
THE OFFERING
Common Stock offered by the
Company............................. 2,000,000 shares
Common Stock to be outstanding after
this offering....................... 11,200,000 shares
Use of Proceeds..................... To fund the Company's planned growth in
existing markets and to repay a portion
of the indebtedness to be assumed in
connection with the acquisition of
Westbrooke. Pending new market
expansion and residential land
acquisition opportunities, a portion of
the net proceeds will be used to repay
a portion of the outstanding balances
under the Company's construction credit
facilities.
Proposed Nasdaq National Market
Symbol.............................. NHCH
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SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1994 1995(1) 1996 1996(2) 1996 1997 1997(2)
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $108,630 $125,427 $191,998 $316,299 $139,727 $163,548 $228,391
Gross profit................... 22,370 22,836 34,591 52,335 25,668 29,970 39,647
Equity in earnings from
unconsolidated
subsidiaries................. -- 1,978 792 792 660 262 262
Selling, general and
administrative expenses...... 12,928 16,572 22,976 30,975 17,282 19,121 24,807
Depreciation and
amortization................. 831 1,271 1,524 2,410 1,110 1,224 1,967
Operating income............... 8,611 6,971 10,883 19,742 7,936 9,887 13,135
Income before income taxes..... 8,189 6,246 10,496 18,701 7,658 8,783 11,267
Net income..................... 4,984 3,769 6,332 11,419 4,706 5,417 6,957
Net income per share........... $ 0.54 $ 0.41 $ 0.69 $ 1.02 $ 0.51 $ 0.59 $ 0.62
Weighted average shares
outstanding.................. 9,200 9,200 9,200 11,200 9,200 9,200 11,200
OPERATING DATA:
Units:
New sales contracts, net..... 500 720 998 1,598 830 757 1,255
Closings..................... 534 641 902 1,644 686 731 1,102
Backlog at end of period..... 92 171 267 539 315 293 692
Average sales price per
closing...................... $ 201 $ 188 $ 200 $ 185 $ 200 $ 220 $ 204
Sales value of backlog at end
of period.................... $ 18,579 $ 32,280 $ 50,657 $ 96,222 $ 58,023 $ 63,239 $132,976
Gross profit as a percentage of
revenues..................... 20.6% 18.2% 18.0% 16.6% 18.4% 18.3% 17.4%
Selling, general and
administrative expenses as a
percentage of revenues....... 11.9% 13.2% 12.0% 9.8% 12.4% 11.7% 10.9%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
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PRO FORMA
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Inventories............................................... $ 94,711 $147,153
Total assets.............................................. 132,755 201,252
Total debt................................................ 66,532 97,794
Stockholders' equity...................................... 46,580 74,397
</TABLE>
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(1) Reflects the operating data of Adler subsequent to the Company's
acquisition of the homebuilding assets of The Adler Family Partnership on
March 1, 1995.
(2) Gives effect to (i) the contribution of indebtedness ($9.8 million as of
September 30, 1997) owed by the Company to Pacific USA to capital of the
Company (the "Capital Contribution"), effective December 31, 1997, (ii) the
acquisition of Westbrooke effective January 1, 1998 and (iii) the sale of
the Common Stock offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and Pro Forma Condensed Financial
Statements included elsewhere in this Prospectus.
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RISK FACTORS
Prospective investors should carefully consider the specific factors set
forth below as well as the other information included elsewhere in this
Prospectus before deciding to purchase the shares of Common Stock offered
hereby. Except for historical information contained herein, the discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of 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 this Prospectus. Factors that could
cause or contribute to such difference include those discussed below, as well as
those discussed elsewhere herein.
GENERAL REAL ESTATE, ECONOMIC AND OTHER CONDITIONS. The homebuilding
industry is cyclical and is significantly affected by changes in general and
local economic conditions, such as employment levels, interest rates,
availability of financing for homebuyers, consumer confidence and housing
demand. In addition, homebuilders are subject to various risks, including
competitive overbuilding, availability and cost of lots, materials and labor,
weather conditions, delays in construction schedules, cost overruns, changes in
governmental regulation and increases in real estate taxes and other local
government fees. In addition, to the extent that hurricanes, tornados, droughts,
floods, brushfires or other natural disasters or similar events occur in any of
the Company's markets, the homebuilding industry in general, and the Company's
business in particular, may be adversely affected.
VARIABILITY OF RESULTS. The Company historically has experienced, and in
the future expects to continue to experience, variability in sales and net
income on an annual and a quarterly basis. Factors expected to contribute to
this variability include, among others: (i) the timing of home closings; (ii)
the Company's ability to continue to acquire land and options thereon under
acceptable terms; (iii) the timing of receipt of regulatory approvals for the
construction of homes; (iv) the condition of the real estate market and general
economic conditions in the Company's local markets; (v) the cyclical nature of
the homebuilding industry; (vi) the prevailing interest rates and the
availability of mortgage financing; (vii) pricing policies of the Company's
competitors; (viii) the timing of the opening of new residential projects; (ix)
weather; and (x) 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 period to period. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
DEPENDENCE ON TEXAS AND FLORIDA ECONOMIES AND HOUSING MARKETS. The Company
presently conducts most of its business in Texas and Florida. Economic growth in
Texas has increased considerably in the 1990's, compared to the late 1980's, a
period characterized by a weak economy, excessive home inventories and low sale
prices, while economic growth in Florida has generally been in excess of the
national average over the last several years. A prolonged economic downturn in
Texas or Florida would have a material adverse effect on the Company.
CONCENTRATION OF OWNERSHIP. Following completion of this offering, Pacific
USA will indirectly beneficially own approximately 82.1% of the outstanding
Common Stock of the Company (80.0% if the Underwriters' over-allotment option is
exercised in full). Accordingly, Pacific USA will be in a position to elect the
Company's directors and officers, to control the policies and operations of the
Company and to determine the outcome of corporate transactions or other matters
submitted for shareholder approval, including mergers, consolidations, the sale
of the Company's assets or a change in control of the Company. See "Security
Ownership" and "Description of Capital Stock."
ACCESS TO FINANCING. The homebuilding industry is capital intensive and
requires expenditures for home construction and for land purchases and
development. Accordingly, the Company has incurred substantial indebtedness to
finance its homebuilding, land acquisition and development activities. The
Company believes it will have adequate financial resources after this offering,
including availability under its credit facilities, to meet its working capital,
residential land acquisition and development needs under current market
conditions. However, there can be no assurance that the amounts available from
such sources will be sufficient. If the Company identifies significant new
acquisition opportunities, or if the Company's operations do not generate
sufficient cash from operations at levels currently anticipated, the Company may
be required to seek additional
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capital in the form of equity or debt financing from a variety of potential
sources, including additional bank financings or the issuance of debt or equity
securities. The amount and types of indebtedness which the Company may incur are
limited by the terms of its existing financing agreements. If the Company is not
successful in obtaining sufficient capital to fund its planned expansion and
other expenditures, new projects may be constrained. Any such delay or
abandonment could result in a reduction in sales and may adversely affect the
Company's future results of operations. Prior to this offering, the Company has
been operated as an indirect wholly-owned subsidiary of Pacific USA and has
obtained financing and loan guarantees from Pacific USA. Pacific USA will be
under no obligation to provide such financing, in part, or guarantees to the
Company in the future. Effective December 31, 1997, all outstanding indebtedness
owed by the Company to Pacific USA was contributed to the Company's capital, and
all currently outstanding loan guarantees provided by Pacific USA will continue
in accordance with their terms.
LAND POLICIES AND POSITION. Historically, the Company has made significant
investments in land inventory and lot positions, primarily in the Miami/Ft.
Lauderdale market, principally because land was not available on an option
basis. Due to market conditions, the Company may not be able to obtain suitable
land inventory or sufficient lot positions through the use of options. This may
require the Company to make significant investments in land and lot positions
that the Company may be required to hold as inventory for an extended period
until economic conditions justify the development of such land and lot
positions. Moreover, there can be no assurance that the Company will be
successful in acquiring suitable land for development in additional markets. If
the Company is unable to locate and acquire suitable land which it can
profitably develop, its business, financial condition and results of operations
could be materially and adversely affected.
SPECULATIVE CONSTRUCTION. Since 1993, approximately 65% of the Company's
homes were begun before a sales contract was executed and an earnest money
deposit was received. Because interest and other expenses are capitalized during
construction but expensed after completion, the Company begins to recognize
significant interest and maintenance expense on unsold inventory. At September
30, 1997, the Company had 115 completed homes in inventory and 261 homes under
construction without a sales contract. In the event there is a downturn in
housing sales in the Company's markets, the Company's inventory of completed
homes could increase, leading to additional financing costs and lower margins,
which could have a material adverse effect on the Company's financial results.
RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION OF OPERATIONS. In
connection with its acquisitions (including the acquisition of Westbrooke
effective January 1, 1998) and new market expansion, the Company may face risks
commonly encountered with growth through acquisitions and expansions. These
risks include the incurrence of higher than anticipated capital expenditures and
operating expenses, the adverse impact on the Company's ongoing business
resulting from greater attention of management to the acquired businesses or new
market operations, and difficulties encountered in integrating the operations
and personnel of the acquired business. There can be no assurance that the
Company will be successful in overcoming these risks or any other problems
encountered with acquisitions or expansions. To the extent the Company does not
successfully avoid or overcome the risks or problems related to its acquisitions
or expansions, the Company's results of operations and financial condition could
be adversely affected.
To the extent that the Company expands through start-up operations into new
markets or through acquisition, it will need to employ or consult with personnel
that are knowledgeable of such markets. In addition, the success of any
particular acquisition (including the acquisition of Westbrooke) may be
significantly dependent on retaining key members of the acquired company's
existing management. There can be no assurance that the Company will be able to
employ or retain the necessary personnel, that the Company will be able to
successfully implement its disciplined management process and culture with local
management or that the Company's expansion operations will be successful.
COMPETITION. The homebuilding industry is highly competitive and
fragmented. Homebuilders compete for desirable properties, financing, materials
and skilled labor. The Company competes for residential sales with large
homebuilding companies, some of which have greater financial resources than the
Company, and smaller homebuilders, which may have lower administrative costs.
The Company also competes for home sales with individual resales of existing
homes and condominiums. There can be no assurance that the Company will be able
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to continue to compete successfully in any of its markets. The inability of the
Company to continue to compete successfully in any of its markets could have a
material adverse effect on the Company's business, financial condition or
results of operations.
INTEREST RATES; MORTGAGE FINANCING. Virtually all purchasers of the
Company's homes finance their acquisitions through third-party lenders providing
mortgage financing. In general, housing demand is adversely affected by
increases in interest rates, decreasing availability of mortgage financing,
increasing housing costs and unemployment. If mortgage interest rates increase
and, as a result, the ability of prospective buyers to finance home purchases is
adversely affected, the Company's operating results may be significantly
negatively impacted. The Company's homebuilding activities are also dependent
upon the availability and cost to home buyers of mortgage financing.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS. The Company and its
competitors are subject to various local and state statutes, ordinances, rules,
and regulations concerning zoning, resource protection (protection of wetlands,
woodlands and hillside areas), building design, construction and similar
matters. The Company may also be subject to periodic delays in its homebuilding
projects due to building moratoriums. Such moratoriums generally relate to
insufficient water supplies, sewage facilities, delays in utility hook-ups, or
inadequate road capacity within specific market areas or subdivisions. In
addition, certain new development projects are subject to various assessments
for schools, parks, streets and highways and other public improvements, the
costs of which can be substantial. By raising the cost of the Company's homes to
its customers, an increase in such assessments could have a negative impact on
the Company's sales.
Federal and state environmental laws and regulations also affect the
Company and its competitors. The particular environmental laws which apply to
any given homebuilding site vary according to the site's location, its
environmental conditions and the present and former uses of the site, as well as
adjoining properties. Environmental laws and conditions may result in delays,
may cause the Company to incur substantial compliance and other costs, and may
prohibit or severely restrict homebuilding activity in environmentally sensitive
markets.
Furthermore, in projects in which the Company is developing land, it must
obtain the approval of numerous governmental authorities regulating such matters
as permitted land uses and levels of density and the installation of utility
services such as electricity, water and waste disposal. The length of time
necessary to obtain permits and approvals increases the carrying cost of
unimproved property acquired for the purpose of development and construction.
There can be no assurance that the time necessary to obtain permits and
approvals will not increase in the future, or that, whether or not such time
periods increase, governmental restrictions and approval processes will not
materially increase the carrying cost of property held by the Company, which
could have a material adverse effect on the Company's business, financial
condition or results of operations.
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors participating in this
offering will experience immediate and substantial dilution in net tangible book
value per share. See "Dilution."
MIAMI/FT. LAUDERDALE OPERATIONS. Certain insurance companies doing business
in the Miami/ Ft. Lauderdale have restricted, curtailed or suspended the
issuance of homeowners' insurance policies on single family and multi-family
homes. This has had the effect of both reducing the availability of hurricane
and other types of natural disaster insurance and, in general, increasing the
cost of such insurance to prospective purchasers of homes in the Miami/Ft.
Lauderdale metroplex. Mortgage financing for a new home is conditioned, among
other things, on the availability of adequate homeowners' insurance. There can
be no assurance that homeowners' insurance will be available or affordable to
prospective purchasers of the Company's homes offered for sale in the Miami/Ft.
Lauderdale market. Long-term restrictions on, or unavailability of, homeowners'
insurance in the Miami/Ft. Lauderdale market could have an adverse effect on the
homebuilding industry in that market in general, and on the Company's business
within that market in particular. Additionally, the availability of permits for
new homes in new and existing developments has been adversely affected by the
significantly limited capacity of the schools, roads, and other infrastructure
in that market.
POTENTIAL CONFLICTS OF INTEREST. Conflicts of interest may arise in the
future between the Company and Pacific USA in a number of areas relating to
their ongoing relationships, including dividends, incurrence of indebtedness,
tax matters, financial commitments and issuances and sales of capital stock of
the Company. The
9
<PAGE> 11
Company and Pacific USA have agreed pursuant to a tax allocation agreement that
the Company will pay Pacific USA an amount equal to the liability that the
Company would be required to pay if the Company paid federal income taxes on a
stand-alone basis. A conflict of interest may arise if Pacific USA chooses to
contest, compromise or settle any adjustment or deficiency proposed by the
relevant taxing authority in a manner that may be beneficial to Pacific USA and
detrimental to the Company. In addition, under federal income tax law, each
member of a consolidated group (as determined for federal income tax purposes)
is also jointly and severally liable for the federal income tax liability of the
consolidated group. See "Certain Transactions -- Tax Allocation Agreement."
TRANSACTIONS WITH AFFILIATES. In the past, the Company has participated in
certain centralized programs with Pacific USA and its subsidiaries, including
payroll and benefits administration and the evaluation and negotiation of
national contracts for the purchase of office supplies, long distance and
overnight delivery services. While the Company may have achieved certain cost
savings from participating in these centralized programs, there can be no
assurance that it will continue to do so in the future. In addition, in the
event that any of these entities would be unable or unwilling to continue to
offer these centralized programs to the Company in the future, there can be no
assurance that the Company would be able to obtain substitute services at
reasonable rates.
In addition, Pacific USA has historically loaned funds to the Company, as
well as guaranteed certain of its bank loans. Effective December 31, 1997,
indebtedness owed by the Company to Pacific USA was contributed to the Company's
capital. Pacific USA has indicated that it does not intend to provide loans or
guarantees to the Company in the future, the absence of which could have an
adverse effect on the Company's ability to obtain financing. See "Certain
Transactions."
WARRANTY LIABILITY. Various components of homes built by the Company are
warranted against defects in materials or work quality for up to 10 years. The
Company has not experienced any material losses from warranty claims to date and
maintains reserves for normal, recurring warranty expenses. There can be no
assurance that material warranty claims will not be asserted in the future.
These claims could have a material adverse effect on the Company's business,
financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend on
the continued services of its executive and senior officers. Certain members of
executive and senior management have employment agreements with the Company. See
"Management -- Employment Agreements." The loss of the services of one or more
key personnel could have a material adverse effect upon the Company's
operations. The Company's success also depends on its ability to attract and
retain qualified personnel. There can be no assurances that the Company will be
successful in attracting and retaining such personnel. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE. Following completion of this offering, the
Company will have outstanding 11,200,000 shares of Common Stock. The 2,000,000
shares sold in this offering may be publicly offered and sold without
restriction, unless they are purchased by affiliates of the Company. Shares of
Common Stock outstanding prior to completion of this offering will be
"restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act"). These "restricted securities" may be sold only if they are
registered under the Securities Act by the Company or pursuant to an applicable
exemption from the registration requirements of the Securities Act, including
Rule 144 thereunder. All of the shares of Common Stock outstanding prior to this
offering are held indirectly by Pacific USA. Pacific USA does not have any plan
or arrangement with the Company to register its shares under the Securities Act
for resale in the public markets. The Company and Pacific USA have agreed that
they will not, directly or indirectly, sell or otherwise dispose of any of such
shares for a period of 180 days after the date of this Prospectus, without the
prior written consent of Dain Rauscher Incorporated on behalf of the
Representatives of the Underwriters. See "Underwriting." Dain Rauscher
Incorporated does not currently intend to release Pacific USA from its lock-up
agreement. Furthermore, Pacific USA has indicated that, in order to consolidate
the Company's financial results with its financial results for tax and financial
reporting purposes, it must maintain an 80% ownership in the Company, and it
does not presently intend to request a release of the lock-up from Dain Rauscher
Incorporated or to sell any of its shares of Common Stock of the Company. The
sale of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect the prevailing market price for the Common
Stock. See "Shares Eligible for Future Sale."
10
<PAGE> 12
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to this offering, there has been no public market for the Common
Stock. Although the Company has applied for inclusion of the Common Stock on the
Nasdaq National Market, there can be no assurance that an active market will
develop or be sustained following this offering. The initial public offering
price for the shares of Common Stock sold in this offering will be determined
through negotiations between the Company and the Representatives and may not
necessarily reflect the market price for the Common Stock following this
offering. Market prices for the Common Stock following this offering will be
influenced by a number of factors, including the Company's operating results and
other factors affecting the Company specifically and the homebuilding industry
and financial markets generally, as well as the depth and liquidity of the
market for the Common Stock. In recent years, the stock market has experienced
price and volume fluctuations. This volatility has had a significant effect on
the market prices of securities issued by many companies for reasons unrelated
to their operating performance. See "Underwriting."
ANTI-TAKEOVER PROVISIONS. Nevada law includes a number of provisions that
may have the effect of encouraging persons considering unsolicited tender offers
or other unilateral takeover proposals to negotiate with the Board of Directors
rather than pursue non-negotiated takeover attempts. The Company's Articles of
Incorporation provide for "blank check" preferred stock which may also have the
effect of deterring a non-negotiated take-over attempt. See "Description of
Capital Stock --Anti-Takeover Provisions of State Law."
11
<PAGE> 13
THE COMPANY
The Company is a wholly-owned, indirect subsidiary of Pacific USA, which
also conducts operations through companies engaged in financial services, other
real estate activities, technology and investment banking. The Company is a
direct subsidiary of Pacific Realty Group, Inc. ("Pacific Realty Group"), which
has investments in companies engaged in other, non-homebuilding, real estate
activities. Pacific USA is an indirect subsidiary of Pacific Electric Wire &
Cable Co., Ltd., a limited company organized under the laws of Taiwan with
shares listed on the Taiwan Securities Exchange.
In 1993, Pacific Realty Group acquired Newmark and formed Pacific United
Development Corp., a residential land acquisition and development company
("PUDC"). In 1994, the Company was incorporated as a Nevada corporation, and
Pacific Realty Group contributed Newmark and PUDC to the Company. In March 1995,
the Company acquired the business of The Adler Family Partnership ("Adler"), a
builder of single-family homes in the Miami/Ft. Lauderdale metropolitan area.
The Company's principal executive offices are located at 1200 Soldiers
Field Drive, Sugar Land, Texas 77479, and its telephone number is (281)
243-0100.
ACQUISITION OF WESTBROOKE
The Company acquired Westbrooke effective January 1, 1998. Westbrooke,
founded in 1976 by James Carr, is a leading builder of single-family homes in
the South Florida market. Westbrooke's homes are designed primarily to appeal to
first time and move-up home buyers, with homes ranging in size from 1,300 square
feet to over 3,500 square feet and ranging in price from $108,000 to $240,000,
with an average sales price of $175,000 for the nine months ended September 30,
1997. Westbrooke operated in four subdivisions and had 304 homes under
construction as of September 30, 1997. The Company expects the acquisition of
Westbrooke to significantly enhance its competitive position in the South
Florida market.
Pursuant to the Stock Purchase Agreement effective January 1, 1998 (the
"Stock Purchase Agreement") among Mr. Carr, Westbrooke and its affiliated
entities, Leonard R. Chernys, Diana Ibarria, Harold L. Eisenacher, Pacific USA,
Westbrooke Acquisition Corp. and the Company, the consideration paid for the
purchase of Westbrooke consisted of (i) $12.3 million in promissory notes (the
"Acquisition Notes") bearing interest at 6.45% per annum and payable annually
over five years and (ii) deferred consideration of up to $7.5 million contingent
upon Westbrooke achieving specified cumulative income targets (the "Income
Targets") over a five year period. Pursuant to the Stock Purchase Agreement, in
order for the Income Targets to be met, Westbrooke must achieve net income
before income tax (as determined in accordance with the Stock Purchase
Agreement) on a cumulative basis of $3,400,000, $7,040,000, $10,920,000,
$15,040,000 and $19,400,000 for the fiscal years ending December 31, 1998, 1999,
2000, 2001 and 2002, respectively. Of the $7.5 million deferred consideration,
Mr. Chernys, Ms. Ibarra and Mr. Eisenacher are eligible to receive an aggregate
of $1.0 million each over the five year period. Mr. Chernys, Ms. Ibarra and Mr.
Eisenacher have worked with Westbrooke since January 1978, January 1980 and
March 1985, respectively. In addition, the Company issued to Mr. Carr (as
additional consideration) a promissory note (the "Adjustment Note") in the
principal amount of $6,375,000 representing the estimated amount by which the
stockholder's equity of Westbrooke exceeded $5 million as of the closing. The
Adjustment Note bears interest at 9% per annum, is payable on or prior to the
one year anniversary of the closing of the acquisition, and is subject to
adjustment based on the audited balance of the stockholder's equity of
Westbrooke as of the closing.
The Company also agreed to pay compensation to each of Mr. Chernys, Ms.
Ibarria and Mr. Eisenacher equal to 6% (2% to each individual) of Westbrooke's
net income before income tax (as determined in accordance with the Stock
Purchase Agreement). Such payments will be recorded as compensation expense in
the period in which it is earned.
In connection with the acquisition of Westbrooke by the Company, Westbrooke
borrowed $10 million pursuant to a bank loan (the "Westbrooke Bank Loan"). The
proceeds from the Westbrooke Bank Loan were used to repay the $7.5 million
outstanding balance under Westbrooke's subordinated notes and to redeem the
outstanding minority interest in Westbrooke for $2.5 million. The Westbrooke
Bank Loan is secured by a letter of credit furnished by the Company. The Company
intends to use $10 million of the proceeds from this offering to repay the
Westbrooke Bank Loan. See "Use of Proceeds."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered by the
Company are estimated to be approximately $18.0 million (approximately $20.8
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $10 per share and after deducting
the underwriting discounts and commissions and other estimated offering
expenses.
Of the net proceeds, the Company intends to use $10 million to repay the
Westbrooke Bank Loan incurred by Westbrooke in connection with its acquisition
by the Company. The Westbrooke Bank Loan bears interest at a rate of prime less
0.75% (7.75% as of September 30, 1997) and matures on September 30, 1998. The
proceeds from the Westbrooke Bank Loan were used to repay the $7.5 million
outstanding balance under Westbrooke's subordinated notes and to redeem the
outstanding minority interest in Westbrooke for $2.5 million. See "Acquisition
of Westbrooke." The remaining balance of the net proceeds is expected to be used
to fund planned expansion in existing markets. Pending new market expansion or
land acquisition opportunities, a portion of the net proceeds will be used to
repay a portion of the outstanding balances under the Company's construction
credit facilities. Borrowings under such credit facilities bear interest at
rates ranging from prime plus 0.5% to prime plus 1.5% per annum, and mature upon
the closing of the sale of the homes securing the borrowings. Upon application
of the net proceeds as set forth above, the Company will have approximately
$12.0 million available under its credit facilities for future borrowings, which
the Company believes will provide it with financial flexibility as new market
expansion or land acquisition opportunities arise. Pending such uses, the net
proceeds of this offering will be invested in short term, interest bearing
securities.
Effective December 31, 1997, all of the indebtedness owed to Pacific USA
($9.8 million at September 30, 1997) was contributed to the capital of the
Company.
DIVIDEND POLICY
The Company intends to retain all earnings to provide funds for its
operations and expansion, and, therefore, does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The Company's future
dividend policy will be determined by its Board of Directors based on various
factors, including the Company's results of operations, financial condition,
business opportunities, capital requirements, credit restrictions and such other
factors as the Board of Directors may deem relevant. In addition, certain of the
Company's credit agreements restrict the amount of dividends payable by the
Company.
13
<PAGE> 15
DILUTION
At September 30, 1997, after giving effect to the acquisition of Westbrooke
and the Capital Contribution, the Company had pro forma net tangible book value
of $2.16 per share of Common Stock. Net tangible book value per share of Common
Stock equals the tangible assets of the Company, less all liabilities, divided
by the total number of shares of Common Stock outstanding. After giving effect
to the sale of shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share and the application of the net
proceeds therefrom, the net tangible book value of the Company at September 30,
1997 would have been $3.38 per share. This represents an immediate increase of
$1.22 per share to the existing shareholder and an immediate dilution of $6.62
per share to new investors purchasing shares at the initial public offering
price. The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $10.00
Pro forma net tangible book value per share as of
September 30, 1997..................................... $2.16
Increase per share attributable to new investors.......... 1.22
-----
Net tangible book value per share after offering............ 3.38
------
Dilution per share to new investors......................... $ 6.62
======
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price paid per share by the sole existing shareholder and new investors
purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
shareholder......... 9,200,000 82.1% $42,469,000 68.0% $ 4.62
---------- ------ ----------- ------ ------
New investors......... 2,000,000 17.9% 20,000,000 32.0% 10.00
---------- ------ ----------- ------ ------
Total............ 11,200,000 100.0% $62,469,000 100.0%
========== ====== =========== ======
</TABLE>
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997 (i) on an actual basis, (ii) pro forma to give effect to the
acquisition of Westbrooke which occurred in January 1998 and (iii) pro forma as
adjusted to reflect the sale of the shares of Common Stock offered hereby and
the application of the estimated net proceeds therefrom and the Capital
Contribution. See "Use of Proceeds." This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Construction loans payable........................ $ 56,715 $ 87,549 $ 79,549
Notes payable to Pacific USA...................... 9,817 9,817 --
Bank loan......................................... -- 10,000 --
Acquisition Notes(1).............................. -- $ 12,341 12,341
Adjustment Note(2)................................ -- 5,904 5,904
Stockholders' equity:
Preferred stock, $0.01 par value, 3,000,000
shares authorized; no shares issued, actual
or as adjusted............................... -- -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized; 9,200,000 shares issued, actual;
11,200,000 shares issued, as adjusted........ 92 92 112
Additional paid-in capital...................... 42,377 42,377 70,174
Retained earnings............................... 4,111 4,111 4,111
-------- -------- --------
Total stockholders' equity.............. 46,580 46,580 74,397
-------- -------- --------
Total capitalization.................... $113,112 $172,191 $172,191
======== ======== ========
</TABLE>
- ---------------
(1) The Acquisition Notes were incurred in connection with the acquisition of
Westbrooke effective as of January 1, 1998.
(2) The principal amount of the Adjustment Note ($6.4 million at closing)
represents the estimated amount by which the stockholders' equity of
Westbrooke at closing exceeded $5 million, based on Westbrooke's
stockholder's equity as of September 30, 1997. The Adjustment Note is
subject to further adjustment, pending delivery of the closing financial
statements by Westbrooke.
15
<PAGE> 17
SELECTED FINANCIAL AND OPERATING DATA
The statement of operations data and balance sheet data presented below
have been derived from the historical financial statements of the Company. The
Company's consolidated financial statements for the years ended December 31,
1994, 1995 and 1996 have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and are included elsewhere herein. The selected
statement of operations data and balance sheet data presented for the nine
months ended September 30, 1996 and 1997 are derived from unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations of the
Company as of and for these periods. Results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results of
operations that may be achieved for the full fiscal year. The selected financial
data set forth below should be read in conjunction with and are qualified by
reference to the Company's consolidated financial statements and notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------- DECEMBER 31, ------------------------------ -------------------
1992(1) 1993(1) 1993(1)(2) 1994 1995(3) 1996 1996 1997
-------- -------- ------------ -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 79,778 $ 86,445 $24,273 $108,630 $125,427 $191,998 $139,727 $163,548
Cost of sales................... 64,137 68,980 19,641 86,260 102,591 157,407 114,059 133,578
-------- -------- ------- -------- -------- -------- -------- --------
Gross profit.................... 15,641 17,465 4,632 22,370 22,836 34,591 25,668 29,970
Equity in earnings from
unconsolidated subsidiaries... -- -- -- -- 1,978 792 660 262
Selling, general and
administrative expenses....... (12,946) (14,101) (2,638) (12,928) (16,572) (22,976) (17,282) (19,121)
Depreciation and amortization... (221) (188) (222) (831) (1,271) (1,524) (1,110) (1,224)
-------- -------- ------- -------- -------- -------- -------- --------
Operating income................ 2,474 3,176 1,772 8,611 6,971 10,883 7,936 9,887
Interest expense................ (256) (360) (123) (613) (1,332) (1,238) (943) (1,525)
Other income, net............... (6) (170) (68) 191 607 851 665 421
-------- -------- ------- -------- -------- -------- -------- --------
Income before income taxes...... 2,212 2,646 1,581 8,189 6,246 10,496 7,658 8,783
Income taxes.................... 140 202 772 3,205 2,477 4,164 2,952 3,366
-------- -------- ------- -------- -------- -------- -------- --------
Net income...................... $ 2,072 $ 2,444 $ 809 $ 4,984 $ 3,769 $ 6,332 $ 4,706 $ 5,417
======== ======== ======= ======== ======== ======== ======== ========
Net income per common
share......................... -- -- $ 0.09 $ 0.54 $ 0.41 $ 0.69 $ 0.51 $ 0.59
======= ======== ======== ======== ======== ========
Weighted average shares
outstanding................... -- -- 9,200 9,200 9,200 9,200 9,200 9,200
OPERATING DATA:
Units:
New sales contracts, net...... 500 720 998 830 757
Closings...................... 534 641 902 686 731
Backlog at end of period...... 92 171 267 315 293
Average sales price per
closing....................... $ 201 $ 188 $ 200 $ 200 $ 220
Sales value of backlog at end of
period........................ $ 18,579 $ 32,280 $ 50,657 $ 58,023 $ 63,239
Gross profit as a percentage of
revenues...................... 20.6% 18.2% 18.0% 18.4% 18.3%
Selling, general and
administrative expenses as a
percentage of revenues........ 11.9% 13.2% 12.0% 12.4% 11.7%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------ SEPTEMBER 30,
1992(1) 1993(1) 1994 1995 1996 1997
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Inventories.................... $ 23,555 $ 28,124 $ 36,670 $ 59,689 $ 83,659 $ 94,711
Total assets................... 27,765 30,818 68,980 104,545 121,177 132,755
Total debt..................... 18,652 23,818 33,086 47,428 60,768 66,532
Stockholders' equity........... 9,113 7,000 35,894 45,813 43,929 46,580
</TABLE>
- ---------------
(1) Data for 1992 and 1993 reflect the results of Newmark prior to its
acquisition by Pacific USA in 1993. The financial data of Newmark for the
years ended September 30, 1992 and 1993 were derived from audited financial
statements. PUDC was formed in 1993 and had no operations until 1994.
(2) The Company changed its fiscal year end from September 30 to December 31 in
1993.
(3) Reflects the operating data of Adler subsequent to the Company's
acquisition of the homebuilding assets of The Adler Family Partnership on
March 1, 1995.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On October 1, 1993, Pacific Realty Group acquired Newmark, a homebuilding
company with a long-term track record of successful performance, established
name in its existing markets, disciplined management culture, process and
systems, and locations in strong growth markets. Since inception, the Company
has sought to achieve profitability and revenue growth by providing quality
homes in markets which have experienced population and job growth in excess of
the national average during the past several years. Newmark has served as the
foundation to support the Company's growth strategy, including expansion within
existing markets, entry into two new markets through start-up operations and the
acquisition of a regional homebuilder. In order to solidify lot position for its
homebuilding operation, Pacific Realty Group formed a residential land
acquisition and development company in 1993.
The Company has experienced significant growth and has positioned itself to
continue to expand its residential land and lot acquisitions significantly in
markets that it has recently entered, such as Nashville and Dallas/Fort Worth,
as well as in Houston. The Company believes that, based on its recently acquired
lot options in a number of master-planned communities in and around Houston,
there are significant opportunities for achieving greater market share in this
market. The Company has continued to expand its operations in Miami/Ft.
Lauderdale through new developments and the acquisition of Westbrooke in January
1998. The Company has also entered into new complementary lines of business
including providing title and mortgage origination services through business
relationships with Stewart Title Co. and CTX Mortgage Ventures Corporation. The
Company expects these ancillary sources of revenues to grow at a rate consistent
with the growth of its core homebuilding business.
The Company recognizes revenue at the time of closing when title to, and
possession of, the property transfers to the buyer. The Company capitalizes in
inventory all homebuilding costs during the construction period including
interest and maintenance and charges those capitalized costs to cost of sales as
the related inventories are sold. Interest incurred on inventory following
completion of construction is expensed. Accordingly, as the Company's inventory
level rises and falls, interest expense can vary significantly. Included in the
Company's depreciation and amortization expenses is amortization of goodwill in
excess of $1.0 million in each of 1995 and 1996 related to the Company's
acquisitions of Newmark and Adler.
Equity in earnings from unconsolidated subsidiaries primarily represents
earnings from a Florida homebuilding partnership, owned 50% by the Company,
which wound-up its home-building operations in October 1997. Currently, all of
the Company's continuing Florida operations are conducted through a wholly-owned
subsidiary and included in the Company's revenues rather than in equity in
earnings of unconsolidated subsidiaries. Equity in earnings from unconsolidated
subsidiaries also includes earnings from Pacific Title, L.L.C. ("Pacific
Title"), a title service business in which the Company owns a 49% interest, and
NHC Mortgage Group, L.P. ("NHC Mortgage"), a mortgage finance joint venture in
which the Company owns a 50% interest, each of which was formed in 1997.
The Company acquired Westbrooke effective January 1, 1998 for consideration
consisting of (i) $12.3 million of Acquisition Notes, (ii) $7.5 million of
deferred consideration and (iii) an approximate $6.4 million Adjustment Note.
The Adjustment Note represents the estimated amount by which Westbrooke's
stockholder's equity as of the closing date exceeds $5.0 million and is subject
to adjustment based on the audited stockholder's equity as of the closing date.
See "Acquisition of Westbrooke." The Company accounted for the acquisition based
on the purchase method of accounting and intends to consolidate all future
results of Westbrooke in its consolidated financial statements. See Pro Forma
Condensed Consolidated Financial Statements and the Combined Financial
Statements of Westbrooke Communities, Inc. and Affiliates contained elsewhere in
this Prospectus.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth the homebuilding revenue and number of home
closings by market for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Houston:
Revenues................... $ 63,864 $ 51,932 $ 79,920 $ 64,236 $ 68,615
Units...................... 324 253 363 293 283
Austin:
Revenues................... $ 43,226 $ 53,507 $ 63,891 $ 48,983 $ 49,398
Units...................... 210 291 334 257 234
Dallas/Fort Worth:
Revenues................... -- $ 4,922 $ 20,180 $ 14,725 $ 20,139
Units...................... -- 27 103 77 97
Miami/Ft. Lauderdale:
Revenues................... -- $ 10,229 $ 16,819 $ 9,332 $ 22,562
Units...................... -- 70 102 59 117
Nashville(1):................ -- -- -- -- --
-------- -------- -------- -------- --------
Total homebuilding
revenues(2)........... $107,090 $120,590 $180,810 $137,277 $160,714
======== ======== ======== ======== ========
Total home closings..... 534 641 902 686 731
======== ======== ======== ======== ========
Average sales price per
home....................... $ 201 $ 188 $ 200 $ 200 $ 220
</TABLE>
- ---------------
(1) Nashville start-up operations began in August 1997 with home closings
expected to begin in the second quarter of 1998.
(2) Does not include revenues from land sales of $1.5 million, $4.8 million and
$11.2 million in 1994, 1995 and 1996, respectively, and $2.5 million and
$2.8 million for the nine months ended September 30, 1996 and 1997,
respectively.
The following table sets forth, as a percentage of revenue, certain
information in the Company's statement of operations for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Cost of sales.................................. 79.4% 81.8% 82.0% 81.6% 81.7%
Gross profit................................... 20.6 18.2 18.0 18.4 18.3
Selling, general and administrative expenses... 11.9 13.2 12.0 12.4 11.7
Income before income taxes..................... 7.5 5.0 5.5 5.5 5.4
Income taxes(1)................................ 39.1 39.7 39.7 38.5 38.3
Net income..................................... 4.6 3.0 3.3 3.4 3.3
</TABLE>
- ---------------
(1) As a percent of income before income taxes.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues increased by 17.0% to $163.5 million for the first nine months of
1997 from $139.7 million for the comparable period in 1996. This increase in
revenues is largely attributable to two factors. First, the number of homes
closed by the Company increased by 6.6% to 731 units in the 1997 period from 686
units in the 1996 period. Second, the average sales price increased by 9.4% from
$201,000 to $220,000 per home sold. This increase in the average sales price was
primarily due to a change in the mix of homes sold. Revenues generated
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<PAGE> 20
from sales of Fedrick, Harris Estate Homes increased from 14% of total revenues
in the first nine months of 1996 to 18% of total revenues in the first nine
months of 1997. Since the average sales price for Fedrick, Harris Estate Homes
is approximately 70% higher than the average sales price for homes sold under
the Newmark brand name, the increase in the percentage of revenues from Fedrick,
Harris Estate Homes as compared to Newmark homes resulted in the increase in the
average sales price of homes sold in the 1997 period. Home closings increased in
the Company's Dallas/Fort Worth and Miami/Ft. Lauderdale markets, and decreased
in Houston and Austin. Although Houston's home closings decreased in the 1997
period compared to the 1996 period due to inclement weather in the first quarter
of 1997, Houston's homebuilding revenues increased due to a higher percentage of
higher priced custom homes being closed in the 1997 period as compared to the
prior period. Revenues from land sales increased to $2.8 million for the first
nine months of 1997 from $2.5 million for the comparable period in 1996.
As a percentage of revenues, cost of sales remained relatively constant at
81.7% in the first nine months of 1997 compared to 81.6% in the same period in
1996. As a percentage of revenues from land sales, the cost of land sales was
81.8% in the first nine months of 1997 compared to 64.8% in the same period of
1996.
Equity in earnings from unconsolidated subsidiaries decreased $398,000 to
$262,000 for the first nine months of 1997 compared to $660,000 for the first
nine months of 1996. Earnings from Pacific Title and NHC Mortgage amounted to
approximately $173,000 and $37,000, respectively, for the first nine months of
1997.
Selling, general and administrative expenses increased by 10.4% to $19.1
million for the first nine months of 1997 from $17.3 million for the first nine
months of 1996. Of such increase, $202,000 was due to costs incurred in entering
the Nashville market in the first nine months of 1997. The balance of the
increase in these expenses was due largely to the increases in sales and
construction activity required to sustain the higher level of revenues. As a
percentage of revenues, selling, general and administrative expenses decreased
to 11.7% in the first nine months of 1997 from 12.4% for the same period in
1996.
Interest expense, which primarily reflects the carrying cost of completed
homes, increased 61.7% to $1.5 million for the first nine months of 1997 from
$943,000 for the first nine months of 1996. This increase was primarily due to
the impact of adverse weather on home sales in the Houston market and an
increased inventory level in Florida associated with increased levels of
activity in that market.
The Company's provision for income taxes remained stable as a percentage of
earnings before taxes at 38.3% for the first nine months of 1997, compared to
38.5% for the same period in 1996. Under a tax allocation agreement with Pacific
USA (the "Tax Allocation Agreement"), the Company is required to calculate its
federal corporate income tax liability as if it filed a separate federal income
tax return for each period and to pay Pacific USA the sum which would result
from such calculation if the Company were subject to federal corporate income
tax and filed a separate tax return. The Company recognized federal income tax
expense under the Tax Allocation Agreement amounting to $3.4 million in the
first nine months of 1997 compared to $3.0 million for the first nine months of
1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues grew by 53.1% to $192.0 million in 1996 from $125.4 million in
1995. The increase in revenues was largely attributable to the number of homes
closed, which increased by 40.7% to 902 units in 1996 from 641 units in 1995.
This increase in the number of homes closed was due in part to the inclusion of
sales by Adler for the entire 1996 fiscal year compared to only ten months of
sales by Adler in 1995. Home closings also increased in each of the Company's
markets, with the Houston market leading the way with a 43.5% increase in
closings as its units grew to 363 in 1996 from 253 in 1995. The increase in home
closings in Houston reflected the increase in job growth in Houston and the
decrease in interest rates experienced in 1996 as compared to 1995. Dallas/Fort
Worth unit sales nearly quadrupled to 103 from 27 in its first full year of
operations in that market. Revenues from land sales increased to $11.2 million
for 1996 from $4.8 million for 1995.
The Company's overall increase in revenues was also attributable to an
increase in the average home price of 6.4% to $200,000 in 1996 from $188,000 in
1995. Houston, Austin, Dallas and Miami all posted increases in average sales
prices for homes sold ranging from 13.0% in Miami to 3.8% in Austin. These
increases in most
19
<PAGE> 21
cases were due to changes in the product mix of homes sold in favor of higher
priced homes, stimulated by better market conditions. In Miami, all of the 1995
closings were located in one subdivision. Another subdivision was added in 1996
in which higher priced homes were sold. This second subdivision accounted for
43% of the home closings in Miami in 1996.
As a percentage of revenues, cost of sales increased slightly to 82.0% in
1996 compared to 81.8% in 1995. Average cost of units sold increased by 9.4% to
$175,000 in 1996 from $160,000 in 1995. As a percentage of revenues from land
sales, cost of land sales was 89.0% in 1996 compared to 87.0% in 1995.
Selling, general and administrative expenses increased in dollars by 38.6%
to $23.0 million in 1996 from $16.6 million in 1995 but decreased as a
percentage of revenues to 12.0% in 1996 from 13.2% in 1995. The dollar increase
in these expenses was primarily due to the increase in sales commissions
associated with an increase in units sold of $2.7 million, additional
advertising to establish the Company name in new markets of $910,000, and costs
associated with a full year of operations in the Company's start-up markets of
$760,000, as well as other administrative expenses associated with the increase
in volume. The decrease in selling, general and administrative expenses as a
percentage of total revenues was due primarily to the costs incurred in
connection with the start-up of the Company's operations in Dallas in 1995. In
1995, the Dallas operations closed only 27 home sales, resulting in revenues of
$4.9 million. In 1996, the Dallas operations closed 103 home sales, resulting in
revenues of $20.2 million, and incurred approximately the same level of selling,
general and administrative expenses that were incurred in 1995.
Interest expense decreased by $94,000 to $1.2 million in 1996 from $1.3
million in 1995. Lower interest expense resulted from improved inventory
turnover during the year primarily in the Houston market.
Other income, which primarily represents management fees from a Florida
homebuilding unconsolidated partnership, grew by $244,000 to $851,000 in 1996
from $607,000 in 1995. The Company expects income from this partnership to
decline as its inventory of land is depleted and homebuilding operations cease.
The Company's provision for income taxes remained at 39.7% of pre-tax
income from 1995 to 1996. The Company recognized expense of $4.1 million under
the Tax Allocation Agreement in 1996 compared to $2.5 million in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company experienced revenue growth of 15.5% to $125.4 million in 1995
from $108.6 million in 1994. This increase in revenues was largely attributable
to an increase of 107, or 20%, in units closed to 641 units in 1995 from 534
units in 1994. Of the units closed in 1995, 70 units representing $10.2 million
in revenue were attributable to the Adler acquisition. The Austin market
achieved a 38.6% unit gain, driven by job growth in the technology sector, while
Houston experienced a 29.1% decline in units closed. Houston's results were
affected by a slower job growth rate and higher interest rates in 1995 as
compared to 1994. Revenues from land sales increased to $4.8 million for 1995
from $1.5 million for 1994.
The average sales price decreased 6.5% in 1995 to $188,000 from $201,000 in
1994. In 1995, the Company closed its first units in Miami and in Dallas at
average sales prices which were lower than the Company's previous average sales
price. In addition, the average sales price of homes sold in Austin decreased to
$184,000 from $206,000. This decrease was primarily a result of a change in
product mix, specifically the addition of one subdivision that accounted for
approximately 15% of the units closed in Austin in 1995 and which had an average
sales price per home sold of $123,000 compared to a higher average sales price
per home for the balance of the Austin market.
As a percentage of revenues, cost of sales increased by 2.4% to 81.8% in
1995 from 79.4% in 1994. The increase in cost of sales was the result of the
slowdown in the Houston market and increased competition in Austin. Average cost
of units sold decreased by $2,000 to $160,000 in 1995 from $162,000 in 1994 as a
result of decreases in lumber prices and changes in product mix.
Selling, general and administrative expenses increased by 28.7% to $16.6
million in 1995 from $12.9 million in 1994. Approximately $385,000 of the
increase was attributable to start-up costs in Dallas/Ft. Worth and
20
<PAGE> 22
approximately $2.0 million of the increase was due to the acquisition of Adler.
The remainder of the increase was attributable to higher selling expenses.
Interest expense increased 112% to $1.3 million in 1995 from $613,000 in
1994 primarily as a result of higher interest rates and a slowdown in the
Houston market.
Other income, which primarily represents management fees from a Florida
homebuilding partnership, increased by $416,000 for the period.
The Company's provisions for income taxes increased as a percentage of
income before income taxes by 0.6% in 1995 to 39.7% compared to 39.1% in 1994 as
the result of increases in state income taxes. The Company recognized federal
income tax expense of $2.3 million under the Tax Allocation Agreement in 1995
compared to $2.9 million in 1994.
SEASONALITY AND QUARTERLY RESULTS
The homebuilding industry is seasonal, as generally there are more sales in
the spring and summer months, resulting in more home closings in the fall. The
Company operates in the Southwestern and Southeastern markets of the United
States, where weather conditions are more suitable to a year round construction
process than other areas. The Company also believes its geographic dispersion to
be somewhat counter-cyclical, with adverse economic conditions associated with
certain of its markets often being offset by more favorable economic conditions
in other areas. The seasonality of school terms has an impact on the Company's
operations, but it is somewhat mitigated by the fact that many of the Company's
buyers at the higher end of the Company's price range, including Fedrick, Harris
custom homes, no longer have children in school. As a result of these factors,
among others, the Company generally experiences more sales in the spring and
summer months, and more closings in the summer and fall months.
The following table presents selected quarterly operating data of the
Company for each of the eight quarters through the period ended September 30,
1997. In the opinion of management, all necessary adjustments (consisting of
normal recurring adjustments) have been included to present fairly the unaudited
selected quarterly operating data. This data is not necessarily indicative of
the results of the operations of the Company for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
DEC. 31, MARCH 30, JUNE 30, SEPT. 30, DEC. 31, MARCH 30, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $32,136 $38,181 $50,713 $50,833 $52,271 $46,580 $54,979 61,989
Gross profit............... 5,628 6,631 9,441 9,596 8,923 8,686 10,033 11,251
Selling, general and
administrative........... 4,840 5,403 6,070 5,809 5,694 5,663 6,348 7,110
Operating income........... 824 1,246 3,134 3,556 2,947 3,023 3,685 3,179
MARGIN ANALYSIS:
Gross margin............... 17.5% 17.4% 18.6% 18.9% 17.1% 18.7% 18.2% 18.1%
Selling, general and
administrative........... 15.1% 14.2% 12.0% 11.4% 10.9% 12.2% 11.5% 11.5%
Operating income........... 2.7% 3.2% 6.2% 7.0% 5.6% 6.5% 6.7% 5.1%
OPERATING DATA:
Homes closed (units)....... 174 191 247 248 216 215 249 267
Average sales price of
homes
closed................... $ 185 $ 200 $ 205 $ 205 $ 242 $ 217 $ 221 $ 232
</TABLE>
The Company historically has experienced, and in the future expects to
continue to experience, variability in revenues on a quarterly basis. Factors
expected to contribute to the variability include, among others: (i) the
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<PAGE> 23
timing of home closings; (ii) the Company's ability to continue to acquire land
and options on acceptable terms; (iii) the timing of receipt of regulatory
approvals for the construction of homes; (iv) the condition of the real estate
market and general economic conditions; (v) the cyclical nature of the
homebuilding industry; (vi) prevailing interest rates and the availability of
mortgage financing; (vii) pricing policies of the Company's competitors; (viii)
the timing of the opening of new residential projects; (ix) weather; and (x) the
cost and availability of materials and labor. The Company's historical financial
performance is not necessarily a meaningful indicator of future results and the
Company expects its financial results to vary from project to project from
quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend primarily upon its sales volume,
inventory levels, inventory turnover and land acquisitions. For the years ending
December 31, 1994, 1995 and 1996 and for the nine months ended September 30,
1996 and 1997, the Company used cash in operations of $10,166,000, $8,826,000,
$7,780,000, $5,677,000 and $3,613,000. The significant use of cash by operations
of the Company has primarily been due to the increasing inventory levels
maintained by the Company as the Company continues to expand its business.
Historically, the Company has financed its operations primarily through its
earnings, borrowings from financial institutions, and capital contributions and
borrowings from Pacific USA, primarily for residential land development
acquisitions. In addition, to date all excess retained earnings not required to
fund lot development and home building activities, service debt or meet the
Company's debt covenants have been distributed to Pacific USA in the form of
cash dividends. Because the Company does not intend to pay such dividends in the
future, the Company will be able to retain those earnings to fund its expansion
and acquisition programs, reducing its need for outside financing.
The Company believes that upon the completion of this offering it will have
adequate financial resources, including availability under its credit
facilities, to meet its working capital and residential land acquisition and
development plans under current market conditions for the next eighteen months.
However, there can be no assurance that the amounts available from such sources
will be sufficient. If the Company identifies significant new acquisition
opportunities outside of the Company's existing markets, or if the Company's
operations do not generate sufficient cash from operations at levels currently
anticipated, the Company may be required to seek additional capital in the form
of equity or debt financing from a variety of potential sources, including
additional bank financings or the issuance of debt or equity securities.
The Company finances its operations with cash from operations and
borrowings under construction credit facilities. Generally these credit
agreements are with regional and national lenders. Each of the credit agreements
relates to specific markets and provides for financing residential land and lot
acquisition and construction. The agreements have restrictive covenants which,
among other things, limit speculative home building, debt to tangible net worth
ratios, dividends and set a minimum requirement for tangible net worth. The
agreements have various maturity dates and bear interest at rates based on Libor
and prime. At September 30, 1997, the Company had $17.2 million of available
credit under its credit facilities. The Company plans to renew these facilities
as they mature.
Historically, Pacific USA has guaranteed certain indebtedness and
contingent liabilities of the Company. The total amount of guaranteed
indebtedness and contingent liabilities at September 30, 1997 was $1.8 million
and $1.1 million, respectively. The Company does not expect such guarantees to
be required by its commercial lenders following this offering.
The Company generally finances its operations by borrowing for the
acquisition of lot inventory and during the various stages of construction.
Inventories (including finished homes and construction in progress, residential
lots developed and under development) had increased by 13.9% to $95.2 million at
September 30, 1997 from $83.6 million at December 31, 1996. The increase was due
to expansion in the Nashville, Dallas/Fort Worth, Houston and Miami/Ft.
Lauderdale markets. In the Miami/Ft. Lauderdale market, the Company is limited
in its ability to acquire finished lots under option contracts, a factor which
requires the Company to make significant capital expenditures in order to
maintain adequate lot inventory in this market.
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<PAGE> 24
The Company utilizes lot options as a method of controlling its investments
in land. At September 30, 1997, the Company had 1,396 lots under option. At
September 30, 1997, the Company had capital commitments with respect to lot
purchase contracts of approximately $4.3 million.
From time to time, the Company has been in breach of certain of its loan
covenants and has obtained waivers from its commercial lenders with respect to
such breaches. Generally, the breached loan covenants related to restrictions on
the Company's level of speculative home inventory. Each of the Company's loan
agreements restricts the number and percentage of units allowed in speculative
inventory. These restrictions range from 50% of the total dollar value of the
respective bank line to 70% of total units committed (sold prior to completion).
In the past, the Company has not experienced difficulty in obtaining appropriate
waivers from its lenders.
The Company also has approximately $18.7 million outstanding under
promissory notes incurred in connection with the acquisition of Westbrooke. See
"Acquisition of Westbrooke." The Company expects to pay these obligations, as
well as other obligations incurred by its and Westbrooke's operations and lot
acquisition activities, from cash flow from operations of the Company on a
consolidated basis. In addition, in connection with the acquisition of
Westbrooke by the Company, Westbrooke borrowed $10 million from a bank. The
proceeds from this loan were used to repay the $7.5 million outstanding balance
under Westbrooke's subordinated notes and to acquire minority interests in
Westbrooke for $2.5 million. The Company intends to use $10 million of the net
proceeds from this offering to repay this bank loan. See "Use of Proceeds."
INFLATION
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. The Company attempts to pass through to its customers
any of its costs through increased sales prices. However, there is no assurance
that inflation will not have a material adverse impact on the Company's future
results of operations.
23
<PAGE> 25
BUSINESS
GENERAL
The Company designs, builds and sells single-family homes in five major
markets within the Southwest and Southeast, including Houston, Austin,
Dallas/Fort Worth, Miami/Ft. Lauderdale and, most recently, Nashville, each of
which has experienced population and job growth above the national average over
the last several years. The Company operated in 47 subdivisions in these
metropolitan areas, and had 452 homes under construction at September 30, 1997.
In addition, as of September 30, 1997, the Company owns or has under option
contract 2,199 lots available for future growth. The Company is also actively
engaged in residential land acquisition and development, which enables it to
provide lots for its homebuilding operations.
The Company offers high-quality homes, designed principally for the
"move-up" and relocation market segments under the Newmark name. Typically,
Newmark homes range in size from 1,700 square feet to over 4,500 square feet and
range in price from $120,000 to $350,000, with an average sales price of
$205,000 for homes closed during the nine months ended September 30, 1997. The
Company also offers custom homes under the Fedrick, Harris Estate Homes name
that range in size from 3,500 square feet to over 7,000 square feet and range in
price from $250,000 to $700,000, with an average sales price of $350,000 for
homes closed during the nine months ended September 30, 1997. Revenues generated
from sales of Fedrick, Harris Estate Homes were 14% and 18% of total
homebuilding revenues for the nine months ended September 30, 1996 and 1997,
respectively.
The Company's production homebuilding operation is positioned to compete
with high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. Newmark homes give the home buyer the ability to select various design
features in accordance with their personal preferences. Through a volume
building approach the Company's custom homes generally offer more value than
those offered by local, lower-volume custom builders, primarily due to the
Company's effective purchasing, construction and marketing programs. While most
design modifications are significant to the homebuyer, they typically involve
relatively minor adjustments that allow the Company to maintain construction
efficiencies and result in greater profitability due to increased sales prices
and margins. The Company believes that its ability to meet the design tastes of
prospective homebuyers at competitive prices distinguishes itself from many of
its competitors.
STRATEGY
The Company's objective is to provide its customers with homes that offer
both quality and value, while seeking to maximize its return on invested
capital. Management believes that a balanced and disciplined approach to home
construction, land purchases and marketing is essential to the Company's
anticipated growth. To achieve this objective, the Company has developed a
strategy which focuses on the following elements:
GROWTH MARKETS. The Company's primary markets have each experienced
population and job growth in excess of the national average over the past
several years. The Company believes that there are significant growth
opportunities in these markets. The Company also continues to evaluate new
markets that have significant "move-up" and relocation segments that would
satisfy the Company's profitability, investment return and other criteria. While
the Company anticipates entering new markets primarily through start-up
operations, it will also consider the acquisition of homebuilding companies that
have complementary management styles. Entry into new markets is preceded by
extensive due diligence and research conducted by management, in conjunction
with Pacific Research Group and third-party resources.
SOPHISTICATED MARKETING. The Company employs sophisticated and
comprehensive marketing programs to attract potential homebuyers. Elements of
this marketing program include extensive telemarketing, an Internet web site and
a virtual reality CD-ROM home tour. The Company retains a national marketing
consultant to develop its overall advertising strategy. The Company executes its
overall marketing strategy through advertising campaigns tailored to local
markets. Local marketing campaigns include coordination of realtor promotions,
subdivision grand openings, showcase presentations for custom homes, the
Company's newsletters, realtors' newsletters, product bulletins, billboards,
local newspaper advertisements and other direct sales activities. The
24
<PAGE> 26
Company's telemarketing program is designed to ensure that prospective
homebuyers who tour its model homes receive information regarding the Company's
floor plans, optional features, subdivisions, schools, available financing and
other matters. The Company's telemarketing group also answers requests from
prospective homebuyers received via the Company's web site and toll-free number.
The Company's web site, featuring a virtual reality home tour, has received over
1 million "hits" since its inception in July 1996 and allows a prospective
homebuyer to download the home tour software to a personal computer and "tour"
completely furnished homes, view the Company's different floor plans, locate the
various subdivisions available in each market, and learn about neighborhood
schools, subdivision amenities and shopping as well as the Company's
construction techniques.
FOCUS ON RELOCATION MARKET. In markets with a significant number of
relocation buyers, the Company aggressively competes with resales of existing
homes, primarily by making available to potential buyers completed or nearly
completed homes. Since 1993, approximately 65% of the Company's homes were begun
before a sales contract was executed and an earnest money deposit was received.
As of September 30, 1997, the Company had 115 completed homes in inventory and
261 homes under construction under construction without a sales contract. The
Company believes that maintaining an inventory of completed or nearly completed
homes provides distinct competitive advantages by (i) allowing home buyers to
physically inspect their future home, in many instances easing their decision to
buy, (ii) providing homes which can be moved into in or close to the same time
frame as purchases of used homes and (iii) avoiding the significant time and
monetary costs typically associated with updating used homes. Since 1993, 70% of
the Company's homes were sold prior to completion of the home.
MANAGEMENT TRAINING. The Company aggressively recruits and hires new
management trainees, typically with some construction experience, following
graduation from college and trains these new hires for increasing levels of
responsibility within the Company. Through continuous "on the job" experience
and classroom training, these associates become knowledgeable, experienced
candidates for middle management positions. The Company believes that one of its
strengths is its depth of middle management. This depth facilitates the
Company's growth strategy as more experienced management relocates to new
markets to conduct start-up operations while top performing middle managers are
promoted to increasing levels of responsibility for continuing expansion of
existing markets. The Company also actively seeks and employs qualified
candidates for sales and marketing positions and provides extensive training
designed to improve marketing skills and educate sales associates with respect
to the uniqueness of the Company's homes which allows them to emphasize product
differentiation in the sales process.
DECENTRALIZED OPERATIONS WITH EXPERIENCED MANAGEMENT. The Company believes
that the in-depth knowledge of its experienced management in local markets
enables the Company to better serve its customers. The Company is organized into
operating divisions, each relating to a local market area. Local management of
each operating division is responsible for preliminary site selection and
negotiation of option contracts in accordance with Company policies.
Additionally, each operating division plans its homebuilding schedule, selects
the building plans and architectural scheme for its subdivisions, obtains all
building approvals, and develops a marketing plan for its homes. The Company's
corporate office retains responsibility for purchasing, accounting and certain
other management and administrative matters including approval of all lot
contracts, final product selection, securing all financing and marketing plan
approval.
CENTRALIZED PURCHASING. The Company utilizes centralized purchasing to
leverage its purchasing power into volume discounts, a practice which reduces
costs, ensures timely deliveries and reduces the risk of supply shortages due to
allocations of materials. The Company has negotiated favorable price
arrangements with high quality national and regional suppliers such as General
Electric, Rheem Manufacturing, Dupont Corian, Owens Corning, Dow Chemical, Royal
Baths, Weslock National and Sherwin-Williams for appliances, heating and air
conditioning, counter tops, bathroom fixtures, roofing and insulation products,
floor coverings, and other housing components. Major materials, such as lumber,
sheetrock, concrete and brick are also centrally purchased to obtain volume
discounts. There are no minimum purchase requirements for these arrangements.
COST MANAGEMENT. The Company controls its divisional overhead costs by
centralizing administrative and accounting functions, eliminating the need for
redundant functions at the city level. The Company controls
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<PAGE> 27
construction costs through the efficient design of its homes and by obtaining
favorable pricing, where possible, from subcontractors based on the high volume
of work performed for the Company. The Company also controls its warranty costs
through quality control that ensures that the home has been totally finished
prior to the buyer moving in, thus enhancing customer satisfaction. The Company
controls its advertising expenses through sophisticated budgeting of expenses
with extensive review of all expenditures. Some of the Company's major suppliers
and contractors also contribute advertising dollars for special promotions of
houses and products. These campaigns feature the key suppliers' products and
enhance the image of the Company's homes through brand recognition. In addition,
the Company seeks to control its corporate overhead costs through efficiencies
achieved through its highly automated and integrated systems.
LIMITED REAL ESTATE EXPOSURE. The Company seeks to maximize its return on
capital and limit its exposure to changes in land valuation by obtaining options
to purchase lots whenever feasible. The Company will also directly acquire,
where appropriate, quality residential properties that are in high demand for
use in its homebuilding operations and for sale to third-party builders. The
Company's executive management establishes targeted levels of lot options and
land for development based on its strategic plan for the overall growth of the
Company. The Company targets properties for acquisition that are both suitable
for its homebuilding product and in locations which are anticipated to maintain
the homebuyers property values. The Company believes this strategy improves
inventory turnover and enables the Company to develop and dispose of the
developed lots typically within two to three years. The Company does not acquire
land that is not suitable for lot development and residential construction and
does not speculate on land values by acquiring and holding land for resale or
for future development.
The Company seeks to limit its exposure to real estate inventory risks by
(i) closely monitoring its unsold inventory of new homes and the stage of
completion of homes under construction on an ongoing basis, (ii) centralizing
control for the start of new homes and (iii) closely monitoring local job market
and demographic trends, housing preferences and related economic developments,
such as new job opportunities, local growth initiatives and trends in work force
median income levels.
MARKETS
The Company conducts homebuilding activities in three states within five
markets, including Houston, Austin, Dallas/Fort Worth, Miami/Ft. Lauderdale and
Nashville. The Company's operations in each of its markets differ based on a
number of market specific factors. From the results of the research and analysis
performed by the Company and Pacific Research Group, the Company plans to focus
its development activity based on the following factors, among others: regional
economic conditions, job growth, land availability, the local land development
process, consumer tastes, competition from other builders of new homes and
secondary home sales activity. The statistical information presented below is
derived from a number of public sources.
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<PAGE> 28
The following table presents selected lot inventory and homebuilding data
for the Company's current markets:
<TABLE>
<CAPTION>
HOMEBUILDING REVENUES
-----------------------------------
NINE MONTHS
LOT INVENTORY
------------------------------ YEAR ENDED
DECEMBER 31, DECEMBER 31, ENDED
OPERATIONS -------------- SEPTEMBER 30, ------------------- SEPTEMBER 30,
MARKET COMMENCED 1995 1996 1997 1995 1996 1997
------ ---------- ----- ---- ------------- -------- -------- -------------
(DOLLARS IN THOUSANDS/UNITS)
<S> <C> <C> <C> <C> <C> <C> <C>
Houston............... 1983 258 330 691 $ 51,952 $ 79,920 $ 68,615
253 363 283
Austin................ 1983 279 230 368 53,507 63,891 49,398
291 334 234
Dallas/Fort Worth..... 1995 337 260 489 4,922 20,180 20,139
27 103 97
Miami/Ft.
Lauderdale.......... 1995 248 152 375 10,229 16,819 22,562
70 102 117
Nashville............. 1997 -- -- 276 -- -- --
-- -- --
----- --- ----- -------- -------- --------
Total Lots/
Revenue..... 1,122(1) 972(1) 2,199(1) $120,590 $180,810 $160,714
===== === ===== ======== ======== ========
Total Units
Closed...... 641 902 731
======== ======== ========
</TABLE>
- ---------------
(1) Includes 627, 669 and 1,498 lots under option contracts in 1995, 1996 and
1997, respectively.
HOUSTON, TEXAS. Growth in the energy sector combined with a healthy
national economy are the key elements behind Houston's recent economic
expansion. Houston has enjoyed a 2.7% rate of annual employment growth, or an
average of 51,000 jobs per year since 1993. Houston has diversified its
employment base between energy-dependent and energy-independent industries,
which the Company believes should promote more stable job growth and a strong
relocation market. Houston's population has grown by an average of more than
80,000 persons per year since 1990. Houston's affordable homes, low cost of
living and strong population growth continue to favorably impact the demand for
single-family homes. The median household income for Houston rose to an
estimated $36,342 in 1996 from $31,503 in 1990, reflective of the strong job
market in the metro area.
Historically, the Company has maintained a moderate level of market share
in Houston, but believes that additional expansion in this market is appropriate
based on current and anticipated market conditions. The Company has strong brand
name recognition in Houston and has positioned itself to take advantage of this
anticipated market expansion.
AUSTIN, TEXAS. From 1993 to 1996, Austin had created an average of 26,100
jobs per year, an annual growth rate of 5.5%. According to the American Metro
Study Corporation Residential Survey for the second quarter of 1997, Austin's
economy has slowed somewhat in 1996 and 1997, with an average of 18,000 new jobs
per year projected over the next two years, reflecting a slower forecasted
growth rate of approximately 2.2% per annum. Despite this slowdown, the rate of
Austin's job growth remains stronger than that of the national economy. The
Austin economy is dominated by four major sectors: high-technology
manufacturing, software development, back-office operations and state
government, including the University of Texas. The Austin Metropolitan
Statistical Area ("MSA") has added an average of more than 100 families per week
since 1994 and Austin's population exceeded one million persons in 1996 for the
first time, aided by favorable cost of living factors and steady corporate
expansions and relocations. The MSA continues to have a young (average age
29.5), well educated (64% of adults have at least some college education)
workforce with a median income of $34,420, all factors which are favorable to
growth in the single-family housing market.
27
<PAGE> 29
The Company plans to maintain current levels of activity in this market.
The Company believes that this is an appropriate level of activity given the
size of the Austin market.
DALLAS/FORT WORTH, TEXAS. The combined Dallas/Fort Worth metropolitan area
exceeded 4.5 million in total population in 1996. With an employment base of
more than 2.3 million jobs, the metro area has added between 80,000 and 90,000
jobs annually during 1994 to 1996 (a 3.4% annual growth rate). This growth is
partially attributable to the emergence of the "Telecom Corridor," a new center
for high-technology communication companies in north Dallas and the Alliance
Airport region, a hub for the manufacturing and service industries in Fort
Worth. The metroplex has positioned itself as an attractive market for corporate
relocations and expansions due to the relatively low cost of living and ease of
accessibility to the metroplex. The median household income in 1996 was $44,300
and has risen an average of 5.4% annually since 1980. The single-family market
in Dallas/ Fort Worth is characterized by rising home values in a market which
has grown at an average rate of 21,000 units per year over the period 1993 to
1996.
The Company has positioned itself to increase its market share in the
Dallas/Fort Worth market, as this area continues its economic expansion. The
Company entered this market with start-up operations in 1995 and is achieving
the image, brand awareness and improved lot position which the Company believes
will support its expansion in this market.
MIAMI/FT. LAUDERDALE, FLORIDA. The Company's operations in Florida are
concentrated in Broward and Dade Counties, which include the cities of Ft.
Lauderdale and Miami, respectively. Broward County experienced an average annual
population growth of 29,900 residents from 1990 to 1996, representing a
compounded annual growth rate of 2.2%. The 1997 Urban Land Institute Profiles
projects that Broward County's population will increase at a rate of 1.9%
annually between 1996 and 2001. Most newcomers to the market are expected to be
working-age families, a majority relocating from the South Dade/Miami area. The
service sector dominates the overall employment in Broward. The service sector
job growth rate of 3.5% between 1995 and 1996 is reflected in the 20,900 new
jobs created during that period.
Fueled by growth in the service and trade industries, Dade County has
averaged approximately 20,000 new jobs per year during 1995 and 1996, an annual
growth rate of approximately 2.2%. According to the American Metro Study
Corporation Business Forecast for 1997, the Dade County population is projected
to increase annually by 25,000 people to a total population of 2.1 million by
2000. According to the American Demographics 1997 MSA Profile for Miami/Ft.
Lauderdale, the forecasted employment average annual growth rate through the
year 2000 of 2.2% for this area compares favorably to a national projected
average annual growth rate of 1.2%.
The Company entered this market with the 1995 acquisition of a regional
homebuilder. In addition, in January 1998 the Company acquired Westbrooke, an
acquisition which expands the Company's operations in Dade and Broward counties
and provides an entry into homebuilding operations in Palm Beach County. The
Company believes that each of these acquisitions has positioned it to expand
into new developments in this market.
NASHVILLE, TENNESSEE. From 1990 to 1996, middle Tennessee's population grew
by 11.1%, double the U.S. rate of 5.4%. With more than 100,000 new jobs created
from 1990 through 1995, the area's employment growth rate of 17.9% was almost
triple the national rate of 6.6% over that period, largely due to heavy
immigration of relocating workers and new job seekers. Growing demand for labor
pushed unemployment rates to their lowest sustained levels in 30 years,
averaging 3.2% for the Nashville MSA. The Nashville MSA had a median household
income of $40,405 and average household income of $49,880. The Company believes
that the low cost of living, strong job growth and steady increase in per capita
personal income will continue to have a favorable impact on demand for
single-family homes in Nashville.
The Company entered the Nashville market through a start-up operation,
which commenced construction of new homes in August 1997. Initial home closings
are expected to begin in the first half 1998.
28
<PAGE> 30
BACKLOG
The following table sets forth the Company's sales backlog by market for
the periods indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------------------
1995 1996 1996 1997
--------------- --------------- --------------- ---------------
SALES SALES SALES SALES
HOMES VALUE HOMES VALUE HOMES VALUE HOMES VALUE
----- ------- ----- ------- ----- ------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Houston.............. 65 $13,342 70 $15,411 75 $16,443 88 $21,336
Austin............... 77 14,158 72 13,773 81 15,438 91 19,210
Dallas............... 15 2,734 28 5,486 30 5,737 48 9,966
Miami................ 14 2,046 97 15,987 129 20,405 66 12,727
Nashville............ -- -- -- -- -- -- -- --
--- ------- --- ------- --- ------- --- -------
Total........... 171 $32,280 267 $50,657 315 $58,023 293 $63,239
=== ======= === ======= === ======= === =======
</TABLE>
Backlog represents home purchase contracts which have been executed and for
which earnest money deposits have been received. Home sales are not recorded as
revenues until the closings occur. Sales value represents the product of the
number of homes for which earnest money contracts have been received multiplied
by the average home sales price for the specific city for the period indicated.
Consistent with historical experience, 95% of the homes in backlog at
December 31, 1996 were closed by September 30, 1997. Based upon dollar volume,
contract cancellations in 1996 were approximately 14% of the home sales
contracts signed during that year. This compares to the 14% cancellation rate
experienced by the Company in 1995. Although cancellations can disrupt
anticipated home closings, the Company believes that cancellations have not had
a material negative impact on operations or liquidity of the Company during the
last several years. The Company attempts to reduce cancellations by reviewing
each homebuyer's ability to obtain mortgage financing early in the sales process
and by closely monitoring the mortgage approval process.
IDENTIFICATION OF NEW MARKETS
To achieve the Company's expansion strategy, the Company, together with its
affiliate, Pacific Research Group, has developed a new market expansion process
designed to identify and track growing homebuilding markets in the United
States. The Company's program is designed as an ongoing process and consists of
three stages which track economic and demographic activity in primary and
secondary metropolitan markets (Stage I), narrowing the focus on specific
markets and criteria (Stage II and Stage III) as they meet expansion objectives
and timing. As part of its screening process, the Company evaluates
geographically diverse markets because it believes that potential adverse
economic conditions associated with certain markets are often offset by more
favorable economic conditions in other operating areas. Consideration is also
given to those markets located near current operating markets, which could
function as satellite operations. An in-depth description of each of the stages
is set forth below:
Stage I includes the accumulation, maintenance and monitoring of quarterly
economic and demographic data in potential expansion markets through the use of
published databases and U.S. Census Statistics. Local and statewide data in each
market are also analyzed for comparison purposes. The following factors are
tracked on a quarterly basis for each expansion market: population growth and
trends; breakdown of population by age; overall employment growth; employment by
industry; median/average household income; unemployment rate; single-family
housing starts/permits; median/average sales price of new and existing homes;
and resale inventory and months of supply.
The Stage II analysis establishes and analyzes economic and demographic
benchmarks for the selection of three main markets and five back-up markets
based on desired market share and geographic diversity. Following the selection
of the three main markets, an in-depth Stage II market analysis is performed to
determine market viability in these selected markets. If the evaluation of any
of the three selected markets reveal factors unfavorable for expansion, then a
Stage II analysis is performed on one of the selected back-up markets. A Stage
II analysis consists of the following: identifying and engaging a market
research firm that tracks and can produce single-
29
<PAGE> 31
family statistical data; profiling market (identify submarkets, price bands, and
total single-family starts, closings, inventory levels and competition);
assessing the availability of single-family land and lots (both current and
future); assessing the availability and quality of the local trade base;
identifying job growth corridors and access to submarkets; identifying corporate
relocations/expansions and major employers; identifying tax structure of cities;
profiling school districts; profiling business and political climate for
municipalities; assessing the government/regulatory issues with respect to
homebuilding and land development; assessing market specific environmental
issues; determining availability of utilities in submarkets and future growth
corridors; determining presence of national and regional builders; and assessing
office, retail, industrial and multi-family market activity.
Upon completion of the Stage II analysis, one or more of the three markets
will be selected as an expansion market. Once a market is identified as an
expansion market, a market penetration and positioning strategy is developed by
the Company to evaluate the Stage III analysis data which includes the
following: profile of existing communities in each submarket based on activity
levels (starts, closings, inventory levels), price point and product; profile of
existing communities based on location and lot product size; and profile of
builders by submarket.
LAND POLICIES AND POSITION
The Company provides lot positions for its homebuilding operations by
acquiring lot options and by purchasing land for the development of lots. When
appropriate, developed lots are sold to third-party builders to increase
inventory turnover and to enhance earnings for the Company. The Company has
typically optioned lot positions in the Houston and Austin markets due to the
brand awareness of the Newmark and Fedrick, Harris Estate Homes names among both
consumers and developers, in addition to the vast amount of available lots being
optioned in those markets by developers. The Company also acquires lot options
in the Dallas/Fort Worth and Nashville markets. The Company has developed land
in both the Miami/Ft. Lauderdale and Dallas/Fort Worth markets and intends to
continue to do so in the future. The Company also intends to purchase additional
land for lot development in the Nashville market. Additionally, residential land
developments may be purchased when the Company enters new markets. Prior to any
land acquisitions, the Company conducts extensive due diligence utilizing
regional expertise, including on-site inspection and soil testing.
DESIGN
The Company's home designs and floor plans are prepared by outside
architects in each of the Company's markets to appeal to the local tastes and
preferences of the community. The Company offers six hours of interior decorator
consultation without cost to homebuyers who purchase the Company's Fedrick,
Harris Estate Homes. For its Newmark homes, the Company offers optional interior
and exterior features to enhance the basic home design. The Company's design
department has the capability to change its standard floor plans to accommodate
the individual homebuyer. While most design modifications are significant to the
homebuyer, they typically involve relatively minor adjustments that allow the
Company to maintain construction efficiencies and result in greater
profitability due to increased margins. The design department also verifies that
each floor plan will fit on a particular lot before construction begins. To
contain costs, the design department periodically alters the Company's most
popular floor plans, so that they remain current with design trends, product
updates and consumer tastes.
CONSTRUCTION
Substantially all of the Company's construction work is performed by
subcontractors. The Company's construction superintendents monitor the
construction of each home, coordinate the activities of subcontractors and
suppliers, subject the work of subcontractors to quality and cost controls and
monitor compliance with zoning and building codes. Subcontractors typically are
retained pursuant to a contract that obligates the subcontractor to complete
construction in a workmanlike manner and that provides standard indemnifications
and warranties. The subcontractor is paid on a per unit basis which fluctuates
depending on the size of the home. The contracted price is a part of each
purchase order. Typically, the Company works with the same subcontractors in
each city. The Company's subcontractors are not subject to any collective
bargaining agreements. While the Company competes with other homebuilders for
qualified subcontractors, it has established long-standing
30
<PAGE> 32
relationships with many of its subcontractors. To date, by providing both timely
payments and steady work assignments, the Company has not experienced any
inability to obtain qualified subcontractors.
The Company's purchasing and cost accounting practices are designed to
facilitate construction flexibility. This process permits homebuyers to modify
their designs, while allowing the Company to monitor and maintain its
profitability. Construction time for the Company's homes depends on weather,
availability of labor, materials and supplies and other factors. The Company
typically completes the construction of a home within four to five months.
The Company does not maintain significant inventories of construction
materials, except for work in process materials for homes under construction.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company has favorable price
arrangements or contracts with suppliers of certain of its building materials,
but it is not under any specific purchasing requirements. In recent years, the
Company has not experienced any significant delays in construction due to
shortages of materials or labor.
MARKETING AND SALES
The Company markets and sells its homes through commissioned employees and
cooperates with independent real estate brokers. The Company targets the
"move-up" and relocation market segments and employs sophisticated marketing
techniques to attract potential homebuyers through its Internet web site,
extensive telemarketing and other marketing programs. The Company pioneered the
development of the virtual reality CD-ROM home tour that allows a prospective
homebuyer to download the home tour software to a personal computer and "tour"
completely furnished homes, view the Company's different floor plans, locate the
various subdivisions available in each market, and learn about neighborhood
schools, subdivision amenities and shopping as well as the Company's
construction techniques. Home sales are typically conducted from sales offices
located in furnished model homes used in each subdivision. At September 30,
1997, the Company owned 36 model homes. In some cases, these model homes are
sold and then leased back until the completion of the respective subdivision.
The Company's sales personnel assist prospective buyers by providing them with
floor plans, price information, tours of model homes and the selection of
options and other custom features. Such personnel are trained by both the
Company and external independent experts in sales expertise. These sales and
marketing personnel are kept informed as to the availability of financing,
construction schedules and marketing and advertising plans. The Company has also
formed sales teams comprised of a sales person and other employees from
throughout the Company to provide sales support and motivation.
In addition to using model homes, the speculative homes built in each
subdivision enhance the Company's marketing and sales activities. Construction
of these speculative homes is also necessary to satisfy the requirements of
relocated personnel, "move-up" buyers, and independent brokers, who often
represent homebuyers requiring a completed home within sixty days. For the nine
months ended September 30, 1997, approximately 70% of these speculative homes
were sold while under construction. The number of speculative homes the Company
builds in any given subdivision is influenced by local market factors, such as
new employment opportunities, significant job relocations, growing housing
demand and the length of time the Company has built in the market. At September
30, 1997, the Company was operating in 47 subdivisions.
The Company advertises in newspapers and in real estate and mortgage broker
company publications, brochures, newsletters and billboards. Because real estate
brokers are important to sales, the Company sponsors realtor breakfasts,
contests and other events to increase awareness of the Company's subdivisions
and products. Certain of the Company's suppliers participate with the Company in
its advertising and promotional materials, either through co-branding and
cost-sharing or through rebates.
Sales of the Company's homes generally are made pursuant to a standard
sales contract which requires a down payment of $2,000 to $5,000, or 5% to 10%
of the sales price, on custom homes. The contract includes a financing
contingency which permits the customer to cancel in the event mortgage financing
at prevailing interest rates is unobtainable within a specified period,
typically four to six weeks, and may include other contingencies, such as the
sale of an existing home. The Company includes a home sale in its backlog upon
execution of the sales contract and receipt of the initial down payment. The
Company does not recognize revenue until the home is
31
<PAGE> 33
closed and title passes to the homebuyer. The Company estimates that the average
period between the execution of a sales contract for a home and closing is
approximately four to five months for presold homes.
TITLE SERVICES
In 1997, the Company acquired a 49% interest in Pacific Title, which serves
as a title insurance agent and provides title insurance policies and closing
services to purchasers of homes built and sold by the Company in Texas. The
Company assumes no title insurance risk associated with these title policies,
which are issued by Stewart Title Co., one of the oldest title companies in
Texas. Stewart Title Co. owns the balance of the shares of Pacific Title.
CUSTOMER FINANCING
In 1997, the Company acquired a 50% interest in NHC Mortgage, a joint
venture with CTX Mortgage Ventures Corporation, one of the nation's largest
mortgage companies. The joint venture underwrites, originates and sells
mortgages for the homes the Company builds and for other homebuilders. The
Company's capital is not at risk in connection with these mortgages.
MANAGEMENT INFORMATION SYSTEMS
The primary application software for the Company is The Homebuilder
Software Package from Systems Analysis, Inc. This package was written
specifically for production homebuilders in RPGIII language and operates in
OS/400 on an IBM AS/400. The Company recently migrated the application software
and the data files to native OS/400 from System 36 mode to increase the speed of
on-line processing and utilize current tools offered by IBM and IBM Business
Partners. The Homebuilder Software Package is a fully-integrated accounting
package which has general ledger, accounts payable, job costs, purchasing,
payroll, warranty and production status modules. Communication to the AS/400
from remote offices is managed utilizing TCP/IP protocol over a frame relay
network provided by Network MCI. Locally attached devices such as personal
computers, printers, and terminals communicate with the AS/400 via TCP/IP
protocol over an Ethernet network. Hardware for the wide area network includes
IBM hubs, Motorola, Inc. DSU/CSUs, Cisco Systems, Inc. routers, and Perle
protocol converters. Network software for the Company is Microsoft Windows NT.
Data is protected on the AS/400 using RAID-5 data protection, daily tape
backups and redundant data archive on a second AS/400 at the corporate office. A
third AS/400 is maintained off-site as a contingency backup in case of fire or
other disaster.
Telecommunications for the Company is provided by a Siemens Rolm digital
switch utilizing a T-1 line from MCI Telecommunications for local direct inward
dialing (DID Smart Trunks), caller ID and long distance calling. Long distance
rates are substantially reduced by utilizing several channels of a fractional
T-1 from MCI.
The Company has conducted a review of its computer systems to identify how
its computer systems could be affected by the "Year 2000" issue. Based upon this
review, the Company believes that it has adequately addressed the Year 2000
issue, and that any further modifications to the Company's systems with respect
to the Year 2000 issue will not result in significant future capital
expenditures.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customer's post-closing needs. The Company
believes that the prompt, courteous response to homebuyers' needs during and
after construction reduces post-closing repair costs, enhances the Company's
reputation for quality and service, and ultimately leads to significant repeat
and referral business. The Company conducts pre-closing inspections with
homebuyers immediately prior to closing. In conjunction with the inspections, a
list of items for home completion is created. It is the Company's policy that
the sale is not closed until all items are completed to the homebuyer's
satisfaction.
All warranty requests are processed through the customer service
departments located in each of the markets. In most instances, a customer
service manager inspects the warranty request within 48 hours of receipt.
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<PAGE> 34
If appropriate, the repair work is scheduled to be approved by the homeowner
upon satisfactory completion. An integral part of the Company's customer service
program revolves around post-closing interviews. Generally, a customer service
representative is sent into each home within 45 days of closing to evaluate the
homeowner's satisfaction with both their home and their home-buying experience.
The post-closing interview involves an analysis of the homebuyer's experiences
with the sales counselor, the title company, the mortgage company and the
construction department as well as their satisfaction with the product.
Typically, after a year, another interview is conducted with the homeowner to
determine their continued satisfaction. The subsequent interview provides
management a direct link to the customer's perception of the entire buying
experience as well as valuable feedback on the quality of the product.
WARRANTY PROGRAM
The Company provides a two-year limited warranty of workmanship and
materials with each of its homes. The first year of such warranty, the Company
provides coverage on workmanship and materials, plumbing, electrical, heating,
cooling, ventilation systems and major structural defects. The second year the
Company is responsible for major structural defects and specific types of
defects in plumbing, electrical, heating, cooling and ventilation systems
exclusive of effects in appliances, fixtures and equipment. The Company
subcontracts its homebuilding work to subcontractors who provide the Company
with an indemnity and a certificate of insurance prior to receiving payments for
their work and, therefore, claims relating to workmanship and materials are
generally the primary responsibility of the Company's subcontractors. The next
eight years the Company provides a limited homeowners' warranty covering major
structural defects through a single national agreement with the Residential
Warranty Corporation. A reserve of approximately 0.75% of the sale price of a
home is established to cover warranty expenses, although this reserve is subject
to adjustment in special circumstances. The Company's historical experience is
that such warranty expenses generally fall within the amount established for
such reserve. The Company does not currently have any material litigation or
claims regarding warranties or latent defects with respect to construction of
homes. Current claims and litigations are expected to be substantially covered
by the Company's reserve or insurance. Generally, warranty claims are handled by
the construction superintendent who built the particular home to ensure that
prompt and appropriate corrective action is taken by the appropriate
subcontractor.
COMPETITION
The development and sale of residential properties is highly competitive
and fragmented. The Company competes for residential sales on the basis of a
number of interrelated factors, including location, reputation, amenities,
design, quality and price, with numerous large and small homebuilders, including
some homebuilders with nationwide operations and greater financial resources
and/or lower costs than the Company. The Company also competes for residential
sales with individual resales of existing homes, available rental housing and,
to a lesser extent, resales of condominiums. The Company believes that it
compares favorably to other builders in the markets in which it operates, due
primarily to: (i) its experience within its geographic markets, which allows it
to vary its product offerings to reflect changing market conditions; (ii) its
responsiveness to market conditions, enabling it to capitalize on the
opportunities for advantageous land acquisitions in desirable locations; and
(iii) its reputation for service and quality. There can be no assurance that the
Company will be able to continue to compete successfully in any of its markets.
The inability of the Company to continue to compete successfully in any of its
markets could have a material adverse effect on the Company's business,
financial condition or results of operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
All of the Company's land is purchased with the right to obtain building
permits upon compliance with specified conditions, which generally are within
the Company's control. Upon compliance with such conditions, the Company seeks
building permits. The length of time necessary to obtain such permits and
approvals affects the carrying costs of unimproved property acquired for the
purpose of development and construction. In addition, the continued
effectiveness of permits already granted is subject to several factors, such as
changes in policies, rules and regulations and their interpretation and
application. To date, the governmental approval processes
33
<PAGE> 35
discussed above have not had a material adverse effect on the Company's
development activities. There can be no assurance, however, that these and other
restrictions will not adversely affect the Company in the future.
Local and state governments also have broad discretion regarding the
imposition of development fees for projects in their jurisdiction. These are
normally established, however, when the Company receives recorded final maps and
building permits. The Company is also subject to a variety of local, state and
federal statutes, ordinances, rules and regulations concerning the protection of
health, zoning and the environment. These laws may result in delays, cause the
Company to incur compliance and other costs, and prohibit or restrict
development in certain environmentally sensitive markets.
EMPLOYEES
At September 30, 1997, the Company employed 260 persons, of whom 69 were
sales and marketing personnel, 103 were executive, administrative and clerical
personnel, and 88 were involved with construction. None of the Company's
employees are covered by collective bargaining agreements. The Company believes
its relations with its employees are good.
PROPERTIES
The Company owns a 16,000 square foot facility in Sugar Land, Texas, which
serves as the Company's headquarters and primary residential homebuilding
office. The Company leases an aggregate of approximately 7,500 square feet in
Dallas, Austin, Nashville and Miami for its division operations.
LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of the Company's management, the
ultimate disposition of these matters is not expected to have a material adverse
effect on the financial condition or results of operations of the Company.
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<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS. The Company's directors and executive
officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
Lonnie M. Fedrick..................... 53 President and Chief Executive Officer
and Director
James M. Carr......................... 47 Executive Vice President and Director
J. Eric Rome.......................... 38 Executive Vice
President -- Homebuilding
B. Coleman Bradley.................... 37 Executive Vice President -- Land
Acquisition and Development
Terry C. White........................ 48 Chief Financial Officer, Treasurer and
Secretary
Michael K. McCraw..................... 46 Chairman of the Board
Larry D. Horner....................... 63 Director
Bill C. Bradley....................... 64 Director
</TABLE>
In addition to the directors named above, the Company intends to appoint
two independent directors upon or shortly after completion of this offering,
each of whom will serve on the audit and compensation committees.
Lonnie M. Fedrick has served as President and Chief Executive Officer of
the Company since 1997. Mr. Fedrick has also been President and Chief Executive
Officer of Newmark since 1994 and was Executive Vice President of Newmark from
1984 to 1994. Mr. Fedrick co-founded Newmark in 1983 and has more than 31 years
experience in the homebuilding industry. Mr. Fedrick began his career with
Norwood Homes in 1967, most recently serving as the Vice President of
Construction. From 1974 to 1983, he served as Vice President of Operations of
Monarch Homes. He is a member of the board of directors of the Greater Houston
Builders Association.
James M. Carr became Executive Vice President and a Director of the Company
upon the closing of the acquisition of Westbrooke by the Company in January
1998. Mr. Carr founded Westbrooke in 1976, and has served as Chairman, Chief
Executive Officer and President of Westbrooke since its inception. Mr. Carr is a
graduate of the University of Miami. He is also the Chairman of the Baptist
Hospital Foundation and a director of Baptist Health Systems.
J. Eric Rome has served as Executive Vice President -- Homebuilding of the
Company since 1997. Mr. Rome has served as President of the Texas Division of
Newmark since 1996. He was Executive Vice President of the Newmark's Central
Texas Division from 1995 to 1996, a Vice President from 1984 to 1994, and
Construction Manager of Newmark's Houston division from 1983 to 1984. From 1981
to 1983, Mr. Rome was employed by Monarch Homes as a construction
superintendent. He has also served as an officer in various capacities with the
Texas Capitol Area Builders Association.
B. Coleman Bradley has served as Executive Vice President -- Land
Acquisition and Development of the Company since 1997. Additionally, he has
served as President and Chief Executive Officer of PUDC since its formation in
1993. From 1990 to 1993, he directed the land development activities of Pacific
USA. From 1986 to 1990, Mr. Bradley served as Executive Vice President of Real
Estate Decision Systems, and from 1982 to 1986, Mr. Bradley served as President
of a Dallas/Fort Worth custom homebuilding company.
Terry C. White has served as Chief Financial Officer and Treasurer of the
Company since 1997. Mr. White is also Senior Vice President, Chief Financial
Officer and Treasurer of Newmark, which he joined in 1984 as Controller. Prior
thereto, Mr. White was employed by Wood Bros. Homes as a division controller and
prior to that he served in various accounting and finance positions with Safeway
Stores, Inc. He has played a key role in establishing the Company's accounting
controls and management information systems. Mr. White is a certified public
accountant and a graduate of the University of North Texas.
Michael K. McCraw, Chairman of the Board, has served as Chief Financial
Officer of Pacific USA since 1992. He is also the President and Chief Operating
Officer of Pacific Realty Group, Inc., the immediate parent of
35
<PAGE> 37
the Company. From 1989 to 1992, Mr. McCraw served as Chief Financial Officer of
Pacific Southwest Bank. He was formerly associated with KPMG Peat Marwick LLP
for 15 years. He is a certified public accountant and a graduate of Texas A & I
University.
Larry D. Horner, a director of the Company, has served as Chairman of
Pacific USA since 1994. He is also Chairman of the Board and Chief Executive
Officer of Asia Pacific Wire & Cable Corporation Limited, a Bermuda corporation
with operations in Southeast Asia, which is publicly traded on the New York
Stock Exchange, and a director of American General Corp., Phillips Petroleum
Company, Atlantis Plastics, Inc., Biological & Popular Cultures, Inc. and
Laidlaw Holdings Inc., an affiliated company. Mr. Horner was formerly associated
with KPMG Peat Marwick LLP for 35 years, retiring as Chairman and Chief
Executive Officer of both the U.S. and International firms. He is a certified
public accountant and a graduate of the University of Kansas and the Stanford
Executive Program.
Bill C. Bradley, a director of the Company, has served as Chief Executive
Officer and a director of Pacific USA since 1991. Mr. Bradley was formerly
associated with KPMG Peat Marwick LLP for 23 years and also served as a member
of its board of directors. He is a graduate of the University of Texas.
Bill C. Bradley and B. Coleman Bradley are father and son. There are no
other familial relationships among the executive officers and directors of the
Company.
TERMS OF OFFICE. Directors of the Company are elected annually by the
stockholders to serve for a term of one year or until their successors are duly
elected and qualified. Vacancies in unexpired terms and any additional positions
created are filled by action of the Board of Directors. The executive officers
of the Company are appointed annually by the Board of Directors and serve for a
term of one year, or until their successors are appointed or their earlier
resignation or removal.
The Company's Articles of Incorporation provide that the Board of Directors
will consist of not less than one nor more than ten members, with the exact
number to be determined from time to time by resolution of the Board of
Directors. However, no decrease in the number of directors constituting the
Board of Directors may shorten the term of any incumbent director, unless the
director is removed in accordance with the removal provisions of the Articles.
Upon completion of this offering, the number of Board members will be set at
six.
AUDIT COMMITTEE. The Board of Directors has established an Audit Committee
to be comprised of independent directors. The functions of the Audit Committee
are to make recommendations to the Board of Directors regarding the engagement
of the Company's independent accountants and to review with management and the
independent accountants the Company's financial statements, basic accounting and
financial policies and practices, audit scope and competency of accounting
personnel. Members of the Audit Committee will be appointed annually by the
Board of Directors and serve at the discretion of the Board of Directors until
their successors are appointed or their earlier resignation or removal.
COMPENSATION COMMITTEE. The Board of Directors has established a
Compensation Committee to be comprised of independent directors. The
Compensation Committee is responsible for reviewing and making recommendations
to the Board of Directors with respect to compensation of executive officers,
other compensation matters and awards under the Company's stock option plan.
Members of the Compensation Committee will be appointed annually by the Board of
Directors and serve at the discretion of the Board of Directors until their
successors are appointed or their earlier resignation or removal.
COMPENSATION OF DIRECTORS. Independent directors of the Company will
receive an annual fee of $15,000 and $2,000 per board meeting attended and will
be reimbursed for out-of-pocket expenses incurred for attendance at meetings.
Additionally, these independent directors will be eligible to receive phantom
stock grants under the Company's Executive Phantom Stock Plan.
KEY EMPLOYEES. In addition to its executive officers, the following persons
are key employees of the Company:
J. Mike Beckett is Senior Vice President -- Purchasing of Newmark. Mr.
Beckett has been employed by Newmark since its inception in 1983. He was
promoted to his current position in 1992. Mr. Beckett oversees all purchases for
Newmark's operations in five metropolitan markets and has successfully
negotiated with major
36
<PAGE> 38
suppliers for substantial price reductions. Additionally, he has established
arrangements with suppliers that have resulted in substantial savings on
advertising expenses through co-branding, cost sharing and advertising rebates.
Mr. Beckett received a science and construction technology degree from Bowling
Green State University.
Ray G. Hurlbut is Executive Vice President -- Houston Division of Newmark.
Mr. Hurlbut joined Newmark in 1984 as a sales associate after ten years of
experience with two national homebuilders. He was awarded Sales Manager of the
Year and Marketing Director of the Year by the Greater Houston Builders
Association in 1987 and 1992, respectively. In 1995, he received the Texas
Capital Area Builders' Award for Marketing Director of the Year. He served as
Vice President -- Sales and Marketing of Newmark until his promotion to
Executive Vice President -- Houston Division in 1994.
Steve J. Von Hofe is Senior Vice President -- Houston Division of Newmark.
He joined Newmark in 1984 as a construction superintendent. In 1985, he was
named Manager of Construction Operations, in 1992, he became Vice
President -- Construction, and in 1997, Mr. Von Hofe was promoted to his current
position as a Senior Vice President. He is a member of the Greater Houston
Builders Association Builder Council and a graduate of Western Michigan
University.
Brian K. Shields is Senior Vice President -- Central Texas Division of
Newmark. In 1985, Mr. Shields joined Newmark as a construction superintendent
and later served as Vice President -- Construction. In 1996, Mr. Shields was
promoted to his current position as a Senior Vice President. He serves on the
Government Relations Committee of Texas Capitol Area Builder's Association.
Steve A. Treece is Executive Vice President -- North Texas Division of
Newmark. Mr. Treece joined Newmark in 1991 as Director of Sales and Marketing.
From 1993 to 1995, he served as Vice President of Fedrick, Harris Estate Homes,
overseeing all aspects of custom home construction and sales. In 1995, he was
promoted to his current position as Executive Vice President of Newmark.
Mike M. Moody is the Senior Vice President -- Nashville Division of
Newmark. He began his career with Newmark in 1990 as a construction
superintendent and was promoted to Sales Manager -- Central Texas in 1992. He
served in this capacity until his promotion in 1995 to Senior Vice President. He
was recently selected to begin start-up operations for Newmark in Nashville. Mr.
Moody is a graduate of the University of Texas.
EXECUTIVE COMPENSATION. The following tables sets forth a summary of annual
and long-term compensation for the fiscal year ended December 31, 1996, for the
chief executive officer and for the three other executive officers of the
Company whose compensation exceeded $100,000 for such year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
NAME AND ----------------------- ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION
------------------ -------- -------- ------------
<S> <C> <C> <C> <C>
Lonnie M. Fedrick, 1996 $325,000 $454,862 10,630(2)
President and Chief
Executive Officer
J. Eric Rome, 1996 200,000 290,614 7,744(2)
Executive Vice President --
Homebuilding
B. Coleman Bradley, 1996 200,000 80,000 9,830(2)
Executive Vice President --
Land Acquisition and
Development
Terry C. White, 1996 125,000 152,088 7,492(2)
Chief Financial Officer
and Treasurer
</TABLE>
- ---------------
(1) Information with respect to certain prerequisites and other personal
benefits has been omitted because the aggregate value of such items does not
meet the minimum amount required for disclosure under the regulations of the
Securities and Exchange Commission.
(2) Includes contributions pursuant to a 401(k) plan.
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<PAGE> 39
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Prior to this
offering, the Board of Directors had no Compensation Committee, and, prior to
October 1997, the sole director was Bill C. Bradley.
EMPLOYMENT AGREEMENTS. Eric Rome, Coleman Bradley, Terry White and James
Carr have employment agreements with the Company or a subsidiary of the Company
through December 31, 1999. Mr. Rome's base compensation for 1997, 1998 and 1999
is $225,000, $250,000 and $275,000, respectively. Mr. Bradley's base
compensation for 1997, 1998 and 1999 is $225,000, $250,000 and $275,000,
respectively. Mr. White's base compensation for 1997, 1998 and 1999 is $137,500,
$150,000 and $162,500, respectively. Mr. Carr's base compensation is $409,500,
subject to adjustment annually beginning January 1, 1999. In addition, Messrs.
Beckett, Hurlbut, Von Hofe, Shields, Treece and Moody, key employees of the
Company, also have employment agreements. Each of these employees is permitted
to participate in such pension, profit-sharing, bonus, life insurance,
hospitalization, major medical, and other employee benefit plans of the Company
that may be in effect from time to time.
PHANTOM STOCK PLAN. The Company intends to adopt an Executive Phantom Stock
Plan (the "Plan") in order to offer long-term incentives to key employees.
Participating key employees (the "Participants") will receive benefits expressed
in shares of Common Stock, but which do not represent actual shares of Common
Stock ("Phantom Shares"). Generally, a Participant may exercise the right to
receive payment for an award of Phantom Shares equal to the amount by which the
Phantom Share price on the date of exercise exceeds the Phantom Share price at
the date of grant, multiplied by the number of Phantom Shares exercised (less
required tax withholding). The Compensation Committee administers the Plan,
which may be amended, modified or terminated by the Board of Directors.
CERTAIN TRANSACTIONS
LOANS FROM PACIFIC USA. The Company owed $4.3 million to Pacific USA at
December 31, 1996, and $9.7 million at September 30, 1997. Interest paid to
Pacific USA during the years ended December 31, 1994, 1995 and 1996 was
approximately $326,000, $432,000 and $439,000, respectively. All amounts
outstanding under these loans have been contributed to capital of the Company
effective December 31, 1997.
TAX ALLOCATION AGREEMENT. Pursuant to the Tax Allocation Agreement, the
Company is included in the consolidated federal income tax returns filed by
Pacific USA. The amount of the Company's liability to (or entitlement to payment
from) Pacific USA under the Tax Allocation Agreement will equal the amount of
taxes that the Company would owe (or refund that it would receive) had it
prepared tax returns on a stand-alone basis. A conflict of interest may arise if
Pacific USA chooses to contest, compromise or settle any adjustment or
deficiency proposed by the relevant taxing authority in a manner that may be
beneficial to Pacific USA and detrimental to the Company. In addition, under
federal income tax law, each member of a consolidated group (as determined for
federal income tax purposes) is also jointly and severally liable for the
federal income tax liability of the consolidated group. Pursuant to the Tax
Allocation Agreement, Pacific USA has agreed to indemnify the Company for any
federal income tax liability for which Pacific USA has already received payment
from the Company or with respect to any tax liabilities of Pacific USA or its
affiliated entities other than the Company. Payments of $2.8 million, $1.8
million and $3.0 million, respectively, were made by the Company to Pacific USA
during 1994, 1995 and 1996 under this agreement.
RISK MANAGEMENT SERVICES. The Company purchases all of its insurance
policies through an affiliated insurance broker, Pacific Agency, Inc. Pacific
Agency, Inc. earned commissions of $69,000, $89,000 and $86,000 in 1995, 1996
and the first nine months of 1997, respectively, with respect to such policies.
The Company believes that these commissions are comparable to amounts it would
pay to an independent third party for similar services.
PACIFIC USA GUARANTEES. Certain of the Company's construction and lot loans
are guaranteed by Pacific USA. The outstanding balance of Company loans
guaranteed by Pacific USA was $112,000 at December 31, 1996, with no balance at
September 30, 1997. Additionally, the Company and Pacific USA had guaranteed
certain construction loans payable by a partnership that is 50% owned by the
Company. The partnership's loans guaranteed by the Company and Pacific USA
totaled approximately $950,000 at December 31, 1996 and $200,000 at September
30, 1997 and were secured by lots and single family residences. The partnership
loans
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<PAGE> 40
have been repaid in full. In addition, Pacific USA has guaranteed or secured
certain of the obligations of the Company with respect to the acquisition of
Westbrooke.
Following the completion of this offering, the Company expects that
guarantees from Pacific USA will not be required. Pacific USA will be under no
obligation to provide such guarantees to the Company in the future.
ADMINISTRATIVE SERVICES. Pacific USA provides certain administrative
services for the Company because it can obtain lower costs and achieve greater
efficiencies and reduce expenses for the Company. Functions which are performed
by Pacific USA include payroll and benefits administration and the evaluation
and negotiation under national contracts for the purchase of office supplies,
long distance and overnight delivery services. The costs of these office
supplies, long distance and overnight delivery services may differ from those
available to the Company if it were to negotiate these contracts on its own.
While Pacific USA has not charged the Company for these services in the past, it
may do so in the future at rates which the Company believes are comparable to
those attainable from independent vendors. The Company does not expect such
charges, if any, to be material.
DEMOGRAPHIC RESEARCH SERVICES. An affiliated company, Pacific Research
Group, provides demographic and economic research to the Company and four other
affiliated real estate entities owned by Pacific Realty Group pursuant to a
services agreement. The direct costs of research services provided in 1997
totaled $167,000, of which the Company's pro rata (one-fifth) share was $33,400.
The Board of Directors has adopted a policy that any future transactions
with affiliates of the Company will be on terms no less favorable to the Company
than are reasonably available from unrelated third parties and shall have been
approved by a majority of the Company's directors who do not have a material
interest in the transactions.
39
<PAGE> 41
SECURITY OWNERSHIP
The following table sets forth as of September 30, 1997, certain
information with respect to the beneficial ownership of Common Stock by each
person who is the beneficial owner of more than 5% of the outstanding Common
Stock. None of the Company's directors and executive officers own beneficially
or of record any equity securities of the Company.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON STOCK
STOCK BENEFICIALLY BENEFICIALLY OWNED
OWNED BEFORE OFFERING AFTER OFFERING(1)
---------------------- -----------------------
NAME AND ADDRESS OF PERCENT PERCENT
BENEFICIAL OWNER NUMBER OF CLASS NUMBER OF CLASS
------------------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Pacific USA Holdings Corp.(2)............... 9,200,000 100% 9,200,000 82.1%
5999 Summerside Drive
Suite 112
Dallas, Texas 75252
</TABLE>
- ---------------
(1) Assumes the Underwriters' over-allotment option will not be exercised. If
such option is exercised in full, Pacific USA's percentage ownership
interest would be 80.0%.
(2) Pacific USA is an indirect subsidiary of Pacific Electric Wire & Cable Co.,
Ltd. which directs the voting and investment of its indirect holdings of
Pacific USA's Common Stock. All of the Company's outstanding shares of
Common Stock are held of record by Pacific Realty Group, a direct subsidiary
of Pacific USA. Pacific USA directs the voting and investment of its
indirect holdings of the Company's Common Stock. The Company is not aware of
any arrangement which may at a subsequent date result in a change in control
of the Company or Pacific USA.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, $.01 par value, of
which 9,200,000 shares were issued and outstanding as of October 31, 1997, and
3,000,000 shares of Preferred Stock, $.01 par value, of which no shares will be
issued and outstanding as of October 31, 1997.
COMMON STOCK. Holders of Common Stock are entitled to one vote for each
share held in the election of directors and on all other matters submitted to a
vote of shareholders. Cumulative voting of shares of Common Stock is prohibited.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election.
Subject to the prior rights of the holders of any outstanding Preferred
Stock, holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." Upon the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive ratably the assets
of the Company remaining after payment of all liabilities and payment to holders
of Preferred Stock if such Preferred Stock has an involuntary liquidation
preference over the Common Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares offered by the Company in this offering will be, when
issued and paid for, validly issued, fully paid and nonassessable.
PREFERRED STOCK. The Board of Directors is authorized, without any further
notice or action of the shareholders, to issue 3,000,000 shares of Preferred
Stock in one or more series and to determine the relative rights, preferences
and privileges of the shares of any such series. The Company has no present
plans to issue any shares of Preferred Stock.
LIMITATION ON LIABILITY. The Company's Restated Articles of Incorporation
and Bylaws provide for indemnification of officers and directors of the Company
to the fullest extent permitted by Nevada law. Under the Articles, Directors and
officers of the Company are not liable to the Company or its shareholders for
damages for breach of fiduciary duty as directors or officers, except for acts
or intentional misconduct, fraud or a knowing
40
<PAGE> 42
violation of the law, or the payment of unlawful dividends. The Company has
directors and officers' liability insurance.
ANTI-TAKEOVER PROVISIONS OF STATE LAW. Nevada's "Combination with
Interested Stockholders Statute," Nevada Revised Statutes Sections 78.411
through 78.444, which applies to any Nevada corporation subject to the reporting
requirements of section 12 of the Securities Exchange Act of 1934, as amended,
and which has at least 200 shareholders prohibits an "interested stockholder"
from entering into a "combination" with the corporation, unless certain
conditions are met. Pursuant to the Company's Restated Articles of
Incorporation, the Company will expressly elect to be governed by the provisions
of Sections 78.411 through 78.444 of the Nevada Revised Statutes. A
"combination" includes (a) any merger with an "interested stockholder," or any
other corporation which is or after the merger would be, an affiliate or
associate of the interested stockholder, (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets, in one transaction or
a series of transactions, to or with an "interested stockholder," having (i) an
aggregate market value equal to 5% or more of the aggregate market value of the
corporation's assets, (ii) an aggregate market value equal to 5% or more of the
aggregate market value of all outstanding shares of the corporation, or (iii)
representing 10% or more of the earning power or net income of the corporation,
(c) any issuance or transfer of shares of the corporation or its subsidiaries,
to the "interested stockholder," having an aggregate market value equal to 5% or
more of the aggregate market value of all the outstanding shares of the
corporation, (d) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by the "interested stockholder," (e)
certain transactions which would result in increasing, directly or indirectly,
the proportionate share of shares of the corporation owned by the "interested
stockholder," or (f) the receipt of benefits by an "interested stockholder,"
except proportionately as a stockholder, of any loans, advances or other
financial benefits provided by the corporation. An "interested stockholder" is a
person who (i) directly or indirectly owns 10% or more of the voting power of
the outstanding voting shares of the corporation or (ii) an affiliate or
associate of the corporation which at any time within three years before the
date in question was the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then outstanding shares of the corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the board of directors before the interested stockholder
acquired the shares. If this approval is not obtained, the combination may be
consummated after the three year period expires if either (a) (i) the board of
directors of the corporation approved, prior to such person becoming an
interested stockholder, the combination or the purchase of shares by the
interested stockholder or (ii) the combination is approved by the affirmative
vote of holders of a majority of voting power not beneficially owned by the
interested stockholder at a meeting called no earlier than three years after the
date the interested stockholder became such or (b) the aggregate amount of cash
and the market value of consideration other than cash to be received by holders
of common shares and holders of any other class or series of shares meets the
minimum requirements set forth in Section 78.441 through 78.443, inclusive, and
prior to the consummation of the combination, except in limited circumstances,
the "interested stockholder" would not have become the beneficial owner of
additional voting shares of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statues
sec. 78.378-78.3793, prohibits an "acquiring person", under certain
circumstances, from voting shares of a target corporation's stock after crossing
certain threshold ownership percentages, unless the acquiror obtains the
approval of the target corporation's stockholders. The Control Share Acquisition
Statute only applies to Nevada corporations with at least 200 stockholders,
including at least 100 record stockholders who are Nevada residents, and which
do business directly or indirectly in Nevada. The Company does not intend to "do
business" in Nevada within the meaning of the Control Share Acquisition Statute.
Therefore, it is unlikely that the Control Share Acquisition Statute will apply
to the Company. The statute specifies three thresholds: at least one-fifth but
less than one-third, at least one-third but less than a majority, and a majority
or more, of the outstanding voting power. Once an acquiror crosses one of the
above thresholds, shares which it acquired in the transaction taking it over the
threshold or within ninety days thereof become "Control Shares" which are
deprived of the right to vote until a majority of the disinterested stockholders
restore that right. A special stockholders' meeting may be called at the request
of the acquiror to consider the voting rights of the acquiror's shares no more
than 50 days (unless the acquiror agrees to a later date)
41
<PAGE> 43
after the delivery by the acquiror to the corporation of an information
statement which sets forth the range of voting power that the acquiror has
acquired or proposes to acquire and certain other information concerning the
acquiror and the proposed control share acquisition. If no such request for a
stockholders' meeting is made, consideration of the voting rights of the
acquiror's shares must be taken at the next special or annual stockholders'
meeting. If the stockholders fail to restore voting rights to the acquiror, or
if the acquiror fails to timely deliver an information statement to the
corporation, the corporation may, if so provided in its Articles or Bylaws, call
certain of the acquiror's shares for redemption at the average price paid for
the control shares by the acquiror. The Company's Articles and Bylaws do not
currently permit it to call an acquiror's shares for redemption under these
circumstances. The Control Share Acquisition Statute also provides that in the
event the stockholders restore full voting rights to a holder of Control Shares
that owns a majority of the voting stock, then all other stockholders who do not
vote in favor of restoring voting rights to the Control Shares may demand
payment for the "fair value" of their shares (which is generally equal to the
highest price paid by the acquiror in the transaction subjecting the acquiror to
the statute).
The provisions described above, together with the ability of the Board of
Directors to issue Preferred Stock as described under "-- Preferred Stock," may
have the effect of delaying or deterring a change in the control or management
of the Company.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Common Stock is First Chicago Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
11,200,000 shares of Common Stock. Of these shares of Common Stock, the
2,000,000 shares sold in this offering may be publicly offered and sold without
restriction, unless they are purchased by affiliates of the Company. Shares of
Common Stock outstanding prior to completion of this offering will be
"restricted securities" under the Securities Act (the "Restricted Shares"). The
Restricted Shares may be sold only if they are registered under the Securities
Act by the Company or pursuant to an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 thereunder. The Company,
Pacific Realty Group and Pacific USA have agreed that, for a period of 180 days
after the date of this Prospectus, they will not offer, sell or otherwise
dispose of shares of Common Stock, without the prior written consent of Dain
Rauscher Incorporated on behalf of the Representatives. See "Underwriting."
In general, under Rule 144 as currently in effect, Pacific USA or any
subsequent transferee (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year but less than two
years is entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of the Common
Stock (approximately 112,000 shares immediately after the offering) or the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an "affiliate" of the Company at any
time during the 90 days preceding a sale, and who has beneficially owned
Restricted Shares for at least two years, would be entitled to sell such shares
under Rule 144 without regard to the volume or manner of sale limitations
referred to above.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock. The sale of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock.
42
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Dain Rauscher Incorporated and Laidlaw Global
Securities, Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the respective number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OF COMMON
UNDERWRITER STOCK
----------- ------------
<S> <C>
Dain Rauscher Incorporated..................................
Laidlaw Global Securities, Inc. ............................
---------
Total ............................................ 2,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 300,000
additional shares of Common Stock, at the public offering price less the
underwriting discounts and commissions, as set forth on the cover of the
Prospectus. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,000,000 shares of Common Stock offered. The Underwriters may exercise such
option only to cover overallotments, if any, made in connection with the sale of
Common Stock offered hereby.
The Company and Pacific USA have agreed that, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock, any securities of the
Company which are substantially similar to the shares of Common Stock or which
are convertible or exchangeable for securities which are substantially similar
to the shares of Common Stock without the prior written consent of Dain Rauscher
Incorporated, except for the shares of Common Stock offered in connection with
this offering.
The Representatives have informed the Company that they do not expect sales
to accounts over which the Underwriters exercise discretionary authority to
exceed 5% of the total number of shares of Common Stock offered by them.
Prior to this offering, there has been no public market for the shares. The
initial public offering price was negotiated among the Company and the
Representatives. Among the factors considered in determining the initial public
offering price of the Common Stock, in addition to prevailing market conditions,
were the Company's historical performance, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Company has applied for listing the Common Stock on the Nasdaq National
Market under the symbol "NHCH".
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<PAGE> 45
In connection with this offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in this offering. The
Underwriters may also impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the Common Stock sold
in this offering for their account may be reclaimed by the syndicate if such
shares of Common Stock are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
Laidlaw Global Securities, Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and the comanager of this offering, is a
partially owned, indirect subsidiary of Pacific USA. The Company is a
wholly-owned, indirect subsidiary of Pacific USA. Larry D. Horner and Bill C.
Bradley, each a director of the Company, are also Chairman of the Board and a
director, respectively, of Laidlaw Holdings, Inc., the sole shareholder of
Laidlaw Global Securities, Inc. As a result of the foregoing, this offering is
subject to the provisions of Section 2720 of the Conduct Rules of the NASD
(formerly Schedule E to the Bylaws of the NASD) ("Section 2720"). Accordingly,
the underwriting arrangements for this offering will conform with the
requirements set forth in Section 2720. In particular, the price at which such
offering is to be distributed to the public must be at a price no higher than
that recommended by a "qualified independent underwriter" who has also
participated in the preparation of the Registration Statement and the prospectus
and who meets certain standards. In accordance with this requirement, Dain
Rauscher Incorporated will serve in such role and will recommend the public
offering price in compliance with the requirements of Section 2720. Dain
Rauscher Incorporated, in its role as qualified independent underwriter, has
performed the due diligence investigations and reviewed and participated in the
preparation of the Prospectus and the Registration Statement of which the
Prospectus forms a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for
the Company by Wolin, Ridley & Miller LLP, Dallas, Texas. Certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Andrews & Kurth L.L.P., Houston, Texas. Andrews & Kurth L.L.P. has represented
other subsidiaries of Pacific USA from time to time in connection with asset
securitization matters.
EXPERTS
The financial statements and schedules of Newmark Homes Corp. 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.
The financial statements of the Westbrooke Communities, Inc. and Affiliates
at December 31, 1995 and 1996 and for the years then ended appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent certified public accountants, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
44
<PAGE> 46
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (as amended and together with
all exhibits thereto, the "Registration Statement") under the Securities Act,
with respect to the shares of Common Stock offered pursuant to this Prospectus.
This Prospectus has been filed as part of the Registration Statement and does
not contain all of the information set forth in the Registration Statement, as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract, agreement or other
document referred to herein are not necessarily complete and, where such
agreement or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made for a full statement of the provisions
thereof. For further information with respect to the Company and the Common
Stock, reference is hereby made to the Registration Statement and to the
schedules and exhibits thereto.
The Registration Statement and the exhibits may be inspected, without
charge, and copies may be obtained, at prescribed rates, at the public reference
facilities of the Commission maintained at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549, or on the Internet at http://www.sec.gov. Copies of
the Registration Statement and the exhibits may also be inspected, without
charge, at the Commission's regional offices at 7 World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, copies of the Registration Statement and
the exhibits may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, DC 20549 and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates.
As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities and regional offices referred to above. The Company intends
to furnish its shareholders with annual reports containing consolidated
financial statements certified by its independent auditors and with quarterly
reports for each of the first three quarters of each fiscal year containing
unaudited consolidated financial information.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Newmark Homes Corp.:
Pro Forma Condensed Consolidated Financial Statements
(unaudited)............................................ F-2
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1997.................................... F-3
Pro Forma Condensed Consolidated Statement of
Operations for the Nine Months Ended September 30,
1997.................................................. F-4
Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1996....... F-5
Notes to Pro Forma Condensed Consolidated Financial
Statements............................................ F-6
Historical Financial Statements:
Independent Auditors' Report........................... F-9
Consolidated Balance Sheets as of December 31, 1995 and
1996 and September 30, 1997 (unaudited)............... F-10
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1995 and 1996 and the Nine
Months Ended September 30, 1996 and 1997
(unaudited)........................................... F-11
Consolidated Statements of Stockholder's Equity for the
Years Ended December 31, 1994, 1995 and 1996 and the
Nine Months Ended September 30, 1997 (unaudited)...... F-12
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1995 and 1996 and the Nine
Months Ended September 30, 1996 and 1997
(unaudited)........................................... F-13
Notes to Consolidated Financial Statements............. F-14
Westbrooke Communities, Inc. and Affiliates:
Report of Independent Certified Public Accountants........ F-24
Combined Balance Sheets as of December 31, 1995 and 1996
and September 30, 1997
(unaudited)............................................ F-25
Combined Statements of Income for the Years Ended December
31, 1995 and 1996 and the Nine Months Ended September
30, 1996 and 1997 (unaudited).......................... F-26
Combined Statements of Changes in Capital for the Years
Ended December 31, 1995 and 1996 and the Nine Months
Ended September 30, 1996 and 1997 (unaudited).......... F-27
Combined Statements of Cash Flows for the Years Ended
December 31, 1995 and 1996 and the Nine Months Ended
September 30, 1996 and 1997 (unaudited)................ F-28
Notes to Combined Financial Statements.................... F-29
</TABLE>
F-1
<PAGE> 48
NEWMARK HOMES CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial statements are derived from the
historical financial statements of the Company and Westbrooke Communities, Inc.
and certain of its affiliates ("Westbrooke") included elsewhere in this
Prospectus. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1997 is presented as if the Westbrooke acquisition (the
"Westbrooke Acquisition"), the contribution of notes payable to Pacific USA to
capital (the "Capital Contribution") and the sale of Common Stock offered hereby
(the "Offering") had occurred on September 30, 1997. The Pro Forma Condensed
Consolidated Statements of Operations for the nine months ended September 30,
1997 and the year ended December 31, 1996 are presented as if the Westbrooke
Acquisition, the Capital Contribution and the Offering had occurred on January
1, 1996.
The Pro Forma Condensed Consolidated Financial Statements should be read in
conjunction with the historical consolidated financial statements of Newark
Homes Corp. and subsidiaries, including the notes thereto, included elsewhere in
the Prospectus. The Pro Forma Condensed Consolidated Financial Statements do not
purport to represent the Company's financial position as of September 30, 1997
or the results of operations for the nine months ended September 30, 1997 and
for the year ended December 31, 1996 that would actually have occurred had the
Westbrooke Acquisition, the Capital Contribution and the Offering been completed
on September 30, 1997 or the beginning of the period presented, or to project
the Company's financial position or results of operations as of any future date
or any future period.
F-2
<PAGE> 49
NEWMARK HOMES CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
COMBINED
NEWMARK
COMPANY WESTBROOKE ACQUISITION AND OFFERING PRO
HISTORICAL HISTORICAL ADJUSTMENTS WESTBROOKE ADJUSTMENTS FORMA
---------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash...................... $ 727 $ 3,465 $ (212)(a) $ 3,980 $ -- $ 3,980
Receivables............... 3,335 1,023 -- 4,358 -- 4,358
Inventory................. 94,711 54,108 (1,666)(b) 147,153 -- 147,153
Investment in
unconsolidated
subsidiary.............. 368 -- -- 368 -- 368
Other assets.............. 6,122 3,461 (689)(b) 8,894 -- 8,894
Goodwill, net............. 27,492 -- 9,007(b) 36,499 -- 36,499
-------- ------- -------- -------- -------- --------
Total assets.... $132,755 $62,057 $ 6,440 $201,252 $ -- $201,252
======== ======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Construction loans
payable................. $ 56,715 $30,834 $ -- $ 87,549 $ (8,000)(d) $ 79,549
Bank loan................. -- -- 10,000(a) 10,000 (10,000)(d) --
Acquisition notes
payable................. -- -- 18,245(b) 18,245 -- 18,245
Notes payable to
affiliates.............. 9,817 -- -- 9,817 (9,817)(c) --
Payable to affiliates..... 2,295 -- -- 2,295 -- 2,295
Accounts payable and
accrued liabilities..... 12,327 9,785 (367)(b) 21,745 -- 21,745
Other liabilities......... 5,021 -- -- 5,021 -- 5,021
Subordinated notes
payable................. -- 7,500 (7,500)(a) -- -- --
-------- ------- -------- -------- -------- --------
Total liabilities....... 86,175 48,119 20,378 154,672 (27,817) 126,855
-------- ------- -------- -------- -------- --------
Minority interest in
Westbrooke.............. -- 2,712 (2,712)(a) -- -- --
Stockholders' equity:
Common stock............ 92 45 (45)(b) 92 20(d) 112
9,817(c)
Additional paid-in
capital.............. 42,377 9,955 (9,955)(b) 42,377 17,980(d) 70,174
Retained earnings....... 4,111 1,226 (1,226)(b) 4,111 -- 4,111
-------- ------- -------- -------- -------- --------
Total stockholders'
equity............... 46,580 11,226 (11,226) 46,580 27,817 74,397
-------- ------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity............... $132,755 $62,057 $ 6,440 $201,252 $ -- $201,252
======== ======= ======== ======== ======== ========
</TABLE>
F-3
<PAGE> 50
NEWMARK HOMES CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
NEWMARK
COMPANY WESTBROOKE ACQUISITION AND OFFERING PRO
HISTORICAL HISTORICAL ADJUSTMENTS WESTBROOKE ADJUSTMENTS FORMA
---------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $163,548 $64,843 $ -- $228,391 $ -- $228,391
(1,125)(j)
Cost of sales............. 133,578 57,114 (497)(e) 190,195 (326)(k) 188,744
-------- ------- ------- -------- ------- --------
29,970 7,729 497 38,196 1,451 39,647
Equity in earnings of
unconsolidated
subsidiaries............ 262 -- -- 262 -- 262
Selling, general and
administrative
expenses................ (19,121) (5,686) -- (24,807) -- (24,807)
Depreciation and
amortization............ (1,224) (518) (225)(h) (1,967) -- (1,967)
-------- ------- ------- -------- ------- --------
Operating income........ 9,887 1,525 272 11,684 1,451 13,135
Other income:
Interest expense........ (1,525) -- (1,195)(g) (2,720) -- (2,720)
Other income, net....... 421 431 -- 852 -- 852
-------- ------- ------- -------- ------- --------
Income before income
taxes and minority
interests............ 8,783 1,956 (923) 9,816 1,451 11,267
Income taxes.............. 3,366 -- 393(i) 3,759 551(l) 4,310
-------- ------- ------- -------- ------- --------
Income before minority
interest............. 5,417 1,956 (1,316) 6,057 900 6,957
Minority interests in
Westbrooke........... -- 197 (197)(f) -- -- --
-------- ------- ------- -------- ------- --------
Net income.............. $ 5,417 $ 1,759 $(1,119) $ 6,057 $ 900 $ 6,957
======== ======= ======= ======== ======= ========
Net income per common
share................... $ 0.59 $ 0.66 $ 0.62
======== ======== ========
Weighted average common
shares outstanding...... 9,200 9,200 11,200
</TABLE>
F-4
<PAGE> 51
NEWMARK HOMES CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
COMPANY WESTBROOKE ACQUISITION NEWMARK AND OFFERING
HISTORICAL HISTORICAL ADJUSTMENTS WESTBROOKE ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $191,998 $124,301 $ -- $316,299 $ -- $316,299
(1,500)(j)
Cost of sales............. 157,407 108,950 (662)(e) 265,695 (231)(k) 263,964
-------- -------- ------- -------- ------- --------
34,591 15,351 662 50,604 1,731 52,335
Equity in earnings of
unconsolidated
subsidiaries............ 792 -- -- 792 -- 792
Selling, general and
administrative
expenses................ (22,976) (7,999) -- (30,975) -- (30,975)
Depreciation and
amortization............ (1,524) (586) (300)(h) (2,410) -- (2,410)
-------- -------- ------- -------- ------- --------
Operating
income............... 10,883 6,766 362 18,011 1,731 19,742
Other income:
Interest expense........ (1,238) -- (1,327)(g) (2,565) -- (2,565)
Other income, net....... 851 673 -- 1,524 -- 1,524
-------- -------- ------- -------- ------- --------
Income before income
taxes and minority
interests............ 10,496 7,439 (965) 16,970 1,731 18,701
Income taxes.............. 4,164 -- 2,460(i) 6,624 658(l) 7,282
-------- -------- ------- -------- ------- --------
Income before minority
interests............... 6,332 7,439 (3,425) 10,346 1,073 11,419
Minority interests in
Westbrooke.............. -- 1,384 (1,384)(f) -- -- --
-------- -------- ------- -------- ------- --------
Net income.............. $ 6,332 $ 6,055 $(2,041) $ 10,346 $ 1,073 $ 11,419
======== ======== ======= ======== ======= ========
Net income per common
share................ $ 0.69 $ 1.12 $ 1.02
======== ======== ========
Weighted average common
shares outstanding... 9,200 9,200 11,200
</TABLE>
F-5
<PAGE> 52
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
Effective January 1, 1998, the Company acquired Westbrooke, a leading
builder of single-family homes in the South Florida market. Pursuant to the
Stock Purchase Agreement between the Company, Pacific USA and Westbrooke, the
consideration for the purchase of all of the outstanding capital stock of
Westbrooke consisted of (i) $12,341,000 in promissory notes (the "Acquisition
Notes") bearing interest at 6.45% per annum and payable annually over five years
and (ii) deferred consideration of up to $7.5 million contingent upon Westbrooke
achieving specified cumulative income targets over a period of five years.
Pursuant to the Stock Purchase Agreement, in order for the income targets to be
met, Westbrooke must achieve net income before income tax (as determined in
accordance with the Stock Purchase Agreement) on a cumulative basis of
$3,400,000, $7,040,000, $10,920,000, $15,040,000 and $19,400,000 for the fiscal
years ending December 31, 1998, 1999, 2000, 2001 and 2002, respectively.
Additionally, a promissory note bearing interest at 9% and payable within one
year of the closing of the acquisition will be issued to the sellers (as
additional purchase price) based on the estimated amount by which stockholders'
equity of Westbrooke exceed $5.0 million at closing. Based on the balance of
Westbrooke's stockholder's equity at September 30, 1997 of $11,226,000, the
principal balance of this note would have been $5,904,000.
In connection with the acquisition of Westbrooke by the Company, Westbrooke
borrowed $10.0 million under a bank loan (the "Westbrooke Bank Loan") to repay
the $7.5 million outstanding balance of its subordinated notes (the
"Subordinated Notes") and to redeem $2.5 million of minority interests in
Westbrooke (collectively, the pre-acquisition transactions). Upon the
acquisition of Westbrooke and the subsequent funding of this offering, the
Company intends to use $10 million of the net proceeds of the offering to repay
the Westbrooke Bank Loan.
Contemporaneously with the consummation of the Offering, all of the
indebtedness owed to Pacific USA ($9.8 million at September 30, 1997) will be
contributed to capital of the Company (the "Capital Contribution").
The pro forma adjustments to the Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
(a) To record the pre-acquisition transactions by
Westbrooke:
Proceeds from the Westbrooke Bank Loan............... $ 10,000
Reduction in cash.................................... (212)
Repayment of the Subordinated Notes.................. (7,500)
Redemption of minority interest in Westbrooke........ (2,712)
Minority interest in Westbrooke in excess of $2.5
million are to be distributed to the minority owner
from available cash.
(b) To record the Westbrooke Acquisition and related
purchase accounting adjustments:
Issuance of the Acquisition Notes.................... $ 18,245
Reduction of inventory............................... (1,666)
Reduction in other assets............................ (689)
Goodwill............................................. 9,007
Reduction in accounts payable and accrued
liabilities......................................... (367)
Elimination of stockholders' equity of Westbrooke:
Common Stock...................................... $ (45)
Additional paid-in capital........................ (9,955)
Retained earnings................................. (1,226)
--------
$ 11,226
========
</TABLE>
F-6
<PAGE> 53
Excluded from the acquisition of Westbrooke are a
condominium with a carrying value of $689,000 and a
mortgage note payable on the condominium of $367,000
which will be distributed to the seller prior to
consummation of the acquisition.
(c) To record the Capital Contribution...................... $ 9,817
(d) To record the estimated net proceeds from the Offering
and the anticipated use of proceeds therefrom:
Common Stock......................................... $ 20
Additional paid in capital........................... 17,980
--------
Net proceeds from the Offering.................... $ 18,000
Repayment of the Westbrooke Bank Loan................ (10,000)
Repayment of construction notes payable.............. (8,000)
The pro forma adjustments to the Pro Forma Condensed Consolidated Statement
of Operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 are as follows.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
(e) To record the net decrease in cost of sales due
to the reduction of interest incurred
resulting from the repayment of the
Subordinated Notes (which bear interest at
19.5%) and the borrowings under the
Westbrooke Bank Loan (at an estimated
interest rate of 8.0%):
Interest on the Subordinated Notes.......... $(1,462) $(1,097)
Interest on the Westbrooke Bank Loan........ 800 600
-------- --------
$ (662) $ (497)
======== ========
(f) To record the elimination of minority interests
in Westbrooke............................... $(1,384) $ (197)
(g) To record interest on the Acquisition Notes.... $(1,327) $(1,195)
(h) Amortization of goodwill acquired in the
Westbrooke Acquisition...................... $ (300) $ (225)
(i) Tax effect of Westbrooke income and pro forma
adjustments resulting from the Westbrooke
Acquisition................................. $ 2,460 $ 393
Westbrooke qualified as a Subchapter S
corporation for tax purposes; accordingly,
no taxes have been recorded on the
historical financial statements of
Westbrooke. The pro forma adjustments for
income taxes have been recorded at the
estimated effective tax rate of the Company
of 38%.
</TABLE>
F-7
<PAGE> 54
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
(j) To record the decrease in cost of sales due to
the reduction of interest incurred resulting
from the repayment of the Westbrooke Bank
Loan (with an estimated interest rate of
8.0%) and $8.0 million of construction notes
payable (which bear interest at 8.75%) from
the net proceeds from the Offering:
Interest on the Westbrooke Bank Loan........ $ (800) $ (600)
Interest on construction notes payable...... (700) (525)
-------- --------
$(1,500) $(1,125)
======== ========
(k) To record the decrease in cost of sales due to
the reduction of interest incurred resulting
from the Capital Contribution............... $ (231) $ (326)
(l) To record tax effect of pro forma adjustments
related to the Capital Contribution and the
use of net proceeds from the Offering....... $ 658 $ 551
</TABLE>
F-8
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
WHEN THE TRANSACTION REFERRED TO IN NOTE 2(j) OF THE NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING REPORT.
KPMG Peat Marwick LLP
The Board of Directors
Newmark Homes Corp.:
We have audited the accompanying consolidated balance sheets of Newmark
Homes Corp. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the years for the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Newmark
Homes Corp. and subsidiaries 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.
Dallas, Texas
February 14, 1997, except as to
Note 2(j), which is as of
and Note 11, which is
as of January 1, 1998
F-9
<PAGE> 56
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash....................................................... $ 250 $ 642 $ 727
Certificate of deposit (note 7)............................ 1,000 1,000 --
Receivables:
Title companies.......................................... 1,095 1,364 2,930
Affiliates............................................... 191 50 --
Other.................................................... 263 842 405
Inventory (notes 4, 7 and 8):
Single family residences................................. 48,034 67,141 73,994
Lots..................................................... 11,655 16,518 20,717
-------- -------- --------
59,689 83,659 94,711
Land held for development (notes 4 and 8).................. 5,631 325 450
Note receivable (note 5)................................... 3,034 -- --
Investment in unconsolidated subsidiaries (note 6)......... 1,773 1,448 368
Property, premises and equipment, net of accumulated
depreciation of $409, $676 and $945 in 1995, 1996, and
1997, respectively....................................... 1,034 1,691 2,832
Deferred tax asset, net (note 9)........................... 436 966 969
Other assets (note 4)...................................... 918 955 1,871
Goodwill, net of accumulated amortization of $1,710, $2,740
and $3,256 in 1995, 1996, and 1997, respectively (note
3)....................................................... 29,231 28,235 27,492
-------- -------- --------
Total assets..................................... $104,545 $121,177 $132,755
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Construction loans payable (note 7)........................ $ 39,859 $ 56,462 $ 56,715
Notes payable to affiliates (note 8)....................... 7,569 4,306 9,817
Other payables to affiliates (notes 8 and 9)............... 971 2,062 2,295
Accounts payable and accrued liabilities................... 7,689 10,162 12,327
Other liabilities (note 10)................................ 2,644 4,256 5,021
-------- -------- --------
Total liabilities................................ 58,732 77,248 86,175
-------- -------- --------
Stockholder's equity (note 7):
Common stock -- $.01 par value; 30,000,000 shares
authorized, 9,200,000 shares issued and outstanding... 92 92 92
Additional paid-in capital............................... 43,439 42,415 42,377
Retained earnings........................................ 2,282 1,422 4,111
-------- -------- --------
Total stockholder's equity....................... 45,813 43,929 46,580
Commitments and contingencies (notes 3, 7 and 10)..........
-------- -------- --------
Total liabilities and stockholder's equity....... $104,545 $121,177 $132,755
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-10
<PAGE> 57
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $108,630 $125,427 $191,998 $139,727 $163,548
Cost of sales (note 4)....................... 86,260 102,591 157,407 114,059 133,578
-------- -------- -------- -------- --------
Gross profit................................. 22,370 22,836 34,591 25,668 29,970
Equity in earnings from unconsolidated
subsidiaries(note 6)....................... -- 1,978 792 660 262
Selling, general and administrative
expenses................................... (12,928) (16,572) (22,976) (17,282) (19,121)
Depreciation and amortization................ (831) (1,271) (1,524) (1,110) (1,224)
-------- -------- -------- -------- --------
Operating income........................... 8,611 6,971 10,883 7,936 9,887
Other income (expense):
Interest expense (notes 4 and 8)........... (613) (1,332) (1,238) (943) (1,525)
Other income, net (note 8)................. 191 607 851 665 421
-------- -------- -------- -------- --------
Income before income taxes.............. 8,189 6,246 10,496 7,658 8,783
Income taxes (note 9)........................ 3,205 2,477 4,164 2,952 3,366
-------- -------- -------- -------- --------
Net income.............................. $ 4,984 $ 3,769 $ 6,332 $ 4,706 $ 5,417
======== ======== ======== ======== ========
Net income per common share.................. $ 0.54 $ 0.41 $ 0.69 $ 0.51 $ 0.59
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-11
<PAGE> 58
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1993............................ $ 2 $25,221 $ 809 $26,032
Additional capital contribution....................... -- 4,660 -- 4,660
Initial capital contribution of the Company (note
2).................................................. 92 (91) -- 1
Net income............................................ -- -- 4,984 4,984
--- ------- ------- -------
Balance, December 31, 1994............................ 94 29,790 5,793 35,677
Contribution of Newmark Homes Corporation and Pacific
United Development Corporation (note 2)............. (2) 2 -- --
Acquisition of The Adler Companies, Inc. (note 3)..... -- 13,211 -- 13,211
Additional capital contribution....................... -- 436 -- 436
Dividends Paid........................................ -- -- (7,280) (7,280)
Net income............................................ -- -- 3,769 3,769
--- ------- ------- -------
Balance, December 31, 1995............................ 92 43,439 2,282 45,813
Capital contribution.................................. -- 1,247 -- 1,247
Dividends paid........................................ -- (2,271) (7,192) (9,463)
Net income............................................ -- -- 6,332 6,332
--- ------- ------- -------
Balance, December 31, 1996............................ 92 42,415 1,422 43,929
Capital contribution (unaudited)...................... -- 125 -- 125
Dividends paid (unaudited)............................ -- (163) (2,728) (2,891)
Net income (unaudited)................................ -- -- 5,417 5,417
--- ------- ------- -------
Balance, September 30, 1997 (unaudited)............... $92 $42,337 $ 4,111 $46,580
=== ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-12
<PAGE> 59
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------------
1994 1995 1996 1996 1997
-------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,984 $ 3,769 $ 6,332 $ 4,706 $ 5,417
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization........................... 831 1,271 1,524 1,110 1,224
Net (gain) loss on sale of property, premises and
equipment............................................. (31) (14) (82) 8 20
Equity in earnings from unconsolidated subsidiaries..... -- (1,978) (792) (660) (262)
Deferred tax (benefit) expense.......................... (135) 254 (518) (50) (3)
Changes in operating assets and liabilities:
Inventory and land held for development, net.......... (14,793) (16,104) (18,664) (12,672) (11,177)
Receivables -- title companies....................... 175 146 (269) (1,552) (1,566)
Receivables -- affiliates and other.................. (91) (329) (438) (230) 487
Other assets.......................................... (715) 504 (49) (242) (916)
Payable to affiliates................................. 764 207 1,091 (742) 233
Accounts payable and accrued liabilities.............. (946) 2,887 2,473 2,926 2,165
Other liabilities..................................... (209) 561 1,612 1,721 765
-------- -------- -------- --------- --------
Net cash provided by (used in) operating activities... (10,166) (8,826) (7,780) (5,677) (3,613)
-------- -------- -------- --------- --------
Cash flows from investing activities:
Proceeds from maturity of certificate of deposit.......... 1,000 1,000 1,000 1,000 1,000
Purchase of certificate of deposit........................ (1,000) (1,000) (1,000) (1,000) --
Advance on note receivable................................ -- (3,034) -- -- --
Repayment of note receivable.............................. -- -- 3,034 3,034 --
Purchases of property, premises and equipment............. (389) (709) (1,285) (576) (1,635)
Proceeds from sales of property, premises and equipment... 60 82 216 92 24
Acquisition of Adler (note 3)............................. -- 27 -- -- --
Other..................................................... (79) -- (34) (24) (31)
Investment in unconsolidated subsidiaries................. -- (17) -- -- (105)
Distributions from unconsolidated subsidiaries............ -- 144 1,117 518 1,447
-------- -------- -------- --------- --------
Net cash provided by (used in) investing activities... (408) (3,507) 3,048 3,044 700
-------- -------- -------- --------- --------
Cash flows from financing activities:
Capital contributions received............................ 4,661 436 1,247 603 125
Dividends paid............................................ -- (7,280) (9,463) (3,425) (2,891)
Proceeds from advances on construction loans payable...... 59,147 91,398 133,349 94,158 105,355
Principal payments on construction loans payable.......... (58,792) (74,024) (116,746) (87,815) (105,102)
Proceeds from advances on notes payable
to affiliate............................................ 6,300 1,269 4,455 3,172 6,885
Principal payments on notes payable to affiliate.......... -- -- (7,718) (4,015) (1,374)
-------- -------- -------- --------- --------
Net cash provided by financing activities............. 11,316 11,799 5,124 2,678 2,998
-------- -------- -------- --------- --------
Increase (decrease) in cash................................. 742 (534) 392 45 85
Cash, beginning of period................................... 42 784 250 250 642
-------- -------- -------- --------- --------
Cash, end of period......................................... $ 784 $ 250 $ 642 $ 295 $ 727
======== ======== ======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest................................................ $ 2,196 $ 3,739 $ 4,928 $ 3,602 $ 4,840
======== ======== ======== ========= ========
Income taxes............................................ $ 2,975 $ 2,307 $ 3,164 $ 3,164 $ 3,054
======== ======== ======== ========= ========
</TABLE>
See accompanying note 3 for supplemental disclosure of noncash investing and
financing activities.
See accompanying notes to the consolidated financial statements.
F-13
<PAGE> 60
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, 1996
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
(1) ORGANIZATION
Newmark Homes Corp. (NHC) and subsidiaries (the Company) is a wholly owned
subsidiary of Pacific Realty Group (PRG) and ultimately a subsidiary of Pacific
USA Holdings Corp. (PUSA). NHC was formed in December 1994 to serve as a real
estate holding company.
NHC's primary subsidiaries are as follows:
<TABLE>
<CAPTION>
SUBSIDIARY NATURE OF BUSINESS
---------- ------------------
<S> <C>
Newmark Home Corporation (Newmark)................. Single-family residential homebuilding in Texas and
Tennessee
The Adler Companies, Inc. (Adler).................. Single-family residential homebuilding in Florida
Pacific United Development Corporation
(PUDC)........................................... Residential lot developer in Texas and Tennessee
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the homebuilding
industry. The following summarizes the more significant of these policies.
(a) Basis of Presentation
The consolidated financial statements include the accounts of NHC and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements. On February 24, 1995 and
May 1, 1995 the common stock of Newmark and PUDC, respectively, which were both
wholly-owned subsidiaries of PUSA, were contributed to the Company. The
contributions were accounted for at historical cost in a manner similar to
pooling of interests. As a result, these consolidated financial statements have
been restated on a combined basis for all periods prior to the combination.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Effective January 1, 1996, 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 (Statement
121). Statement 121 addresses the accounting for the impairment of long-lived
assets, certain identifiable intangibles and goodwill when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is evaluated by estimating future undiscounted cash
flows expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows is less than the carrying amount of
the assets, an impairment loss is recognized. Fair value, for purposes of
calculating impairment, is measured based on discounted future cash flows using
a risk-adjusted discount rate. The Company's adoption of Statement 121 had no
effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 128, issued in February
1997, established standards for computing and presenting earnings per share
(EPS). This Statement replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS. This Statement will be effective for the Company's year ending December 31,
1997.
F-14
<PAGE> 61
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
Statement of Financial Accounting Standards No. 129, issued in February
1997, requires certain disclosures about an entity's capital structure. The
Company does not believe that this statement will have an impact on future
results from operations or liquidity. This statement will be effective for the
Company's year ending December 31, 1997.
Statement of Financial Accounting Standards No. 130, issued in June 1997,
established standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The Company
does not believe that this statement will have an impact on future results from
operations or liquidity. This statement is effective for fiscal periods
beginning after December 15, 1997.
Statement of Financial Accounting Standards No. 131, issued in June 1997,
requires that public business enterprises report certain information about
operating segments, products and services, the geographic areas in which they
operate and their major customers. The Company does not believe that this
statement will have an impact on future results from operations or liquidity.
This statement is effective for fiscal years beginning after December 15, 1997.
The Company conducts business primarily in Texas, Florida and Tennessee.
Accordingly, the market value of the Company's inventory is susceptible to
changes in market conditions that may occur in Texas, Florida and Tennessee.
(b) Receivables from Title Companies
Receivables from title companies consist of sales proceeds due for homes
sold and closed, less amounts withheld by the title companies for disbursement
to third parties.
(c) Inventory and Land Held for Development
Single family residences are recorded at the lower of cost or estimated net
realizable value. Net realizable value is defined as the estimated proceeds upon
disposition, less applicable future costs to complete and sell. Construction
costs are accumulated during the period of construction. The Company utilizes
the specific identification method of charging construction costs to cost of
sales as units are sold. Common construction overhead costs are allocated to
each individual unit (home) in the various subdivisions based upon the total
number of units to be constructed in each subdivision community.
Interest cost and overhead related to construction activities, primarily
salaries and benefits of supervisors and support staff, are capitalized as
construction costs during the construction period and charged to cost of sales
as the related inventories are sold. General and administrative costs and
selling costs are expensed at the time they are incurred.
(d) Property, Premises and Equipment
Property, premises and equipment, consisting primarily of office premises,
transportation equipment, office furniture and fixtures, and model home
furniture, are carried at cost net of accumulated depreciation. Office premises
and transportation equipment are depreciated using the straight-line method over
thirty years and five years, respectively. Furniture and fixtures and model home
furniture are depreciated over estimated useful lives of three to seven years
using the declining balance method switching to the straight-line method in the
year that depreciation, computed on the straight-line method, equals or exceeds
that determined under the declining-balance method.
(e) Purchase Options
The Company enters into lot option contracts and contracts to purchase
undeveloped land. When the Company does not exercise an option, its liability is
limited to the forfeiture of the related deposit (note 4).
F-15
<PAGE> 62
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
Consequently, the Company's policy is to record the lots or land and the related
liabilities at the time such are purchased and legal title has passed.
(f) Goodwill
The excess of the purchase price paid by the Company over the fair value of
net assets acquired is recorded as goodwill and is being amortized on a
straight-line basis over 30 years.
The Company evaluates goodwill for impairment periodically by determining
whether the amortization of the balance over its remaining life can be recovered
through future operations of the Company.
(g) Revenue Recognition
Revenue is generally recognized at the time of the closing of the sale,
when title to and possession of the property transfers to the buyer.
(h) Advertising Costs
As incurred, the Company expenses advertising costs, consisting primarily
of newspaper and trade publications, signage and the cost of maintaining an
internet web site. Advertising expense included in selling, general and
administrative expenses for the years ended December 31, 1994, 1995 and 1996 was
approximately $1.8 million, $1.9 million and $3.1 million, respectively.
(i) Income Taxes
The Company is included in the consolidated federal income tax return of
PUSA. Under a tax sharing agreement with PUSA, the Company is required to
calculate its federal income tax on a separate company basis and pay to PUSA the
amount of the liability. The Company is entitled to receive payments from PUSA.
Such payment is only available to the extent the benefits calculated can be
utilized to offset prior separate company income through carryback or, if
carried forward, at the time such benefits are fully utilized to offset separate
company income.
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. 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.
(j) Earnings Per Share
The Company intends to file in December 1997 a registration statement on
Form S-1 with the Securities and Exchange Commission for the issuance of common
stock (the "Offering"). In connection with the Offering, the Company is expected
to declare a 92-for-1 split of its common stock outstanding. The accompanying
consolidated financial statements have been restated to reflect this split.
Earnings per share are computed using the weighted average number of shares
outstanding of 9,200,000 for the years ending December 31, 1994, 1995 and 1996
and for the nine months ended September 30, 1996 and 1997.
(k) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires companies to disclose the
estimated fair value of their financial instrument assets and
F-16
<PAGE> 63
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
liabilities. Fair value estimates are made at a specific point in time, based
upon relevant market information about the financial instrument. These estimates
do not reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular instrument. The
carrying values of cash, other receivables, accounts payable and accrued
liabilities approximate their fair values due to their short-term nature. The
carrying value of construction loans payable approximates its fair value as
substantially all of the debt has a fluctuating interest rate based upon a
current market index.
(l) Interim Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements at September 30, 1997 and for the nine-month periods ended September
30, 1996 and 1997 include all adjustments, consisting of normal recurring
accruals, necessary to present fairly the Company's consolidated financial
position at September 30, 1997 and the consolidated results of operations and
cash flows for the nine-month periods ended September 30, 1996 and 1997. Results
for the period ended September 30, 1997 are not necessarily indicative of the
results to be expected for the entire fiscal year.
(3) ACQUISITION
On March 1, 1995, NHC Florida Acquisition Company (subsequently renamed The
Adler Companies, Inc.), a wholly owned subsidiary of PUSA, acquired the Miami,
Florida homebuilding operations of The Adler Family Partnership for an initial
purchase price of $12.9 million, consisting of $9.6 million in cash and a note
payable due from PUSA of $3.3 million. PUSA subsequently contributed Adler to
the Company. This acquisition has been accounted for using the purchase method
and, accordingly, the operating results of Adler have been included in the
Company's consolidated operating results since the effective date of the
acquisition.
The note payable from PUSA to The Adler Family Partnership was not assumed
by the Company. The Company is a guarantor on a letter of credit issued by a
financial institution as security for the note. The amount of this note payable
at December 31, 1995 and 1996 was $3.3 million and $2.7 million, respectively.
As of March 1, 1995, the fair values of assets acquired and liabilities
assumed, exclusive of cash acquired of $174,000, were as follows (in thousands):
<TABLE>
<S> <C>
Inventory................................................... $ 2,744
Receivables -- title company................................ 139
Property and equipment...................................... 86
Investment in partnership................................... (78)
Other assets................................................ 601
Goodwill.................................................... 12,416
Construction loans payable.................................. (2,378)
Other liabilities........................................... (755)
-------
$12,775
=======
</TABLE>
Additional acquisition costs of $263,000 and $147,000 were incurred by the
PUSA and the Company, respectively, and recorded to goodwill.
F-17
<PAGE> 64
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
(4) INVENTORY
The inventory of single family residences as of December 31, 1995 and 1996
and September 30, 1997 consists of the following:
<TABLE>
<CAPTION>
NUMBER OF HOMES CARRYING VALUE
----------------------------- -----------------------------------
DECEMBER 31, DECEMBER 31,
------------ SEPTEMBER 30, ------------------ SEPTEMBER 30,
1995 1996 1997 1995 1996 1997
---- ---- ------------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Completed............. 102 110 115 $17,359 $18,359 $20,646
Under construction.... 232 398 452 24,221 43,218 45,399
Models................ 35 28 36 6,454 5,564 7,949
--- --- --- ------- ------- -------
369 536 603 $48,034 $67,141 $73,994
=== === === ======= ======= =======
</TABLE>
A summary of interest capitalized in inventory is as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- --------------------
1994 1995 1996 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Interest capitalized, beginning of
period................................ $1,179 $ 820 $1,061 $1,061 1,494
Interest incurred....................... 1,675 3,302 4,596 3,710 4,844
Less interest included in:
Cost of sales......................... 1,421 1,729 2,925 2,025 2,689
Other income (expense)................ 613 1,332 1,238 943 1,525
------ ------ ------ ------ ------
Interest capitalized, end of period..... $ 820 $1,061 $1,494 $1,803 $2,124
====== ====== ====== ====== ======
</TABLE>
In the ordinary course of business, the Company enters into contracts to
purchase lots and land for development. At December 31, 1995 and 1996 and
September 30, 1997, the Company had nonrefundable deposits aggregating $531,000,
$452,000 and $160,000 included in other assets in the accompanying consolidated
balance sheets, for lots and land with a related purchase price of approximately
$39.0 million, $30.3 million and $54.7 million, respectively. The Company's
liability for nonperformance under such contracts is limited to forfeiture of
the related deposits.
(5) NOTE RECEIVABLE
Note receivable represents an amount receivable from the sale of
undeveloped land. The terms of the note required quarterly payments of principal
and interest at a rate of 10%. The note was paid in full during 1996.
(6) INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Investment in unconsolidated subsidiaries at December 31, 1995 and 1996
represents the Company's 50% general partnership interest in the Twin Acres
Partnership (Twin Acres). Twin Acres owns certain land in Broward County,
Florida, for the purpose of developing, constructing and selling single family
residences. The Company obtained its investment in Twin Acres in 1995 in the
acquisition of Adler (see note 3). The Company does not have control of Twin
Acres and therefore has accounted for its partnership interest using the equity
method.
F-18
<PAGE> 65
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
Summarized financial information for Twin Acres is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- ------
<S> <C> <C>
Assets:
Cash and receivables...................................... $ 1,186 $ 441
Lot inventory............................................. 5,267 1,988
Single family residence inventory......................... 4,917 1,833
Other assets.............................................. 78 93
------- ------
$11,448 $4,355
======= ======
Liabilities:
Accounts payable.......................................... $ 748 $ 126
Customer deposits......................................... 882 396
Construction loans payable................................ 5,515 950
------- ------
7,145 1,472
Partners' capital........................................... 4,303 2,883
------- ------
$11,448 $4,355
======= ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Revenues.................................................... $38,872 $19,869
Cost of sales............................................... 29,352 15,488
------- -------
9,520 4,381
Subdivision overhead........................................ 5,495 2,819
Other, net.................................................. (62) (29)
------- -------
Net income................................................ $ 4,087 $ 1,591
======= =======
</TABLE>
The construction loans payable require monthly payments of interest only at
prime plus 1% through April 1997, at which time all unpaid interest and
principal is due. The due date of the construction loans was extended to October
21, 1997, by which time Twin Acres is scheduled to close on the sale of the
remainder of its homes and will utilize the proceeds from these closings to
repay the loan.
During 1997, the Company acquired a 49% interest in Pacific Title L.L.C., a
title agency, for $24,000 and a 50% interest in NHC Mortgage, a mortgage finance
company, for $81,000. The Company does not have control of these entities and
therefore has accounted for its interests using the equity method.
F-19
<PAGE> 66
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
(7) CONSTRUCTION LOANS PAYABLE
Construction loans payable consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Construction and lot loans with financial institutions,
collateralized by lots and single family residences
completed or under construction, bearing interest at the
prime rate plus 0.50% to 1.50% (8.75% to 9.75% at December
31, 1996), maturing upon completion and sale of the homes
as defined in the loan agreement. $36,114 $52,635
$4,500,000 revolving construction loan with a financial
institution collateralized by single-family residences
completed and under construction, interest payable monthly
at prime plus 1.50% (9.75% at December 31, 1996), with
final maturity in August 1998. 2,416 1,421
Promissory note drawn on line of credit with a bank,
collateralized by a deed of trust on property, bearing
interest at a reference rate plus 0.75% (9.00% at December
31, 1996) payable monthly, maturing July 31, 1998. -- 1,391
Revolving line of credit with a financial institution,
collateralized by a certificate of deposit, due on demand
on or before January 31, 1997; interest due monthly at
1.00% in excess of the rate earned on the collateral
(5.90% at December 31, 1996). 1,000 1,000
Promissory note payable to an individual, collateralized by
single family residences completed or under construction,
interest due quarterly at 7%. 308 --
Other 21 15
------- -------
$39,859 $56,462
======= =======
</TABLE>
Construction and lot loans are generally repaid as sales of individual
homes are closed and therefor are considered current at December 31, 1997. At
December 31, 1996, the Company had unused lines of credit for construction loans
totaling approximately $114 million.
Certain of the Company's lenders require, among other things, that the
Company maintain minimum tangible net worth levels and debt to tangible net
worth ratios. At December 31, 1996, the Company was in compliance with such
requirements after receipt of certain debt waivers from the lenders. Certain
debt agreements of NHC's subsidiaries restrict the subsidiaries' ability to pay
dividends or advance funds to NHC to the extent that the payment would put the
subsidiary in violation of debt covenants. Under the most restrictive of these
covenants, there was no restriction on the amount of retained earnings available
to pay dividends at December 31, 1996.
Certain of the Company's construction and lot loans are guaranteed by PUSA.
The outstanding balance of Company loans guaranteed by PUSA was $112,000 at
December 31, 1996. Additionally, the Company and PUSA guarantees construction
loans payable by Twin Acres. Twin Acres' loans guaranteed by the Company and
PUSA totaled approximately $950,000 at December 31, 1996 and are secured by lots
and single family residences. Twin Acres' loans matured in April 1997.
(8) PAYABLE TO AFFILIATES
Payable to affiliates consists of amounts owed by Newmark, Adler and PUDC
to PUSA. Of the total amount owed at December 31, 1995 and 1996, $7.6 million
and $4.3 million, respectively, was in the form of notes payable that accrue
interest at various rates, notes payable owed by PUDC to PUSA are collateralized
by land
F-20
<PAGE> 67
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
held for commercial development and single family residential lots. Total
interest paid to PUSA during the years ended December 31, 1994, 1995 and 1996
was approximately $326,000, $432,000 and $439,000, respectively.
The Company purchases insurance policies from an affiliated insurance
broker. The affiliated entity earned commissions of $69,000 and $89,000 in 1995
and 1996, respectively, with respect to such policies. PUSA provides certain
administrative services to the Company including legal services, payroll and
benefit processing, and the evaluation, negotiation and purchase of office
supplies, long distance and overnight-delivery services, for which the Company
has not been charged. The Company also purchases demographic and economic
research information through an affiliate for $10,000 per year.
The Company provides various managerial services to Twin Acres for which it
receives a fee. For the years ended December 31, 1995 and 1996, management fees
included in other income were $607,000 and $851,000, respectively.
(9) INCOME TAXES
Components of income tax expense (benefit) consist of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $3,006 $2,057 $4,231
State.............................................. 334 166 451
------ ------ ------
3,340 2,223 4,682
Deferred:
Federal............................................ (119) 224 (459)
State.............................................. (16) 30 (59)
------ ------ ------
(135) 254 (518)
------ ------ ------
$3,205 $2,477 $4,164
====== ====== ======
</TABLE>
The difference between total reported income taxes and expected income tax
expense computed using the federal statutory income tax rate of 34% for 1994 and
1995 and 35% for 1996, is reconciled as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense............................. $2,784 $2,124 $3,674
Goodwill amortization....................................... 204 205 211
State taxes, net of federal benefit......................... 210 129 255
Other....................................................... 7 19 24
------ ------ ------
$3,205 $2,477 $4,164
====== ====== ======
</TABLE>
F-21
<PAGE> 68
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
Significant temporary differences that give rise to the deferred tax assets
and liabilities as of December 31, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ -----
<S> <C> <C>
Deferred tax assets:
Warranty reserve.......................................... $ 214 $ 240
Advertising accrual....................................... 60 145
Property, premises and equipment, principally due to
differences in depreciation............................ 50 35
Capitalized interest...................................... 201 184
Accrued bonuses........................................... 401 592
Other..................................................... 142 150
------ -----
Total gross deferred tax assets................... 1,068 1,346
------ -----
Deferred tax liabilities:
Amortizable intangibles................................... (95) (262)
Partnership investment.................................... (517) (100)
Other..................................................... (20) (18)
------ -----
Total gross deferred tax liabilities.............. (632) (380)
------ -----
Net deferred tax asset............................ $ 436 $ 966
====== =====
</TABLE>
Management of the Company believes that it is more likely than not that the
gross deferred tax assets will be realized or settled due to the Company's
ability to generate taxable income exclusive of reversing timing differences.
Accordingly, no valuation allowance was established at December 31, 1995 and
1996.
Included in payable to affiliates at December 31, 1995 and 1996 is $1.0
million and $2.0 million payable to PUSA under terms of the tax sharing
agreement. Payments of $2.8 million, $1.8 million and $3.0 million,
respectively, were made to PUSA for federal income taxes during 1994, 1995 and
1996, under the aforementioned agreement.
(10) COMMITMENTS AND CONTINGENCIES
The Company leases office premises and equipment under noncancelable
operating leases. Future minimum payments under these noncancelable operating
leases for the fiscal years ending on December 31 are as follows:
1997 -- $244,000; 1998 -- $183,000; 1999 -- $101,000; 2000 -- $77,000; and
2001 -- $1,000.
Rental expense for the year ended December 31, 1994, 1995 and 1996
aggregated $104,000, $268,000 and $340,000, respectively.
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 consolidated financial position.
The Company provides homebuyers with a two year limited warranty of
workmanship and materials from the date of sale. The Company generally has
recourse against its subcontractors for claims relating to workmanship and
materials. The Company also provides a ten-year homeowner's warranty through a
single national contract through a third party. This warranty generally covers
major structural defects. Estimated warranty costs are recorded at the time of
sale. As of December 31, 1995 and 1996, the liability for warranty costs was
$560,000 and $569,000, respectively, and was included in other liabilities.
F-22
<PAGE> 69
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
IS UNAUDITED)
(11) WESTBROOKE ACQUISITION
Effective January 1, 1998, the Company acquired all of the outstanding
stock of Westbrooke Communities, Inc. and its affiliated entities
("Westbrooke"), a single-family home builder in South Florida. The initial
purchase price for Westbrooke was $18.7 million in the form of promissory notes.
($12.3 million notes payable bearing interest at 6.45% payable annually over
five years and a $6.4 million note payable bearing interest at 9.0% due on or
before one year from closing.) In addition to the promissory notes, the purchase
agreement requires the Company to pay additional consideration of up to $7.5
million contingent upon Westbrooke achieving specified income targets over the
next five years. In order for the income targets to be met, Westbrooke must
achieve net income before income tax (as defined in the stock purchase
agreement) on a cumulative basis of $3,400,000, $7,040,000, $10,920,000,
$15,040,000 and $19,400,000 for the fiscal years ending December 31, 1998, 1999,
2000, 2001 and 2002, respectively.
The Company also agreed to pay compensation to the minority interest owners
of Westbrooke equal to 6% of net income before income taxes, as defined in the
purchase agreement, contingent upon Westbrooke achieving the cumulative target
income levels discussed above. Such payments will be recorded as compensation
expense in the period in which they are earned.
F-23
<PAGE> 70
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholder
Westbrooke Communities, Inc. and Affiliates
We have audited the accompanying combined balance sheets of Westbrooke
Communities, Inc. and Affiliates (the Companies) as of December 31, 1995 and
1996, and the related combined statements of income, changes in capital and cash
flows for the years then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of Westbrooke
Communities, Inc. and Affiliates at December 31, 1995 and 1996, and the combined
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida
December 2, 1997
F-24
<PAGE> 71
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------- SEPTEMBER 30
1995 1996 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash........................................................ $ 1,203 $ 2,105 $ 1,486
Restricted cash............................................. 2,130 2,823 1,979
Receivables................................................. 1,516 1,877 1,023
Real estate inventory....................................... 48,199 43,553 54,108
Property, furniture and equipment, net of accumulated
depreciation of $274, $399 and $479 at December 31, 1995
and 1996 and September 30, 1997, respectively............. 259 204 931
Other assets................................................ 2,774 2,005 2,530
------- ------- -------
$56,081 $52,567 $62,057
======= ======= =======
LIABILITIES AND CAPITAL
Liabilities:
Accounts payable.......................................... $ 3,287 $ 2,291 $ 2,999
Customer deposits......................................... 4,110 2,862 4,561
Accrued expenses and other liabilities.................... 634 2,458 1,858
Mortgage note payable..................................... -- -- 367
Notes payable............................................. 26,755 21,063 30,834
Subordinated notes payable................................ 7,500 7,500 7,500
------- ------- -------
42,286 36,174 48,119
Minority interest........................................... 3,008 3,627 2,712
Commitments and contingencies
Capital:
Common stock.............................................. 45 45 45
Additional paid-in-capital................................ 9,955 9,955 9,955
Partners' capital/retained earnings....................... 787 2,766 1,226
------- ------- -------
$56,081 $52,567 $62,057
======= ======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE> 72
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
----------------------- ------------------
1995 1996 1996 1997
--------- ---------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................................... $55,241 $124,301 $72,374 $64,843
Cost of sales...................................... 47,793 108,950 62,718 57,114
------- -------- ------- -------
Gross profit..................................... 7,448 15,351 9,656 7,729
Selling, general and administrative expenses....... 4,019 7,999 5,529 5,686
Depreciation and amortization...................... 436 586 435 518
------- -------- ------- -------
Operating income................................. 2,993 6,766 3,692 1,525
Other income:
Interest income.................................. 174 144 94 114
Other............................................ 261 529 188 317
------- -------- ------- -------
Total other income................................. 435 673 282 431
------- -------- ------- -------
Net income before minority interest................ 3,428 7,439 3,974 1,956
Minority interest.................................. 694 1,384 688 197
------- -------- ------- -------
Net income......................................... $ 2,734 $ 6,055 $ 3,286 $ 1,759
======= ======== ======= =======
</TABLE>
See accompanying notes.
F-26
<PAGE> 73
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN- RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1995............................. $45 $9,955 $ -- $10,000
Distributions........................................ -- -- (1,947) (1,947)
Net income........................................... -- -- 2,734 2,734
--- ------ ------- -------
Balance at December 31, 1995........................... 45 9,955 787 10,787
Distributions........................................ -- -- (4,076) (4,076)
Net income........................................... -- -- 6,055 6,055
--- ------ ------- -------
Balance at December 31, 1996........................... 45 9,955 2,766 12,766
Distributions (unaudited)............................ -- -- (3,299) (3,299)
Net income (unaudited)............................... -- -- 1,759 1,759
--- ------ ------- -------
Balance at September 30, 1997 (unaudited).............. $45 $9,955 $ 1,226 $11,226
=== ====== ======= =======
</TABLE>
See accompanying notes
F-27
<PAGE> 74
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------- -------------------
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 2,734 $ 6,055 $ 3,286 $ 1,759
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization.................... 436 586 435 518
Minority interest................................ 694 1,384 688 197
Changes in operating assets and liabilities:
Restricted cash............................... (294) (693) (2,201) 844
Receivables................................... (868) (361) 155 854
Real estate inventory......................... (25,373) 4,646 (15,447) (10,555)
Other assets.................................. (1,941) 308 (302) (942)
Accounts payable.............................. 854 (996) 780 708
Customer deposits............................. 1,746 (1,248) 1,473 1,699
Accrued expenses and other liabilities........ 28 1,824 129 (600)
-------- -------- -------- --------
Net cash (used in) provided by operating
activities....................................... (21,984) 11,505 (11,004) (5,518)
FINANCING ACTIVITIES
Proceeds from mortgage note payable................ -- -- -- 375
Proceeds from notes payable........................ 55,991 86,613 69,620 54,517
Payments on mortgage note payable.................. -- -- -- (8)
Payments on notes payable.......................... (38,485) (92,305) (57,838) (44,746)
Payments on notes payable to Westbrooke
shareholders..................................... (3,624) -- -- --
Proceeds from issuance of subordinated notes
payable.......................................... 7,500 -- -- --
-------- -------- -------- --------
Net cash provided by (used in) financing
activities....................................... 21,382 (5,692) 11,782 10,138
INVESTING ACTIVITIES
Additions to furniture and equipment, net.......... (185) (70) (24) (828)
Minority interest contributions -- cash............ 2,500 -- -- --
Distribution to minority interest.................. (186) (765) (565) (1,112)
Distribution to partners........................... (1,947) (4,076) (796) (3,299)
-------- -------- -------- --------
Net cash provided by (used in) investing
activities....................................... 182 (4,911) (1,385) (5,239)
-------- -------- -------- --------
(Decrease) increase in cash........................ (420) 902 (607) (619)
Cash at beginning of period........................ 1,623 1,203 1,203 2,105
-------- -------- -------- --------
Cash at end of period.............................. $ 1,203 $ 2,105 $ 596 $ 1,486
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest........... $ 3,590 $ 4,624 $ 3,431 $ 3,250
======== ======== ======== ========
</TABLE>
See accompanying notes
F-28
<PAGE> 75
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
1. ORGANIZATION AND BUSINESS
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of
Westbrooke Communities, Inc., and its affiliated entities, Westbrooke at West
Lake, Inc., Westbrooke at Spring Valley, Inc., Westbrooke at Rock Creek, Inc.,
Westbrooke at Pembroke Pines, Inc., Westbrooke at Winston Trails, Inc.,
Westbrooke at Winston Park, Inc., and Westbrooke at Oakridge, Inc. (referred to
collectively as Westbrooke). These entities are under common control and have a
75% controlling interest in The Westbrooke Partnership (the Partnership), which
has been consolidated in the combined financial statements. During 1995,
Westbrooke at Rock Creek, Inc., Westbrooke at Spring Valley, Inc. and Westbrooke
at Winston Park, Inc. ceased operations. All significant intercompany
transactions have been eliminated in the combination.
THE WESTBROOKE PARTNERSHIP
The Partnership, a Florida general partnership, was formed on January 1,
1995 pursuant to an Agreement of Partnership (the Agreement) among the
Westbrooke entities and Athena Westbrooke Investors, L.P. (Athena). Athena's
partnership interest is shown on the accompanying combined financial statements
as minority interest.
The Partnership continued the business of Westbrooke which was engaged
principally in the development, construction, marketing and sale of residential
single family homes in southeast Florida. In addition, the Partnership has, from
time to time, managed the development and sale of large tracts of undeveloped
land for the benefit of third parties.
CAPITAL CONTRIBUTIONS AND PROFIT ALLOCATIONS
The initial capital contributions to the Partnership consisted of a
contribution by Westbrooke of $10 million and a contribution by Athena of $2.5
million in cash. The Westbrooke contribution included the contribution of all of
its assets, including unrestricted cash of $1,623,000 and net assets of
$8,377,000 consisting of restricted cash of $1,836,000, receivables of $648,000,
inventory of $22,826,000, furniture and equipment of $179,000, and prepaid
expenses and other assets of $1,164,000, net of the assumption by the
Partnership of all of Westbrooke's liabilities, including accounts payable of
$2,433,000, accrued expenses and other liabilities of $540,000, customer
deposits of $2,364,000, notes payable to banks and others of $9,315,000 and
notes payable to Westbrooke shareholders of $3,624,000. The non-cash
contribution made by Westbrooke was recorded at historical cost. Concurrent with
the initial contributions to the Partnership, the Partnership completed a
private placement of $7.5 million of subordinated notes payable which is
described in Note 8.
The Agreement provides for a priority return on the partners' initial
capital contributions of 12% and interest on each partners' capital account at a
rate of prime plus 1%, both of which are payable quarterly. The Agreement
further provides that Athena will receive a distribution of $2.4 million in
January 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND RESTRICTED CASH
Restricted cash consists of deposits received from buyers of single-family
homes which are held in escrow. The concentration of credit risk associated with
cash and restricted cash is considered low due to the credit quality of the
financial institutions in which deposits are maintained.
F-29
<PAGE> 76
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
REAL ESTATE INVENTORY
Real estate inventory is stated at the lower of cost or net realizable
value and consists of residential homes under construction and completed and
land held for development. Interest and real estate taxes are capitalized during
the construction period. Interest incurred and capitalized during the years
ended December 31, 1995 and 1996 was $3,870,000 and $4,799,000, respectively.
For the nine months ended September 30, 1996 and 1997, $3,492,000 and
$3,201,000, respectively, of interest was incurred and $3,492,000 and
$3,193,000, respectively, was capitalized.
The costs of development and construction not specifically identified to a
particular house are allocated to individual houses based on their relative fair
value within each development.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. Westbrooke
adopted Statement 121 in the first quarter of 1996 and the effect of the
adoption was not material to its financial statements.
PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment is carried at cost. Depreciation on
furniture and equipment is provided on the straight-line method over the
estimated useful lives of the assets, which is generally three years. Property
consists of a condominium which is being depreciated on the straight-line basis
over the estimated useful life of thirty years.
OTHER ASSETS
Included in other assets are $957,000, $801,000 and $497,000 of unamortized
deferred financing fees at December 31, 1995 and 1996 and September 30, 1997,
respectively. Amortization of deferred financing fees is provided on the
straight-line method over the life of the respective loan. At December 31, 1995
and 1996 and September 30, 1997, accumulated amortization of deferred financing
fees totaled $331,000, $792,000 and $1,209,000, respectively.
INCOME TAXES
Each Westbrooke entity, other than The Westbrooke Partnership, has
individually elected to be treated as an S Corporation for federal and state
income tax purposes. As such, Westbrooke's taxable income or loss is included in
the individual income tax return of the shareholder. Accordingly, Westbrooke is
not subject to federal or state income taxes.
Since the income of the Partnership will also be included in the taxable
income reportable on the income tax returns of its partners, Westbrooke and
Athena, no provision for income taxes has been provided on such income.
PROFIT RECOGNITION
Revenues from sales of homes are recognized when closings have occurred and
ownership of the home has transferred to the customer. Customers' deposits
received prior to closing are recorded as liabilities, and if required, are held
in escrow until closing.
F-30
<PAGE> 77
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING COSTS
Westbrooke expenses advertising costs as incurred. Advertising expense was
$1,487,000, $1,944,000, $1,593,000 and $1,219,000 for the years ended December
31, 1995 and 1996 and the nine months ended September 30, 1996 and 1997,
respectively.
INTERIM FINANCIAL DATA
The unaudited interim financial statements at September 30, 1997 and for
the nine months ended September 30, 1996 and 1997 do not include all disclosures
provided in the annual financial statements. These interim statements should be
read in conjunction with the accompanying annual audited financial statements
and the footnotes thereto. Results for the 1997 interim period are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997. However, the accompanying interim financial statements
reflect all adjustments which are in the opinion of management of a normal and
recurring nature necessary for a fair presentation of the financial position and
results of operation of Westbrooke. Unless otherwise stated, all information
subsequent to December 31, 1996 is unaudited.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. RECEIVABLES
The West Lake Community Development District (the West Lake District) has
authorized the issuance of bonds to finance the acquisition, construction and
installation of the West Lake District's water, sewer, drainage and offsite
roadway improvements. Under the Purchase and Sale and Option Agreement for lots
purchased in this district, Westbrooke is entitled to 44% of the net proceeds of
these bonds which was estimated to be $1,336,000. In 1996, the decision was made
to sell the bonds in a public issuance. The bonds were subsequently issued on
January 30, 1997 and approximately $930,000 of the proceeds due to Westbrooke
were received on January 31, 1997. The balance of the proceeds is expected to be
received over a two year period. Accordingly, at December 31, 1995 and 1996 and
September 30, 1997, receivables in the amount of $657,000, $922,000, and
$116,000, respectively, have been recorded to reflect the estimated bond
proceeds on units sold through the respective period.
The Oakridge Community Development District (the Oakridge District) has
authorized the issuance of bonds to finance the acquisition, construction and
installation of the Oakridge District's drainage and certain roadway
improvements. Under the Purchase and Sale and Option Agreement for lots
purchased in this district, Westbrooke is entitled to 50% of the net proceeds of
these bonds which is estimated to be $795,000. Accordingly, at December 31, 1996
and September 30, 1997, a receivable in the amount of $182,000 and $415,000,
respectively, has been recorded to reflect the estimated bond proceeds on units
sold through the respective period.
On December 31, 1995, Westbrooke terminated its interest in the Winston
Park Joint Venture (the Venture) which was formed to construct, market and sell
single-family residences in Coconut Creek, Florida. Included in receivables at
December 31, 1995 and 1996 and September 30, 1997, is a promissory note with a
balance of $647,000, $246,000 and $150,000, respectively, including interest of
$0 and $33,000 and $42,000, respectively, from the former joint venture partner
representing Westbrooke's investment in the Venture at the time of termination.
The note from the joint venture partner requires minimum payments of
$76,000 in 1997 and $170,000 in 1998 and provides for interest at the prime rate
which is payable monthly. The note is collateralized by a security interest in
certain lots and provides for periodic payments as these lots are sold to end
buyers. Pursuant to a
F-31
<PAGE> 78
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
termination agreement, Westbrooke's guarantee of $734,000 of construction loans
of the Venture will continue until such loans are repaid. The balance of these
construction loans at December 31, 1996 and September 30, 1997 was $332,000.
4. REAL ESTATE INVENTORY
Real estate inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------ SEPTEMBER 30
1995 1996 1997
------- ------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Construction in-progress......................... $27,212 $23,487 $37,146
Completed homes.................................. 1,853 1,828 1,545
Models and model furnishings..................... 5,367 7,462 7,640
Land held for development........................ 13,767 10,776 7,777
------- ------- -------
$48,199 $43,553 $54,108
======= ======= =======
</TABLE>
5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
trade accounts payable and accrued expenses approximate fair value because of
their short duration to maturity. The carrying amounts of the notes payable and
subordinated notes payable approximate fair value because the interest rate is
tied to a quoted variable index.
6. MORTGAGE NOTE PAYABLE
The mortgage note payable is payable in monthly installments of principal
and interest of $3,530 with the unpaid balance of approximately $297,000 due in
February 2002. The mortgage note has an interest rate of 7.75% and is
collateralized by a condominium with a carrying value of $568,000 at September
30, 1997.
7. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------ SEPTEMBER 30
1995 1996 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Construction loans with banks, payable $17,212 in
1998, $2,415 in 1999 and $6,410 in 2000, with
interest at prime (8.5%, 8.25% and 8.5% at
December 31, 1995 and 1996 and September 30,
1997, respectively) to prime plus 1.5%......... $16,084 $16,600 $26,037
Development loan with bank, payable in 1998, with
interest at prime plus 1.5%.................... 5,517 2,495 4,797
Land acquisition loan, payable in 1998, with
interest at prime plus 1.5%.................... 5,154 1,968 --
------- ------- -------
$26,755 $21,063 $30,834
======= ======= =======
</TABLE>
Notes payable are collateralized by substantially all real estate inventory. The
construction and development loans require the payment of release prices as
collateralized units are closed. The land acquisition loan requires payment of
release prices when construction on collateralized units is started. At December
31, 1995 and 1996 and September 30, 1997, release prices ranged from $16,000 to
$164,000, $16,000 to $160,000 and from $15,000
F-32
<PAGE> 79
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to $188,000, respectively. Notes payable are guaranteed by the sole shareholder
of Westbrooke. At December 31, 1995 and 1996 and September 30, 1997, Westbrooke
had construction loan facilities totaling $32,873,000, $42,000,000 and
$45,194,000, respectively. Eligible borrowings under these facilities totaled
$22,165,000, $21,249,000 and $31,832,000, at December 31, 1995 and 1996 and
September 30, 1997, respectively, of which $6,081,000, $4,649,000 and $5,795,000
were available in addition to the amount outstanding.
8. SUBORDINATED NOTES PAYABLE
On January 11, 1995, Westbrooke issued $7,500,000 of unsecured notes
payable (the Notes) which are subordinated in right of payment to all
liabilities and indebtedness of Westbrooke. The Notes mature on January 1, 2000,
and require minimum principal payments of $1,875,000 in 1998, $1,875,000 in 1999
and $3,750,000 in 2000.
The Notes bear interest at a base rate of 12% (Basic Interest), payable
monthly, and provide for additional interest of 7.5% (Additional Interest), the
payment of which may be deferred until such time as principal payments of the
Notes are due. Westbrooke, however, is required to pay all accrued Additional
Interest prior to distributing profits to the partners in excess of priority
returns. For the years ended December 31, 1995 and 1996 and for the nine months
ended September 30, 1996 and 1997, the Partnership accrued $875,000 , $900,000,
$675,000 and $675,000 of Basic Interest, and $547,000, $563,000, $422,000 and
$422,000 of Additional Interest, respectively. For the years ended December 31,
1995 and 1996, and for the nine months ended September 30, 1996 and 1997,
$800,000, $900,000, $675,000 and $675,000 of Basic Interest, respectively, and
$347,000, $497,000, $422,000 and $575,000 of Additional Interest, respectively,
were paid.
9. COMMITMENTS AND CONTINGENCIES
Westbrooke purchases certain developed lots under option agreements and
contracts which provide for the payment of additional amounts, in excess of the
base lot price, in the event the net income of the respective project exceeds
certain agreed upon levels. For the years ended December 31, 1995 and 1996 and
for the nine months ended September 30, 1996 and 1997, additional amounts in
excess of the base lot prices due under these agreements were $-0-, $1,737,000,
$143,000 and $1,947,000, respectively. Prepaid expenses, at December 31, 1995
and 1996 and at September 30, 1997, include $653,000, $309,000, and $222,000,
respectively, which had been prepaid under one of these agreements. Accrued
expenses and other liabilities at December 31, 1995 and 1996 and at September
30, 1997 include $-0-, $1,215,000, and $902,000, respectively, for amounts due
under one of these agreements.
Westbrooke has a $1,500,000 unsecured letter of credit facility which is
used to issue letters of credit which guarantee Westbrooke's performance of
certain development and construction obligations. At December 31, 1996 and
September 30, 1997, letters of credit aggregating $1,484,000 and $1,402,000,
respectively, were outstanding under this facility.
Westbrooke is involved from time to time in litigation arising in the
ordinary course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on Westbrooke's financial position or
results of operations.
10. EMPLOYEE BENEFIT PLAN
Westbrooke sponsors a 401(k) Profit Sharing Plan (the Plan). Under the
terms of the Plan, Westbrooke matches 25% of employee's voluntary contributions
up to a maximum of 6% of each participant's earnings. Additional employee
contributions in the form of profit sharing are made at the discretion of
Westbrooke. Westbrooke's matching contributions to the Plan were $12,000,
$37,000, $28,000 and $24,000 for the years ended December 31, 1995 and 1996 and
for the nine months ended September 30, 1996 and 1997, respectively.
F-33
<PAGE> 80
WESTBROOKE COMMUNITIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMBINED COMMON STOCK
Combined common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------- ------------
1995 1996 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Westbrooke Communities, Inc., $1 par value, 1,000
shares authorized, 100 shares issued and
outstanding......................................... $ 100 $ 100 $ 100
Westbrooke at West Lake, Inc., $1 par value, 7,500
shares authorized, issued and outstanding........... 7,500 7,500 7,500
Westbrooke at Spring Valley, Inc., $1 par value, 7,500
shares authorized, issued and outstanding........... 7,500 7,500 7,500
Westbrooke at Pembroke Pines, Inc., $1 par value,
7,500 shares authorized, issued and outstanding..... 7,500 7,500 7,500
Westbrooke at Winston Trails, Inc., $1 par value,
7,500 shares authorized, issued and outstanding..... 7,500 7,500 7,500
Westbrooke at Winston Park, Inc., $1 par value, 7,500
shares authorized, issued and outstanding........... 7,500 7,500 7,500
Westbrooke at Oakridge, Inc., $.01 par value, 10,000
shares authorized, issued and outstanding........... 100 100 100
Westbrooke at Rock Creek, Inc., $1 par value, 7,500
shares authorized, issued and outstanding........... 7,500 7,500 7,500
------- ------- -------
$45,200 $45,200 $45,200
======= ======= =======
</TABLE>
12. SUBSEQUENT EVENTS
On May 25, 1997, Westbrooke entered into two agreements to purchase
approximately 605 fully developed lots from an unrelated party. For the years
ended December 31, 1998, 1999, 2000 and 2001, lot purchases are anticipated to
be $6,731,000, $4,414,000, $7,960,000 and $1,957,000, respectively.
In December 1997, the sole shareholder of the Westbrooke entities entered
into a letter of intent to sell the Westbrooke entities and the Partnership to
Newmark Homes Corp. As a condition precedent to the closing of this transaction,
Westbrooke intends to purchase Athena's interest in the Partnership.
F-34
<PAGE> 81
[PHOTOS OF FINISHED HOME (EXTERIOR),
FINISHED HOME (INTERIOR) AND
HOME UNDER CONSTRUCTION]
<PAGE> 82
============================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY. THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 7
The Company.................................. 12
Acquisition of Westbrooke.................... 12
Use of Proceeds.............................. 13
Dividend Policy.............................. 13
Dilution..................................... 14
Capitalization............................... 15
Selected Financial and Operating Data........ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 17
Business..................................... 24
Management................................... 35
Certain Transactions......................... 38
Security Ownership........................... 40
Description of Capital Stock................. 40
Shares Eligible for Future Sale.............. 42
Underwriting................................. 43
Legal Matters................................ 44
Experts...................................... 44
Available Information........................ 45
Index to Financial Statements................ F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.
============================================================
============================================================
2,000,000 SHARES
NEWMARK HOMES CORP.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DAIN RAUSCHER INCORPORATED
LAIDLAW GLOBAL SECURITIES, INC.
, 1998
============================================================
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant will pay the following estimated expenses in connection with
the issuance and distribution of Common Stock pursuant to this registration
statement, in addition to underwriting discounts:
<TABLE>
<S> <C>
SEC Filing Fee.............................................. $ 7,667
NASD Filing Fee............................................. 3,030
Nasdaq National Market Application Fee...................... 17,500
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing and Engraving...................................... *
Transfer Agent and Registrar Fees and Expenses.............. *
Blue Sky Fees and Expenses (including fees of counsel)...... *
Underwriter's Nonaccountable Expense Allowance.............. *
Miscellaneous............................................... *
--------
Total..................................................... $600,000
========
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada Private Corporations Law ("NPCL") provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party, by reason of the fact that such person was an officer of director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to (x) any action or suit by or in the right
of the corporation against expenses, including amounts paid in settlement and
attorneys' fees, actually and reasonably incurred, in connection with the
defense or settlement believed to be in, or not opposed to, the best interests
of the corporation, except that indemnification may not be made for any claim,
issue or matter as to which such person has been adjudged by a court of
competent jurisdiction to be liable to the corporation or for amounts paid in
settlement to the corporation and (y) any other action or suit or proceeding
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred, if he or she acted in good
faith and in a manner which he or she reasonably believed to be in, or not
opposed to, reasonable cause to believe his or her conduct was unlawful. To the
extent that a director, officer, employee or agent has been "successful on the
merits or otherwise" the corporation must indemnify such person. The articles of
incorporation or bylaws may provide that the expenses of officers and directors
incurred in defending any such action must be paid as incurred and in advance of
the final disposition of such action. The NPCL also permits the Registrant to
purchase and maintain insurance on behalf of the Registrant's directors and
officers against any liability arising out of their status as such, whether or
not Registrant would have the power to indemnify him against such liability.
These provisions may be sufficiently broad to indemnify such persons for
liabilities arising under the Securities Act.
The Registrant's Restated Articles and Bylaws, as amended to date, provide
that the Registrant shall, to the fullest extent not prohibited by applicable
law, indemnify any director or officer of the Registrant in connection with
certain actions, suits or proceedings, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred. The Registrant is also required to pay any expenses incurred by a
director or officer in defending such an action, in advance of the final
disposition of such action. The Registrant's Articles and Bylaws further provide
that, by resolution of the Board of Directors, such benefits may be extended to
employees, agents or other representatives of the Registrant.
II-1
<PAGE> 84
The Registrant has authority under the NPCL to indemnify its officers,
directors, employees and agents to the extent provided in such statute. Article
VIII of the Registrant's Bylaws, referenced as Exhibit 3.2 hereto, provide for
indemnification of the Registrant's officers, directors, employees and agents.
The NPCL provides that a corporation's articles of incorporation may
contain a provision which eliminates or limits the personal liability of a
director or officer to the corporation or its stockholders for damages for
breach of fiduciary duty as a director or officer, provided that such a
provision must not eliminate or limit the liability of a director or officer
for: (a) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law; or (b) the payment of illegal distributions. The
Company's Articles include a provision eliminating the personal liability of
directors for breach of fiduciary duty except that such provision will not
eliminate or limit any liability which may not be so eliminated or limited under
applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The information set forth on the "Index to Exhibits" of this Registration
Statement is incorporated herein by reference.
FINANCIAL STATEMENT SCHEDULES:
Schedule I -- Condensed Financial Information of Registrant; Parent Company
Only Balance Sheets; Parent Company Only Statements of
Operations; Parent Company Only Statements of Cash Flows.
Schedule II -- Valuation and Qualifying Accounts.
Schedule III -- Properties and Accumulated Depreciation.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) 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.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 and Exchange Commission, such indemnification is against public
policy, as expressed in the Securities Act of 1933 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 Common
Stock 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 of 1933
and will be governed by the final adjudication of such issue.
(3) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h)
II-2
<PAGE> 85
under the Securities Act of 1933 shall be deemed to be part of the
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, 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.
II-3
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on January 28, 1998.
NEWMARK HOMES CORP.
By: /s/ TERRY C. WHITE
----------------------------------
Terry C. White
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LONNIE M. FEDRICK* President and Chief Executive January 28, 1998
- ----------------------------------------------------- Officer
Lonnie M. Fedrick
/s/ TERRY C. WHITE Chief Financial Officer and January 28, 1998
- ----------------------------------------------------- Treasurer
Terry C. White
/s/ LARRY D. HORNER* Director January 28, 1998
- -----------------------------------------------------
Larry D. Horner
/s/ BILL C. BRADLEY* Director January 28, 1998
- -----------------------------------------------------
Bill C. Bradley
/s/ MICHAEL K. MCCRAW* Director January 28, 1998
- -----------------------------------------------------
Michael K. McCraw
/s/ TERRY C. WHITE
- -----------------------------------------------------
*Attorney-in-fact
</TABLE>
II-4
<PAGE> 87
SCHEDULE I
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Cash and short-term investments............................. $ 1 $ 1
Investments in and equity in net assets of subsidiaries..... 45,812 43,928
Other assets................................................ 877 1,347
------- -------
Total assets...................................... $46,690 $45,276
======= =======
LIABILITIES
Other liabilities........................................... $ 877 $ 1,347
------- -------
Total liabilities................................. 877 1,347
------- -------
STOCKHOLDERS' EQUITY
Common stock................................................ 92 92
Additional paid in capital.................................. 43,439 42,415
Retained earnings........................................... 2,282 1,422
------- -------
Total Stockholders' Equity........................ 45,813 43,929
------- -------
Total Liabilities and Stockholders' Equity........ $46,690 $45,276
======= =======
</TABLE>
S-1
<PAGE> 88
SCHEDULE 1
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994,1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Equity in earnings of subsidiaries.......................... $-- $3,769 $6,332
--- ------ ------
Net income.................................................. $-- $3,769 $6,332
=== ====== ======
</TABLE>
S-2
<PAGE> 89
SCHEDULE 1
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
---- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $-- $ 3,769 $ 6,332
Adjustments to reconcile net income to cash from operating
activities:
Change in other assets...................................... -- (877) (470)
Change in other liabilities................................. -- 877 470
Equity in undistributed earnings of subsidiaries.......... -- (3,769) (6,332)
--- ------- -------
Net cash used by operating activities....................... -- -- --
--- ------- -------
Cash flows from investing activities:
Dividends from subsidiaries............................... -- 7,280 9,463
Capital contributions to subsidiaries..................... -- (461) (1,247)
--- ------- -------
-- 6,819 8,216
Cash flows from financing activities:
Capital contributions from parent......................... -- 461 1,247
Dividends paid to parent.................................. -- (7,280) (9,463)
Initial capital contribution.............................. 1 -- --
--- ------- -------
1 6,819 (8,216)
Net change in cash and short-term investments............... 1 -- --
Cash at the beginning of the year........................... -- 1 1
--- ------- -------
Cash at the end of the year................................. $ 1 $ 1 $ 1
=== ======= =======
</TABLE>
S-3
<PAGE> 90
SCHEDULE II
NEWMARK HOMES CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE AT
BEGINNING OF AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ------------ ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Warranty Reserve:
December 31, 1994............. $356 $ 850 $ -- $ (830) $376
December 31, 1995............. 376 922 -- (738) 560
December 31, 1996............. 560 1,130 -- (1,121) 569
</TABLE>
S-4
<PAGE> 91
SCHEDULE III
NEWMARK HOMES CORP. AND SUBSIDIARIES
PROPERTIES AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS ACQUISITION
----------------------- -----------------------
BUILDINGS
AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS
----------- ------------ -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
PROPERTIES:
Landmark Retail Tract
Dallas, TX......................... -- $ 325 -- -- --
-------- -------- -------- -------- --------
======== ======== ======== ======== ========
<CAPTION>
TOTAL COSTS
-------------------------------------
BUILDINGS ACCUMULATED DATE OF
AND DEPRECIATION ACQUIS.(A)
DESCRIPTION LAND IMPROVEMENTS TOTAL(1)(2) (2) CONSTR.(C)
----------- -------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
PROPERTIES:
Landmark Retail Tract
Dallas, TX......................... $ 325 -- $ 325 $ -- 1994(A)
-------- -------- -------- -------- --------
$ --
======== ======== ======== ======== ========
</TABLE>
NOTES:
(1) The following table reconciles the historical cost of the Company's
properties from January 1, 1994 to December 31, 1996:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of period............................... $ 9,826 $ 9,498 $ 5,631
Additions during period (acquisition, improvements,
etc.).................................................. 424 425 1,378
Deductions during period (cost of real estate sold,
etc.).................................................. (752) (4,292) (6,684)
----------- ----------- -----------
Balance, close of period................................... $ 9,498 $ 5,631 $ 325
=========== =========== ===========
</TABLE>
S-5
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement
3.1* -- Form of Amended and Restated Articles of Incorporation
to be effective prior to the offering
3.2* -- Bylaws
4.1+ -- Specimen of Registrant's Stock Certificate
5.1 -- Legal Opinion by Wolin, Ridley & Miller LLP regarding
the legality of securities being issued.
10.1(a)* -- Construction Loan Agreement dated August 6, 1997 for
$3,675,000 between Pacific United, L.P., as Borrower,
NHC Holdings, Corp., as Guarantor, and Bank of America
Texas, N.A., as Lender
10.1(b)* -- $3,675,000 Promissory Note Secured by Deed of Trust
dated August 6, 1997 payable to Bank of America, N.A.,
as Lender, by Pacific United, L.P.
10.1(c)* -- Deed of Trust, Security Agreement, Financing Statement,
and Assignment of Rental between Pacific United, L.P.,
Grantor to David S. Owens, Trustee, and Bank of America
Texas N.A., Beneficiary dated August 4, 1997
10.1(d)* -- Indemnity Agreement dated August 6, 1997 between Pacific
United, L.P., in favor of Bank of America Texas, N.A.
10.1(e)* -- Payment Guaranty dated August 6, 1997, by NHC Holdings
Corp., as Guarantor, in favor of Bank of America Texas,
N.A., as Lender
10.2* -- $10,000,000 Promissory Note dated April 23, 1997,
between BankTexas, as Lender, and Newmark Home
Corporation, as Borrower
10.3(a)* -- Master Revolving Line of Credit Loan Agreement dated
October 1, 1996 between Newmark Homes, L.P. and Compass
Bank
10.3(b)* -- First Amendment and Modification to Loan Agreement
between Newmark Homes, L.P. and Compass Bank dated March
1, 1997
10.3(c)* -- Second Amendment and Modification to Loan Agreement
between Newmark Homes, L.P. and Compass Bank dated June
1, 1997.
10.3(d)* -- Compass Bank Revolving Line of Credit Promissory Note
dated June 1, 1997
10.4(a)* -- $15,000,000 Loan Agreement between Newmark Homes and
Bank of America Texas, N.A.
10.4(b)* -- Promissory Note dated November 29, 1996 between Newmark
Homes and Bank of America Texas, N.A. for $15,000,000
10.4(c)* -- Deed of Trust, Security Agreement and Assignment of
Rents and Leases dated November 29, 1996, by Newmark
Homes, L.P., as Grantor, to Chris A. Peirson, Trustee,
for the benefit of Bank of America Texas, N.A.
10.5(a)* -- April 30, 1996 Amended & Restated Construction Loan
Agreement for $20,000,000 between Newmark Home
Corporation and Bank One, Texas, N.A. (the "Bank One
Loan Agreement")
10.5(b)* -- Modification Agreement to Amended & Restated
Construction Loan Agreement between Newmark Home
Corporation and Bank One, Texas dated April 30, 1996
10.5(c)* -- Fourth Amendment to Bank One Loan Agreement
10.5(d)* -- Third Amendment to Bank One Loan Agreement
10.5(e)* -- Second Amendment to Bank One Loan Agreement
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
10.5(f)* -- First Amendment to Bank One Loan Agreement
10.6(a) -- Form of Tax Allocation Agreement ("Tax Agreement")
between Pacific USA and various affiliates and
subsidiaries, of Pacific USA, including the Registrant,
dated April 28, 1992
10.6(b) -- Form of Amendment to Tax Agreement.
10.7* -- March 13, 1996 Lot Acquisition Loan Agreement between
The Adler Companies, Inc. and Bank United of Texas
10.8(a)* -- March 13, 1996 Construction Line of Credit Loan
Agreement between The Adler Companies, Inc. and Bank
United of Texas FSB
10.8(b)* -- Amendment to Construction Line of Credit Loan Agreement,
dated December 30, 1996
10.8(c)* -- Amendment to Construction Line of Credit Loan Agreement,
dated January 15, 1997
10.8(d)* -- Mortgage Modification and Spreading Agreement and Notice
of Future Advance, dated January 15, 1997
10.8(e)* -- January 15, 1997 Promissory Note between The Adler
Companies, Inc. and Bank United
10.9* -- April 23, 1997 Construction Loan Agreement between
BankTexas N.A. and Newmark Homes, L.P.
10.10* -- Lot Acquisition Loan Agreement between The Adler
Companies, Inc. and Bank United of Texas FSB dated
January 15, 1997
10.11(a)* -- Master Loan Agreement between Newmark Homes, L.P. and
Guaranty Federal Bank dated August 1997
10.11(b)* -- Revolving Promissory Note for $10,000,000 dated August
1997 between Guaranty Federal Bank and Newmark
10.11(c)* -- Master Form of Deed of Trust with Security Agreement and
Assignment of Rents and Leases between Guaranty Federal
Bank, FSB and Newmark Homes, L.P. re: $10,000,000 Loan
Agreement
10.12(a)* -- $15,000,000 Revolving Line of Credit Loan Agreement
between First American Bank and Newmark Homes, L.P.
dated December 17, 1996
10.12(b)* -- Master Revolving Line of Credit/Promissory Note dated
December 17, 1996 for $15,000,000 between Newmark Homes,
L.P. and First American Bank Texas and Deed of Trust
10.12(c)* -- February 4, 1997 Amendment to $15,000,000 Revolving Line
of Credit Loan Agreement dated December 17, 1996 between
First American Bank and Newmark Homes, L.P.
10.12(d)* -- April 30, 1997 Amendment to $15,000,000 Revolving Line
of Credit Loan Agreement dated December 17, 1996 between
First American Bank and Newmark Homes, L.P.
10.12(e)* -- Master Deed of Trust and Security Agreement for the
benefit of First American Bank Texas dated December 17,
1996
10.13* -- December 1995 Construction Loan Agreement for $5,000,000
revolving line of credit and $2,473,000 loan between The
Adler Companies, Inc. and Barnett Bank of South Florida,
N.A.
10.14+ -- Executive Phantom Stock Plan
10.15(a)* -- January 10, 1997 Amended and Restated Construction Loan
Agreement for $20,000,000 between Newmark Homes, L.P.
and Mellon Bank
10.15(b)* -- Modification Agreement dated October 1, 1996 between
Newmark Homes Corp., NHC Homes, Inc., Newmark Homes,
L.P. and Mellon Bank
</TABLE>
<PAGE> 94
<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------------------------ ------------------------------------------------------------------------- ------------
<C> <S> <C>
</TABLE>
\
<TABLE>
<C> <S> <C>
10.15(c)* -- Modification Agreement dated January 10, 1997 between Newmark Homes,
L.P. and Mellon Bank
10.16(a)* -- Loan Agreement between Bank United f/k/a United Savings Association of
Texas and Newmark Home Corp. dated June 28, 1990 with twelve
amendments increasing loan amount to $30,000,000
10.16(b)* -- $30,000,000 Promissory Note between Newmark Home Corp. and Bank United
of Texas dated July 1, 1997
10.16(c)* -- Supplemental Deed of Trust and Security Agreement between Newmark
Homes Corp., as Grantor and Henson as Trustee, for the benefit of Bank
United of Texas
10.17* -- Employment Agreement between Newmark Home Corp. and Terry White
effective November 1, 1996
10.18* -- Employment Agreement between Newmark Home Corp. and Eric Rome
effective November 1, 1996
10.19* -- Employment Agreement between Newmark Home Corp. and Steve Treece
effective November 1, 1996
10.20* -- Employment Agreement between Newmark Home Corp. and Ray Hurlbut
effective November 1, 1996
10.21* -- Employment Agreement between Newmark Home Corp. and Mike Beckett
effective November 1, 1996
10.22 -- Employment Agreement between Pacific United Development Corp. and
Coleman Bradley effective November 1, 1996
10.23 -- Employment Agreement between Newmark Home Corp. and Steve J. Von Hofe
effective November 1, 1996.
10.24 -- Employment Agreement between Newmark Home Corp. and Brian K. Shields
effective November 1, 1996.
10.25 -- Employment Agreement between Newmark Home Corp. and Mike M. Moody
effective November 1, 1996.
10.26 -- Employment Agreement between Newmark Home Corp. and James Carr dated
January 1, 1998.
10.27 -- Stock Purchase Agreement dated January 15, 1998 among James Carr,
Westbrooke Communities, Inc., Westbrooke at West Lake, Inc.,
Westbrooke at Winston Trails, Inc., Westbrooke at Pembroke Pines,
Inc., Westbrooke at Oak Ridge, Inc., Harold L. Eisenacher, Leonard R.
Chernys, Diana Ibarria, The Westbrooke Partnership, Pacific USA
Holdings Corp., Newmark Homes Corp., and Westbrooke Acquisition Corp.
21.1* -- List of Subsidiaries
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Wolin, Ridley & Miller LLP (included in Exhibit 5.1)
24.1* -- Power of Attorney (See page II-4)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed Previously
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
A&K Draft of January 16, 1998
NEWMARK HOMES CORP.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
____________
February , 1998
Dain Rauscher
Incorporated Laidlaw Global Securities, Inc.,
As Representatives of the several
Underwriters named in Schedule I hereto,
c/o Dan Rauscher Incorporated
Cityplace
2711 N. Haskell Avenue, Suite 2400
Dallas, Texas 75204-2936
Gentlemen:
Newmark Homes Corp., a Nevada corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
2,000,000 shares and, at the election of the Underwriters, up to 300,000
additional shares of Common Stock, par value $.01 per share ("Stock") of the
Company. The aggregate of 2,000,000 shares to be sold by the Company is herein
called the "Firm Shares" and the aggregate of 300,000 additional shares to be
sold by the Company is herein called the "Optional Shares." The Firm Shares
and the Optional Shares which the Underwriters elect to purchase pursuant to
Section 2 hereof are herein collectively called the "Shares". The Company is
an indirect, wholly owned subsidiary of Pacific USA Holdings Corp. ("Pacific").
1. Each of the Company and Pacific, jointly and severally,
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (Commission File No.
333-42213) (the "Initial Registration Statement") in respect of the Firm
Shares and Optional Shares has been filed
<PAGE> 2
with the Securities and Exchange Commission (the "Commission"); such
registration statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto,
to you for each of the other Underwriters, have been declared effective
by the Commission in such form; other than a registration statement, if
any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no
other document with respect to such Registration Statement has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, and post-
effective amendment thereto or the rule 462(b) Registration Statement
has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
such registration statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the
Act, being hereinafter called a "Preliminary Prospectus"); the various
parts of such registration statement, including all exhibits thereto and
including the information contained in the form of a final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the
time it was declared effective or part of the rule 462(b) Registration
Statement, if any, at such time as it became or hereafter becomes
effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, at such time as it became or hereafter
becomes effective, being hereinafter called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, being hereinafter called the
"Prospectus");
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an 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 the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter
through you expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an 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 (with respect to the Prospectus in the
light of the circumstances under which they were made) not misleading;
provided, however, that this representation and warranty shall not apply
to any
-2-
<PAGE> 3
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through you expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, that is material to the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and, since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
change in the capital stock, short-term debt or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all material real property, valid, binding and
enforceable options to acquire real property on which it currently owns
options and good and marketable title to all material personal property
owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do
not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any material real property and
buildings held under lease by the Company and its subsidiaries are 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 property and buildings by the Company
and its subsidiaries;
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Nevada, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so qualified
in any such jurisdiction; and each subsidiary of the Company has been
duly incorporated and is validly existing as a corporation and is in
good standing under the laws of its jurisdiction of incorporation and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so qualified
in any such jurisdiction;
(vii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued and outstanding shares of
capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; and all of the issued and
outstanding shares of capital stock of each
-3-
<PAGE> 4
subsidiary of the Company have been duly and validly authorized and
issued, and are fully paid and non-assessable and all such shares owned
directly or indirectly by the Company are owned free and clear of all
liens, encumbrances, equities or claims;
(viii) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and nonassessable and
will conform to the description of the Stock contained in the
Prospectus;
(ix) The issue and sale of the Firm Shares and Optional Shares
by the Company and the compliance by the Company with all of the
provisions of this Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, any material indenture, mortgage, deed of trust, loan
agreement, sale/leaseback agreement or other agreement or instrument
(collectively, the "Specified Documents") to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Articles of
Incorporation, or the By-laws of the Company or any statute or any
order, rule or regulation of any court or government agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
(x) Other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
consolidated financial position, shareholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole; and,
to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(xi) To the best of the Company's knowledge, each of KPMG Peat
Marwick L.L.P. and Ernst & Young L.L.P., who have certified financial
statements of the Company and certain of its subsidiaries, is an
independent public accountant as required by the Act and the rules and
regulations of the Commission thereunder;
(xii) The Company and its subsidiaries own, or possess adequate
rights to use, all the patents, trademarks, service marks, trade names
and copyrights ("Intellectual Property") necessary
-4-
<PAGE> 5
for the conduct of its business as currently conducted by it. To the
best knowledge of the Company, none of the activities engaged in by the
Company infringes or conflicts with Intellectual Property rights of
others; and
(xiii) Except as set forth in the Prospectus, no person has any
right to require the Company to register any securities under the Act.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $ , the number of Firm Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Firm Shares to be sold by the Company as set forth
opposite its name in Schedule II hereto by a fraction, the numerator of which
is the aggregate number of Firm Shares to be purchased by such Underwriter as
set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all the Underwriters from the Company and in the event and to the extent that
the Underwriters shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company, at the purchase price per share set forth in
clause (a) of this Section 2, that portion of the number of Optional Shares as
to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of the Optional Shares which all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 300,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than ten business days after the date of
such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. Certificates in definitive form for the Shares to be purchased by
each Underwriter hereunder, and in such denominations and registered in such
names as Dain Rauscher Incorporated may request upon at least 48 hours'
prior notice to the Company, shall be delivered by or on behalf of the Company
to you for the account of such Underwriter, against payment by such Underwriter
or on its behalf of the purchase price therefor by certified or official bank
check or checks, payable to the order of
-5-
<PAGE> 6
the Company (which shall be delivered in care of the Custodian), as its
interests may appear in same day funds, or by payment in such other manner as
shall be agreed to in writing by the Company and Dain Rauscher Incorporated,
all at the offices of Wolin, Ridley & Miller L.L.P., counsel for the Company,
Dallas, Texas. The time and date of such delivery and payment shall be, with
respect to the Firm Shares, 9:00 a.m., Dallas time, on, February ,
1998, or at such other time and date as you and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:00 a.m., Dallas time, on
the date specified by you in the written notice given by you of the
Underwriters' election to purchase such Optional Shares, or at such other time
and date as you and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery,"
such time and date for delivery of the Optional Shares, if not the First Time
of Delivery, is herein called the "Second Time of Delivery," and each such time
and date for delivery is herein called a "Time of Delivery."
5. Each of the Company and Pacific, jointly and severally, agrees
with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when the
Registration Statement, or any amendment thereto, has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has
been filed and to furnish you with copies thereof; to advise you, promptly
after it receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or Prospectus, of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission for
the amending or supplementing of the Registration Statement or Prospectus or
for additional information; and, in the event of the issuance of any stop order
or of any order preventing or suspending the use of any Preliminary Prospectus
or Prospectus or suspending any such qualification, to use promptly its best
efforts to obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) To furnish the Underwriters with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of
nine months after the time of the issue of the Prospectus in connection with
the offering or sale of the Shares and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
-6-
<PAGE> 7
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be necessary
during such same period to amend or supplement the Prospectus in order to
comply with the Act, to notify you and upon your request to prepare and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or omission
or effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your request but
at the expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than 18 months after the effective date
of the Registration Statement (as defined in Rule 158(c)), an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations
thereunder (including at the option of the Company Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the effective date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of Stock or other
securities which are substantially similar to the Stock or which are
convertible or exchangeable into Stock or other securities which are
substantially similar to the Stock, without your prior written consent (other
than pursuant to stock option or purchase plans existing, or on the exercise,
conversion or exchange of convertible, exercisable or exchangeable securities
outstanding, on the date of this Agreement);
(f) To furnish to the Company's stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flow of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of
each fiscal year (beginning with the fiscal quarter ending after the effective
date of the Registration Statement), consolidated summary financial information
of the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to make available to you copies of all reports or other
communications (financial or other) furnished to shareholders, and make
available to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed;
and (ii) such additional information concerning the business and financial
condition of the Company as you may from time to time reasonably request (such
financial statements to 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 or to the Commission); and
(h) To use its best efforts to have the Shares accepted for quotation
on the Nasdaq National Market.
-7-
<PAGE> 8
6. Each of the Company and Pacific, jointly and severally, covenants
and agrees with the several Underwriters to pay or cause to be paid all costs
and expenses incident to the performance of the Company's obligations
hereunder, except as provided below, including: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to the Underwriters
and dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky
survey; (iv) the filing fees and the fees and disbursements of counsel for the
Underwriters incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(v) the cost of preparing stock certificates; and (vi) the cost and charges of
any transfer agent or registrar. It is understood, however, that the Company
and Pacific shall bear, jointly and severally, the cost of any other matters
not directly relating to the sale and purchase of the Shares pursuant to this
Agreement and that, except as provided in this Section, Section 8 and Section
11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares
to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company and Pacific herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and Pacific shall
have performed all of their obligations hereunder theretofore to be performed,
and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to your reasonable satisfaction;
(b) Andrews & Kurth L.L.P., counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the incorporation of the Company, this Agreement, the validity of
the Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
-8-
<PAGE> 9
(c) Woodburn & Wedge, Nevada counsel for the Company, shall have
furnished you with their written opinion, dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Nevada, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery,
but with respect to such Shares to be issued and delivered by the
Company, when issued and delivered by the Company pursuant to this
Agreement against payment therefor) have been duly and validly
authorized and issued and are fully paid and non-assessable; and the
Shares conform to the description of the Stock contained in the
Prospectus;
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
laws of the State of Nevada;
(d) Wolin, Ridley & Miller L.L.P., counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of Texas, Florida and Tennessee (such counsel being
entitled to rely in respect of the opinion in this clause upon
certificates of Secretaries of State or other appropriate public
officials and 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
officer's certificates);
(ii) Each subsidiary of the Company listed on Schedule 2.1 of
the Registration Statement has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued shares of capital
stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and such shares (except for
directors' qualifying shares and except as otherwise set forth in the
Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims; (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and officer's certificates);
(iii) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a
party or of which any property of the Company or any of its subsidiaries
is
-9-
<PAGE> 10
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(iv) This Agreement has been duly authorized, executed and
delivered by the Company;
(v) The issue and sale to you of the Shares being delivered at
such Time of Delivery by the Company in accordance with and upon the
terms and conditions set forth herein and the compliance by the Company
with all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
material breach or violation of any of the terms or provisions of, or
constitute a default under, any document filed as an exhibit to the
Registration Statement, nor will such action result in any violation of
the provisions of the Articles of Incorporation or By-laws of the
Company or, to such counsel's knowledge, any statute or any 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;
(vi) the Registration Statement is effective under the Act; any
required filing of the Prospectus has been made in the manner and within
the time period required by Rule 424(b); and, to the best knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or supplement
thereto has been issued, and, to the best knowledge of such counsel, no
proceedings for that purpose have been instituted or threatened or are
contemplated by the Commission;
(vii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
and
(viii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules or other data derived therefrom therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act and the rules and regulations
thereunder. Such counsel shall also state that, in connection with the
preparation of the Registration Statement and the Prospectus, they have
participated in conferences with officers and other representatives of
the Company and with its certified public accountants, as well as
representatives of the Underwriters and their counsel, and that at such
-10-
<PAGE> 11
conferences, the contents of the Registration Statement and the
Prospectus and related matters were discussed. Although such counsel
need not independently verify or confirm, and may assume no
responsibility for, the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, such counsel
shall state that nothing has come to their attention to cause them to
believe that, as of its effective date, the Registration Statement or
any further amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules or
other data derived therefrom therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading or that, as of its
date, the Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the financial
statements and related schedules or other data derived therefrom
therein, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading or that, as of
such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules or other data derived therefrom
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading; and they do not
know of any amendment to the Registration Statement required to be filed
or of any contracts or other documents of a character required to be
filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are not
filed or described as required;
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
laws of the State of Texas (excluding conflict of law rules) and the
federal laws of the United States;
(e) At 9:00 a.m., Dallas time, on the effective date of the
Registration Statement and the effective date of the most recently filed post-
effective amendment to the Registration Statement and also at each Time of
Delivery, each of KPMG Peat Marwick L.L.P. and Ernst & Young L.L.P. shall have
furnished to you a letter or letters, dated the respective date of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto;
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock, short-term or long-term debt of the Company or any
of its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the
-11-
<PAGE> 12
Company and its subsidiaries otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i) or
(ii), is in your judgment so material and adverse as to make it impracticable
or inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market; (ii) a
general moratorium on commercial banking activities in New York declared by
either Federal or New York authorities; or (iii) the outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war, if the effect of any such event specified in
this Clause (iii) in your judgment makes it impracticable or inadvisable to
proceed with the public offering or delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated by the
Prospectus;
(h) The Shares to be sold by the Company at such Time of Delivery
shall have been duly accepted, subject to notice of issuance, for quotation on
the Nasdaq National Market;
(i) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company, satisfactory
to you as to the accuracy of the representations and warranties of the Company,
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may reasonably
request and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and ((e)) of this
Section and as to such other matters as you may reasonably request;
(j) On or prior to the First Time of Delivery, Pacific shall have
entered into a Lock-up Agreement with the Underwriters that, during the period
beginning from the date hereof and continuing to and including the date 180
days after the date of the Prospectus, not, directly or indirectly, to offer,
sell, contract to sell, pledge, grant any option to purchase, or otherwise
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any Stock or
any securities convertible into, or exchangeable or exercisable for shares of
Stock; and
(k) The Company shall have consummated the acquisition of Westbrooke
Communities, Inc. on substantially the terms described in the Prospectus.
8. (a) Each of the Company and Pacific will, jointly and
severally, indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
-12-
<PAGE> 13
reasonably incurred by such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that neither the Company nor Pacific shall be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you expressly for use therein
(b) Each Underwriter will indemnify and hold harmless each of the
Company and Pacific against any losses, claims, damages or liabilities to which
the Company or Pacific may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through you expressly for use therein; and will reimburse the
Company and Pacific for any legal or other expenses reasonably incurred by the
Company and Pacific in connection with investigating or defending any such
action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits
-13-
<PAGE> 14
received by the Company and Pacific on the one hand and the Underwriters on the
other from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c)
above, 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 and Pacific on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and Pacific 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
of the Shares purchased under this Agreement (before deducting expenses)
received by the Company and Pacific bear to the total underwriting discounts
and commissions received by the Underwriters with respect to the Shares
purchased under this Agreement, 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 and Pacific on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, Pacific and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purposes) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares 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. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and Pacific under this Section 8
shall be in addition to any liability which the Company and Pacific may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 8 shall be in addition
to any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company (including any person who, with his consent, is named in the
Registration Statement as about to become a director of the Company) and to
each person, if any, who controls the Company or Pacific within the meaning of
the Act.
-14-
<PAGE> 15
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at the Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within 36
hours after such default by any Underwriter you do not arrange for the purchase
of such Shares, then the Company shall be entitled to a further period of 36
hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to 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 to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall
have the right to require each non-defaulting Underwriter to purchase the
number of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any nondefaulting Underwriter or the Company, except for the expenses to be
borne by the Company and Pacific and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, Pacific and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter
-15-
<PAGE> 16
or any controlling person of any Underwriter, or the Company or Pacific, or any
officer or director or controlling person of the Company or Pacific, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor Pacific shall be under any liability to any
Underwriter except as provided in Section 6 and Section 8 hereof; but, if for
any other reason any Shares are not delivered by or on behalf of the Company
(other than by virtue of a default by the Underwriters in any of the terms and
conditions set forth herein) as provided herein, the Company and Pacific will
reimburse the Underwriters through you for all reasonable out-of-pocket
expenses approved in writing by you, including reasonable fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company and Pacific shall then be under no further liability
to any Underwriter in respect of the Shares not so delivered except as provided
in Section 6 and Section 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Dain Rauscher Incorporated on behalf of you as
the Representative.
All statements, requests, notices, and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the Representative in care of Dain Rauscher
Incorporated at Cityplace, 2711 N. Haskell Avenue, Suite 2400, Dallas, Texas
75204-2936, Attention: Corporate Syndicate Department; if to the Company shall
be delivered or sent by mail, telex or facsimile transmission to the address of
the Company set forth in the Registration Statement, Attention: _____________;
and if to Pacific shall be delivered or sent by mail, telex or facsimile
transmission to Pacific USA Holdings Corp., Summerside Place, Suite 102, 5999
Summerside Drive, Dallas, Texas 75252, Attention: ____________________;
provided, however, that any notice to an Underwriter pursuant to Section 8(d)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company by you on request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and Pacific and, to the extent
provided in Section 8 and Section 10 hereof, the officers and directors of the
Company and each person who controls the Company, Pacific or any Underwriter,
and their respective heirs, executors, administrators, successors and assigns,
and no other person shall acquire or have any right by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS.
-16-
<PAGE> 17
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-17-
<PAGE> 18
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination, upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
NEWMARK HOMES CORP.
By:
------------------------
Name:
Title:
PACIFIC USA HOLDINGS CORP.
By:
------------------------
Name:
Title:
Accepted as of the date hereof:
DAIN RAUSCHER INCORPORATED
LAIDLAW GLOBAL SECURITIES, INC.
By: ________________________________________
(Dain Rauscher Incorporated)
On behalf of each of the Underwriters
-18-
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
TOTAL SHARES TO BE
NUMBER OF PURCHASED IF
FIRM MAXIMUM
SHARES TO BE OPTION
UNDERWRITER PURCHASED EXERCISED
- ----------- --------- ---------
<S> <C> <C>
Dain Rauscher Incorporated.................. 000,000 000,000
Laidlaw Global Securities, Inc..............
----------- -----------
Total................................. 2,000,000 300,000
=========== ===========
</TABLE>
<PAGE> 20
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
TOTAL SHARES TO BE
NUMBER OF SOLD IF
FIRM MAXIMUM
SHARES TO BE OPTION
SOLD EXERCISED
----------- -----------
<S> <C> <C>
The Company............................ 2,000,000 300,000
Total...........................
=========== ===========
</TABLE>
____________
<PAGE> 21
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, KPMG Peat
Marwick L.L.P. shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules audited (and, if
applicable, prospective financial statements and/or pro forma financial
information examined) by them and included in the Prospectus or the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they
have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial data, pro
forma financial information, prospective financial statements and/or
condensed financial statements derived from audited financial statements
of the Company for the periods specified in such letter, as indicated in
their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives");
(iii) On the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) any unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows as of dates or for periods beginning after _______________
included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations
thereunder, or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with the basis for the audited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus;
(B) any other unaudited income statement data and
balance sheet items for the periods or as of the dates referred
to in Clause (A) above included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were derived,
and any such unaudited data and items were not determined on a
basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial
statements included in the Prospectus;
<PAGE> 22
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements as of dates or for
periods beginning after ___________________ and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes in
the consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in
consolidated net current assets or net assets or other items
specified by the Representatives or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the
Prospectus; except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the specified
date referred to in Clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified
by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except
in each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(iv) In addition to the audit referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph
(iii) above, they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and
have compared certain of such amounts, percentages and financial
<PAGE> 23
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
<PAGE> 24
ANNEX II
[Similar to ANNEX I for second Accounting Firm, as necessary]
<PAGE> 25
EXHIBIT A
<TABLE>
<CAPTION>
CORPORATE JURISDICTION OF
SUBSIDIARIES INCORPORATION
------------ -------------
<S> <C>
1)
2)
3)
4)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[WOLIN, RIDLEY & MILLER LLP LETTERHEAD]
January 28, 1998
Newmark Homes Corp.
1200 Soldiers Field Drive
Sugar Land, Texas 76459
RE: Initial Public Offering of Common Stock
Pursuant to Registration Statement on Form S-1
Commission File No. 333-42213 (the "Registration Statement")
Ladies and Gentlemen:
We are counsel to Newmark Homes Corp., a Nevada corporation (the
"Company"), in connection with the registration under the Securities Act of
1933 (the "Act") of up to 2,300,000 shares of the Company's Common Stock, par
value $.01 per share (the "Shares"), pursuant to the above referenced
Registration Statement.
We have examined and relied upon such records, documents and other
instruments as in our judgment are necessary and appropriate to express the
opinion set forth in this letter, and have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as
certified or photostatic copies. Based upon the foregoing, we are of the
opinion that the Shares have been duly authorized and, when sold and fully paid
for in the manner and on the terms described in the Registration Statement
(after the Registration Statement is declared effective), will be validly
issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus included in the Registration Statement.
Sincerely,
WOLIN, RIDLEY & MILLER LLP
<PAGE> 1
EXHIBIT 10.6(a)
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT, made this 28th day of April, 1992,
between and among Pacific USA Holdings Corp. (hereinafter referred to
as "Parent"), Pacific American Homes, Inc., Lifescape Development Corporation,
Pacific Southwest Bank, F.S.B. and such of their affiliates, whether presently
existing or hereafter acquired, as are or shall be part of the "Group" as
hereinafter defined (hereinafter referred to individually as "Subsidiary" and
collectively as "Subsidiaries"), for taxable years commencing on and after
December 29, 1988.
WITNESSETH:
WHEREAS, Parent, Subsidiaries, and any other corporation which
together with Parent form an affiliated Group (the "Group") within the meaning
of Section 1504(a) of the Internal Revenue Code desire to file a consolidated
Federal income tax return for the taxable year ending September 30, 1989, and
for any subsequent taxable period for which the Group is required or permitted
to file a consolidated return; and
WHEREAS, Parent and Subsidiaries wish to preserve the economic rights
and privileges which would accrue to each from the filing of separate Federal
income tax returns and, further, wish to set forth their agreement regarding
those rights and privileges, in writing.
NOW, THEREFORE, PARENT AND SUBSIDIARIES HEREBY AGREE AS FOLLOWS:
I. Consolidated Return
A. It would be to the mutual advantage to the parties hereto, and
could result in smaller Federal income tax being paid by all
parties, if a consolidated Federal income tax return is filed
which will include any subsidiaries and affiliates of the
parties in accordance with the terms of the Internal Revenue
Code (the "Code") and related Income Tax Regulations.
B. Parent and Subsidiaries shall file consents and other
documents and take such action as may be necessary to file and
to continue to file a consolidated tax return for the group.
C. Parent and Subsidiaries shall cause any corporation which
hereafter becomes an affiliate of any of them and a member of
the Group to join in this Agreement.
D. Parent and Subsidiaries shall maintain, and shall cause any
subsidiaries subsequently formed or acquired to maintain,
concurrent fiscal years.
<PAGE> 2
E. Parent shall make all elections under the consolidated return
regulations or required to be made for the consolidated Group
and shall approve all elections made with respect to each
member of the Group.
II. Calculation of Individual Corporate Income Tax Liability
A. Beginning with the year ended September 30, 1989 and for each
tax year thereafter, each member of the Group will calculate
its Federal corporate income tax liability as if it were to
file a separate Federal income tax return for such period.
For purposes of this Agreement, any Subsidiary ("Covered Asset
Subsidiaries") of Pacific Southwest Bank, F.S.B. that is a
Covered Asset as defined in Section l(q) of the Assistance
Agreement dated December 29, 1988 shall be treated as directly
owned by Pacific Southwest Bank, F.S.B. and shall be subject
to this Agreement. The income, loss and credits of the
Covered Asset Subsidiaries shall be taken into consideration
in computing Pacific Southwest Bank, F.S.B.'s Federal income
tax liability.
B. In so computing the individual Federal income tax liability of
each member of the Group:
(1) Except as otherwise provided herein, "separate
company taxable income" shall be determined as if
Parent and each Subsidiary were filing a separate tax
return, and the term will not have the same meaning
as set forth in Section 1.1502-12 of the Income Tax
Regulations under the Code;
(2) Any dividends received by Parent from Subsidiaries,
or by one Subsidiary from another, will be assumed to
qualify for the 100% dividend received deduction of
Code Section 243, or shall be eliminated from such
calculation in accordance with Regulation 1.1502-
14(a)(1);
(3) Gain or loss on intercompany transactions, whether
deferred or not, shall be treated by each member of
the Group in the manner required by Regulation
1.1502- 13;
(4) Limitations on the calculation of a deduction, the
utilization of credits, or the calculation of a
liability shall be made on a consolidated basis.
Accordingly, the limitations provided in Sections
170(b)(2), 172(b)(2), 38(c), 53(a) and similar
limitations shall be applied on a consolidated basis;
(5) The corporate alternative minimum tax (AMT) imposed
in Section 55 and AMT limitations and adjustments
provided in Section 56 through 59, shall be
determined on a consolidated basis;
2
<PAGE> 3
(6) The amounts in each taxable income bracket in the tax
table in Code Section 11(b) shall be allocated in any
given year to members of the Group as Parent shall
elect. such election shall be made on an annual basis
and shall be binding upon all parties to this
Agreement; and
(7) In calculating any carryback or carryover of net
operating losses, adjustments shall be made to such
prior to subsequent year's separate company tax
liability as determined under Code Section
172(b)-(3)(c) shall be made on a separate company
basis.
III. Liability for Tax Payments
A. Parent will pay the Federal corporation income tax liabilities
of the Group for any year in which the Group is required to
file consolidated Federal income tax returns.
B. If any Subsidiary would be subject to Federal corporate income
tax if it filed a separate income or franchise tax return,
that Subsidiary shall pay to Parent that sum which shall
result from the calculations required by Paragraph II., above.
C. If any Subsidiary would be entitled to a refund of Federal
corporate income tax if it filed a separate Federal income tax
return, Parent shall pay that Subsidiary that sum which shall
result from the calculation required by paragraph II., above.
No payments shall be made if currently generated losses or
credits of any Subsidiary reduced the current tax liability of
the consolidated Group until the Subsidiary can utilize the
loss or credits against its separate company taxable income by
way of a carryback or carryforward. In the event that a
Subsidiary's separate company taxable income is a loss in any
given year as calculated under paragraph II, the Subsidiary
will first offset this loss against prior years' taxable
income. If the loss is greater than prior years' profits, the
excess will be carriedforward against future years' taxable
income. The tax repayment from Parent to Subsidiary under
this paragraph will be calculated on the amount of the loss
carried back to prior years, and no further tax will be
payable to Parent by the Subsidiary until the losses carried
forward are fully utilized against the Subsidiary's future
years, income.
D. With the exception of payment provided for under subparagraphs
B. and C. of this Paragraph III. , neither Parent nor any
Subsidiary shall pay or credit any amount to the other
hereunder, even though the Federal corporate income tax
liability of the Group may have been reduced by reason of the
inclusion of a particular Subsidiary as a member of the Group.
E. Payments to Parent by any Subsidiary must not include any
deferred tax liability incurred by the Subsidiary.
3
<PAGE> 4
IV. Method and Time of Payment
Payments by Parent of consolidated estimated tax for the consolidated
Group at the normal Quarterly due dates will be reimbursed by the
Subsidiaries at those quarterly due dates. Each Subsidiary shall
make/receive these quarterly payments/receipts of estimated tax
liability/repayment on account to/from Parent based on the
Subsidiary's separate company taxable income calculated under
paragraph II., above, as of the close of the appropriate quarter. As
soon as the Group's consolidated tax liability for the year is
determined, each Subsidiary shall make/receive payment to/from Parent
pursuant to paragraph III., above, less amounts already paid for
estimated tax.
V. Adjustment of Tax Liability
In the event of any adjustment of the tax liability shown on the
Federal income or state franchise tax returns of the Group, by reason
of the filing of an amended return or claim for refund, or arising out
of an audit by a taxing authority, the liability of Parent and any
Subsidiary hereunder shall be redetermined after fully giving effect
to such adjustment as if such adjustment had been made as part of the
original computation.
VI. Earnings and Profits Ad
This Agreement is not intended to establish the method by which the
earnings and profits of each member of the Group will be determined.
Parent reserves the right to elect the method for allocating tax
liability for the purposes of determining earnings and profits as set
forth in Income Tax Regulations Sections 1.1552-1(a) and 1.1502-33(d).
VII. Financial Statement Tax Provision
In consolidated financial statements of Parent and its Subsidiaries,
the financial reporting policy for tax provision allocations shall be
based upon a separate entity. The difference between the separate tax
return basis and the consolidated financial reporting allocation basis
shall be charged or credited to Parent's separate tax provision.
VIII. Successors Assigns
The provisions and terms of this Agreement shall be binding on and
inure to the benefit of any successor by merger, acquisition of
assets or otherwise, or any of the parties hereto.
4
<PAGE> 5
IX. New Members
If, at any time, any other company becomes a member of the Group, the
parties hereto agree that such member may become a party to this
Agreement by executing a duplicate copy of this Agreement. Unless
otherwise specified, such named member shall have all the rights and
obligations of a Subsidiary under this Agreement.
X. Duration
Unless earlier terminated by mutual agreement of the parties, this
Agreement shall remain in effect with respect to any tax year for
which consolidated Federal income tax returns are filed by the Group.
Notwithstanding the termination of this Agreement, its provisions will
remain in effect with respect to any period of time during the tax
year in which termination occurs, for which the income of the
terminating party must be included in the consolidated return. The
preceding sentence shall not be construed, however, to require a
Subsidiary to contribute to consolidated tax liability for any period
for which it files a separate return. Allocations of consolidated tax
liability shall be made hereunder only for periods covered by a
consolidated Federal income tax return.
XI. General
All material including, but not limited to, returns, supporting
schedules, workpapers, correspondence and other documents relating to
the consolidated return shall be made available to any party to this
Agreement during regular business hours.
THIS AGREEMENT contains the entire agreement of the parties and there
are no agreement, representations, or warranties not contained herein. This
Agreement may not be modified or amended except by written instrument executed
with the same formality as this Agreement.
5
<PAGE> 6
IN WITNESS, WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
<TABLE>
<S> <C>
PACIFIC USA HOLDINGS CORP.
By: /s/ BILL C. BRADLEY Date: April 28, 1992
------------------------------------------------------- ---------------------------------------------
Bill C. Bradley (Name)
-----------------------------------------
CEO (Title)
-----------------------------------------
PACIFIC SOUTHWEST BANK, F.S.B.
By: /s/ JAMES B. GARDNER Date: April 28, 1992
------------------------------------------------------- ---------------------------------------------
James B. Gardner (Name)
-----------------------------------------
President and CEO (Title)
-----------------------------------------
PACIFIC AMERICAN HOMES, INC.
By: /s/ COLEMAN BRADLEY Date: May 21, 1992
------------------------------------------------------- ---------------------------------------------
Coleman Bradley (Name)
-----------------------------------------
President (Title)
-----------------------------------------
LIFESCAPE DEVELOPMENT CORPORATION
By: /s/ COLEMAN BRADLEY Date: May 21, 1992
------------------------------------------------------- ---------------------------------------------
Coleman Bradley (Name)
-----------------------------------------
President (Title)
-----------------------------------------
NEWMARK HOMES CORP.
By: Date:
------------------------------------------------------- ---------------------------------------------
(Name)
-----------------------------------------
(Title)
-----------------------------------------
</TABLE>
6
<PAGE> 1
10.6(b)
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 (the "Amendment") to the Tax Allocation Agreement
(the "Tax Agreement") dated as of April 28, 1992, by and among Pacific USA
Holdings Corp. (the "Parent") and Pacific American Homes, Inc., Lifescape
Development Corporation, Pacific Southwest Bank, F.S.B. and such of their
affiliates, whether presently existing or hereafter acquired, as are or shall
be part of the "Group" as hereinafter defined (each a "Subsidiary" and
collectively, the "Subsidiaries") is effective as of this ___ day of January,
1998 by and among the Parent and the Subsidiaries
RECITALS
A. The Parent and the Subsidiaries entered into the Tax Agreement
to provide for the treatment of such parties as an affiliated group (the
"Group") within the meaning of Section 1504(a) of the Internal Revenue Code of
1986, as amended (the "Code").
B. The Parent and the Subsidiaries desire to make certain
amendments to the Tax Agreement as set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, the parties hereby agree to amend the Tax Agreement as
follows:
1. Section V. is amended to include as subsection F. the following:
F. Notwithstanding anything to the contrary stated herein, Parent
shall indemnify Subsidiary on an after-tax basis (taking into account,
when realized, any tax detriment or tax benefit to Subsidiary (or any
subsidiary of a Subsidiary) of (i) a payment hereunder or (ii) the
liability to the Internal Revenue Service or state, local or foreign
taxing authority giving rise to such a payment), with respect to and
in the amount of:
(1) Any liability for federal income tax incurred by
Subsidiary or any subsidiary of Subsidiary for any taxable
year with respect to which Subsidiary or such subsidiary is
included in the Parent's consolidated return; provided that
Subsidiary shall have made payments to Parent as provided in
this agreement in complete satisfaction of the Subsidiary's
consolidated tax liability for such taxable year;
(2) Any liability for state or local income tax incurred
by Subsidiary or any subsidiary of Subsidiary with respect to
any jurisdiction for any taxable year with respect to which
Subsidiary or any such subsidiary of Subsidiary participates
in the filing of a consolidated, combined or unitary return
with Parent or any subsidiary of Parent (other than Subsidiary
or any subsidiary of Subsidiary); provided and to the extent
that Subsidiary shall have made payments to Parent as provided
in this agreement in complete satisfaction of Subsidiary's
state and local tax liability for such taxable year;
<PAGE> 2
(3) Any liability for federal, state or local income tax
incurred by Subsidiary or any subsidiary of Subsidiary to the
extent attributable to any member of the Group (other than
Subsidiary or any of its subsidiaries) and for which
Subsidiary or such subsidiary is liable as a result of being
included in a consolidated return of the Group or as a result
of participating in the filing of a consolidated, combined or
unitary state or local income tax return with Parent or any
subsidiary of Parent (other than Subsidiary or any subsidiary
of Subsidiary); and
(4) Interest, penalties and additions to tax, and costs
and expenses in connection with any liabilities described in
subsections (1), (2) or (3) above.
Parent shall pay to Subsidiary amounts due under subsections (1), (2)
and (3) and subsection (4) (to the extent such amounts are related to amounts
under subsections (1), (2) or (3) above) no later than seven (7) days after the
date of a final determination with respect thereto; provided, however, that no
such indemnification shall be made to the extent that Subsidiary has failed to
make a payment to Parent under the provisions of this agreement.
2. Except as expressly amended by this Amendment, all provisions of the Tax
Agreement shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties execute this Amendment as of the date
first written above.
PACIFIC USA HOLDINGS CORP.
By:
-------------------------
-------------------------
(Name)
-------------------------
(Title)
PACIFIC AMERICAN HOMES, INC.
By:
-------------------------
-------------------------
(Name)
-------------------------
(Title)
LIFESCAPE DEVELOPMENT CORPORATION
By:
-------------------------
-------------------------
(Name)
-------------------------
(Title)
PACIFIC SOUTHWEST BANK, F.S.B.
By:
-------------------------
-------------------------
(Name)
-------------------------
(Title)
NEWMARK HOMES CORP.
By:
-------------------------
-------------------------
(Name)
-------------------------
(Title)
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of November 1, 1996
(the "Effective Date") by and between PACIFIC UNITED DEVELOPMENT CORP., a
Nevada corporation (the "Employer"), and COLEMAN BRADLEY, an individual
residing in Frisco, Texas (the "Employee").
RECITALS
The Employer, its divisions, subsidiaries, and other affiliated entities are
primarily engaged in the business of land development. It is the intent and
purpose of the parties hereto to specify in this Agreement the terms and
conditions of Employee's employment with the Employer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to time.
"Base Salary"--as defined in Section 3.1(a).
"Basic Compensation" means Base Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors" means the board of directors of the Employer.
"Disability"--as defined in Section 4.2.
"Effective Date" means the date stated in the first paragraph of this
Agreement.
"Employment Period" means the term of the Employee's employment under
this Agreement.
"Fiscal Year" means the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"For cause"--as defined in Section 4.3.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, business trust, association,
organization, or governmental body.
<PAGE> 2
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Employee, and the Employee
hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM
Subject to the provisions of Section 5, the term of the
Employee's employment under this Agreement will be three (3)
years and two (2) months, beginning on the Effective Date and
ending on December 31, 1999.
2.3 DUTIES
The Employee will serve as President and Chief Executive
Officer of the Employer for the term of this Agreement and
will have such duties as are assigned or delegated to the
Employee by the Board of Directors. The Employee will devote
his full business time, attention, skill, and energy
exclusively to the business of the Employer, will use his best
efforts to promote the success of the Employer's business, and
will cooperate fully with the Board of Directors in the
advancement of the best interests of the Employer. Nothing in
this Section 2.3, however, will prevent the Employee from
engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent
with the Employee's duties under this Agreement. If the
Employee is elected as a director of the Employer or as a
director or officer of any of its affiliates, the Employee
will fulfill his duties as such director or officer without
additional compensation.
3. COMPENSATION
The compensation and other benefits payable to the Employee under this
Agreement shall constitute the full consideration to be paid to the
Employee for all services to be rendered by the Employee for the
Employer, its divisions, subsidiaries and other affiliated entities.
3.1 BASIC COMPENSATION
(a) The Employee will be paid an annual salary as set
forth below ("Base Salary"), which will be payable in
equal periodic installments according to the
Employer's customary payroll practices, but no less
frequently than monthly.
<TABLE>
<CAPTION>
Calendar Year Base Salary
------------- -----------
<S> <C>
11/1/96 - 12/31/96 $200,000.00
1997 $225,000.00
1998 $250,000.00
1999 $275,000.00
</TABLE>
2
<PAGE> 3
(b) The Employee will, during the Employment Period, be
permitted to participate in such pension, profit
sharing, bonus, life insurance, hospitalization,
major medical and other employee benefit plans of the
Employer that may be in effect from time to time, to
the extent Employee is eligible under the terms of
those plans (collectively, the "Benefits").
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Employment Period, the Employee's Basic Compensation, and
any and all other rights of the Employee under this Agreement
or otherwise as an employee of the Employer will terminate
(except as otherwise provided in this Section 4):
(a) upon the death of the Employee;
(b) upon the disability of the Employee (as defined in
Section 4.2) immediately upon notice from either
party to the other; or
(c) for cause (as defined in Section 4.3), immediately
upon notice from the Employer to the Employee, or at
such later time as such notice may specify;
4.2 DEFINITION OF DISABILITY
For purposes of Section 4.1, the Employee will be deemed to
have a "disability" if, for physical or mental reasons, the
Employee is unable to perform the essential functions of the
Employee's duties under this Agreement for 120 consecutive
days, or 180 days during any twelve (12) month period, as
determined in accordance with this Section 4.2. The disability
of the Employee will be determined by a medical doctor
selected by written agreement of the Employer and the Employee
upon the request of either party by notice to the other. If
the Employer and the Employee cannot agree on the selection of
a medical doctor, each of them will select a medical doctor
and the two (2) medical doctors will select a third medical
doctor who will determine whether the Employee has a
disability. The determination of the medical doctor selected
under this Section 4.2 will be binding on both parties. The
Employee must submit to a reasonable number of examinations by
the medical doctor making the determination of disability
under this Section 4.2, and the Employee hereby authorizes the
disclosure and release to the Employer of such determination
and all supporting medical records. If the Employee is not
legally competent, the Employee's legal guardian or duly
authorized attorney-in-fact will act in the Employee's stead,
under this Section 4.2, for the purposes of submitting the
Employee to the examinations, and providing the authorization
of disclosure, required under this Section 4.2.
3
<PAGE> 4
4.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 4.1, the phrase "for cause" means: (a)
the commission of fraud, theft, embezzlement, or similar
malfeasance involving moral turpitude or the conviction of, or
plea of nolo contendere to, any felony; (b) gross negligence,
nonfeasance, dishonesty, willful misconduct or substantial
failure to perform employment duties in a manner consistent
with normal standards of job performance after prior
evaluation and warning related to such standards of job
performance; or (c) the appropriation (or attempted
appropriation) of a material business opportunity of the
Employer.
4.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer
will be obligated to pay the Employee (or, in the event of his
death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 4.4, and in lieu
of all other amounts and in settlement and complete release of
all claims the Employee may have against the Employer. For
purposes of this Section 4.4, the Employee's designated
beneficiary will be such individual beneficiary or trust,
located at such address, as the Employee may designate by
notice to the Employer from time to time or, if the Employee
fails to give notice to the Employer of such a beneficiary,
the Employee's estate.
(a) Termination by the Employer for Cause. If the
Employer terminates this Agreement for cause, the
Employee will be entitled to receive his accrued, but
unpaid, Base Salary only through the date such
termination is effective.
(b) Termination upon Disability. If this Agreement is
terminated by either party as a result of the
Employee's disability, as determined under Section
4.2, the Employer will pay the Employee his Base
Salary through the remainder of the calendar month
during which such termination is effective.
(c) Termination upon Death. If this Agreement is
terminated because of the Employee's death, the
Employee's estate will be entitled to receive his
Base Salary through the end of the calendar month in
which his death occurs.
(d) Benefits. The Employee's accrual of, or participation
in plans providing for, Benefits, will cease at the
effective date of the termination of this Agreement,
except as otherwise specifically provided in writing
in the documentation for any such Benefit. The
Employee will not receive, as part of his termination
pay pursuant to this Section 4, any payment or other
compensation for any vacation, holiday, sick leave,
or other leave unused on the date the notice of
termination is given under this Agreement, unless
Employer's written personnel policies provide
otherwise.
4
<PAGE> 5
5. GENERAL PROVISIONS
5.1 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or
privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by
the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one party will
be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take
further action without notice or demand as provided in this
Agreement.
5.2 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective
successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets
may be transferred. The duties and covenants of the Employee
under this Agreement, being personal, may not be delegated.
5.3 NOTICES
All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have
been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by facsimile (with written
confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case
to the appropriate addresses and facsimile numbers set forth
below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer: Pacific United Development Corp.
2445 Midway Road, Suite 106
Carrollton, Texas 75006
Facsimile No.: 972/447-0783
5
<PAGE> 6
With a copy to: Cathryn L. Porter
Pacific USA Holdings Corp.
3200 Southwest Freeway, Suite 1220
Houston, TX 77027
Facsimile No.: 713/871-0155
If to the Employee: Coleman Bradley
#6 Canyon Crest Court
Frisco, Texas 75034
5.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or
written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended
orally, but only by an agreement in writing signed by the
parties hereto.
5.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of
Texas without regard to conflicts of laws principles.
5.6 SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the
other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
"EMPLOYER"
PACIFIC UNITED DEVELOPMENT CORP.
By: /s/ COLEMAN BRADLEY
-------------------------------------
Name: Coleman Bradley
Title: President
"EMPLOYEE"
/s/ COLEMAN BRADLEY
----------------------------------------
COLEMAN BRADLEY
6
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 1, 1998 (the
"Effective Date") by and between NEWMARK HOME CORPORATION, a Nevada corporation
(the "Employer"), and STEVE VON HOFE, an individual residing in Richmond, Texas
(the "Employee").
RECITALS
The Employer, its divisions, subsidiaries, and other affiliated entities are
primarily engaged in the business of constructing single family residences. It
is the intent and purpose of the parties hereto to specify in this Agreement
the terms and conditions of Employee's employment with the Employer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to time.
"Base Salary"--as defined in Section 3.1(a).
"Basic Compensation" means Base Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all intellectual property of
the Employer (or any of its affiliates), including but not limited to:
(a) trade secrets concerning the business and affairs of the
Employer (or any of its affiliates), product specifications,
data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and
development, current and planned manufacturing or distribution
methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business
plans, computer software and programs (including object code
and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae,
compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and
information), and any other information, however documented,
that is a trade secret under federal, state or other
applicable law; and
<PAGE> 2
(b) information concerning the business and affairs of the
Employer (or any of its affiliates) (which includes historical
financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented;
and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer (or any of its
affiliates) containing or based, in whole or in part, on any
information included in the foregoing.
"Disability"--as defined in Section 4.2.
"Effective Date" means the date stated in the first paragraph of this
Agreement.
"Employee Invention" means any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registerable or not), any mask work,
however fixed or encoded, that is suitable to be fixed, embedded or
programmed in a semiconductor product (whether recordable or not), and
any work of authorship (whether or not copyright protection may be
obtained for it) created, conceived, or developed by the Employee,
either solely or in conjunction with others, during the Employment
Period or at any time prior to the Employment Period that Employee was
an employee of Employer, or a period that includes a portion of the
Employment Period, that relates in any way to, or is useful in any
manner in, the business then being conducted or proposed to be
conducted by the Employer, and any such item created by the Employee,
either solely or in conjunction with others, following termination of
the Employee's employment with the Employer, that is based upon or
uses Confidential Information.
"Employment Period" means the term of the Employee's employment under
this Agreement.
"Fiscal Year" means the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"For cause"--as defined in Section 4.3.
"Person" means any individual, corporation (including any nonprofit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, business trust, association,
organization, or governmental body.
"Post-Employment Period"-- as defined in Section 5.2.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Employee, and the Employee hereby
accepts employment by the Employer, upon the terms and conditions set
forth in this Agreement.
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<PAGE> 3
2.2 TERM
The term of the Employee's employment under this Agreement shall
commence on the Effective Date and end on December 31, 2000, unless
terminated earlier in accordance with the provisions of Section 4
herein. Employer and Employee may extend the term of this Agreement by
execution of a written amendment hereto, setting forth the terms of
such extension. If the parties fail to execute such written amendment,
but the employment relationship has continued by mutual consent, then
the terms of such employment shall be deemed to be on a month-to-month
basis.
2.3 DUTIES
The Employee will serve as Senior Vice President - Houston
Division/Operations Manager of the Employer for the term of this
Agreement and will have such duties as are assigned or delegated to
the Employee by the Chief Executive Officer of Employer, the Chief
Executive Officer's designee, or Employee's immediate supervisor. The
Employee will devote his full business time, attention, skill, and
energy exclusively to the business of the Employer, will use his best
efforts to promote the success of the Employer's business, and will
cooperate fully with the management and Board of Directors of
Employer in the advancement of the best interests of the Employer.
Nothing in this Section 2.3, however, will prevent the Employee from
engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent with the
Employee's duties under this Agreement. If the Employee is elected an
officer of any of Employer's affiliates, the Employee will fulfill his
duties as such officer without additional compensation.
3. COMPENSATION
The compensation and other benefits payable to the Employee under this
Agreement shall constitute the full consideration to be paid to the
Employee for all services to be rendered by the Employee for the
Employer, its divisions, subsidiaries and other affiliated entities.
3.1 BASIC COMPENSATION
(a) The Employee will be paid an annual salary as set forth below
("Base Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll
practices, but no less frequently than monthly.
<TABLE>
<CAPTION>
Calendar Year Base Salary
------------- -----------
<S> <C>
1998 $125,000.00
1999 $140,000.00
2000 $155,000.00
</TABLE>
3
<PAGE> 4
(b) The Employee will, during the Employment Period, be permitted
to participate in such pension, profit sharing, life
insurance, hospitalization, major medical and other employee
benefit plans of the Employer that may be in effect from time
to time, to the extent Employee is eligible under the terms of
those plans (collectively, the "Benefits").
(c) Employee will be eligible to participate in such bonus plans,
which will be consistent with previous bonus plans, except as
agreed to between Employee and Employer at the beginning of
each calendar year (the "Bonus").
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Employment Period, the Employee's Basic Compensation, and any and
all other rights of the Employee under this Agreement or otherwise as
an employee of the Employer will terminate (except as otherwise
provided in this Section 4):
(a) upon the death of the Employee;
(b) upon the disability of the Employee (as defined in Section
4.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 4.3), immediately upon notice
from the Employer to the Employee, or at such later time as
such notice may specify; or
(d) on December 31, 2000.
4.2 DEFINITION OF DISABILITY
For purposes of Section 4.1, the Employee will be deemed to have a
"disability" if, for physical or mental reasons, the Employee is
unable to perform the essential functions of the Employee's duties
under this Agreement for 120 consecutive days, or 180 days during any
twelve (12) month period, as determined in accordance with this
Section 4.2. The disability of the Employee will be determined by a
medical doctor selected by written agreement of the Employer and the
Employee upon the request of either party by notice to the other. If
the Employer and the Employee cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two
(2) medical doctors will select a third medical doctor who will
determine whether the Employee has a disability. The determination of
the medical doctor selected under this Section 4.2 will be binding on
both parties. The Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of
disability under this Section 4.2, and the Employee hereby authorizes
the disclosure and release to the Employer of such determination and
all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized
attorney-in-fact will act in the Employee's stead, under this Section
4.2, for the purposes of submitting the Employee to the examinations,
and providing the authorization of disclosure, required under this
Section 4.2.
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<PAGE> 5
4.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 4.1, the phrase "for cause" means: (a) the
commission of fraud, theft, embezzlement, or similar malfeasance
involving moral turpitude or the conviction of, or plea of nolo
contendere to, any felony; (b) gross negligence, nonfeasance,
insubordination, dishonesty, willful misconduct or substantial failure
to perform employment duties in a manner consistent with normal
standards of job performance after prior evaluation and warning
related to such standards of job performance; or (c) the appropriation
(or attempted appropriation) of a material business opportunity of the
Employer.
4.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is
provided in this Section 4.4, and in lieu of all other amounts and in
settlement and complete release of all claims the Employee may have
against the Employer. For purposes of this Section 4.4, the Employee's
designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Employee may designate by notice to
the Employer from time to time or, if the Employee fails to give
notice to the Employer of such a beneficiary, the Employee's estate.
(a) Termination by the Employer for Cause. If the Employer
terminates this Agreement for cause, the Employee will be
entitled to receive his accrued, but unpaid, Base Salary only
through the date such termination is effective. Employee shall
forfeit his rights to any payment under any bonus plan in
which Employee participated at the time of termination,
whether or not payments under such bonus plan have been
accrued by Employer. Employee shall not be released from the
covenants contained in Section 5 hereof.
(b) Termination upon Disability. If this Agreement is terminated
by either party as a result of the Employee's disability, as
determined under Section 4.2, the Employer will pay the
Employee his Base Salary through the remainder of the calendar
month during which such termination is effective.
(c) Termination upon Death. If this Agreement is terminated
because of the Employee's death, the Employee's estate will be
entitled to receive his Base Salary through the end of the
calendar month in which his death occurs.
(d) Termination on December 31, 2000. If on December 31, 2000,
this Agreement terminates because the parties have not
extended the Term (as provide in Section 2.2 hereof), the
Employee shall be entitled to receive (i) any unpaid Base
Salary accrued through December 31, 2000, and (ii) a pro-rated
portion of any short term bonus plan, under which Employee
participated at the time of termination, based on the actual
months worked by the Employee during the fiscal year on which
the bonus is based. Employee shall not be released from the
covenants contained in Section 5 hereof, provided however,
that Employer shall pay Employee an amount equal to one years
Base Salary. Such amount shall be payable in twelve (12) equal
monthly installments,
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<PAGE> 6
determined by dividing Employee's Base Salary, on the last day
of Employee's employment with Employer, by 12, with the first
such installment being due and payable on the last day of
Employee's employment with Employer, and the remaining
installments being due and payable on the same date in each
succeeding month. Employer shall have the right, at any time,
to release Employee from the covenants contained in Section 5
hereof, at which time Employee's right to receive and
Employer's obligation to make any installment payment shall
terminate.
(e) Termination after December 31, 2000. In the event Employer
and Employee agree to continue Employee's employment with
Employer after December 31, 2000, pursuant to the terms of
Section 2.2 hereof, such employment shall be continued, unless
otherwise agreed in writing, on a month to month basis and on
the same terms and conditions as set forth herein, and may be
terminated by Employer (i) at any time upon thirty (30) days
notice, or (ii) immediately, provided that Employer shall pay
Employee in a lump sum, an amount equal to one (1) months Base
Salary. Employee shall be entitled to receive a pro-rated
portion of any short term bonus plan, under which Employee
participated at the time of termination, based on the actual
months worked by the Employee during the fiscal year on which
the bonus is based. Employee shall not be released from the
covenants contained in Section 5 hereof, provided however,
that Employer shall pay Employee an amount equal to one years
Base Salary. Such amount shall be payable in twelve (12) equal
monthly installments, determined by dividing Employee's Base
Salary, on the last day of Employee's employment with
Employer, by 12, with the first such installment being due and
payable on the last day of Employee's employment with
Employer, and the remaining installments being due and payable
on the same date in each succeeding month. Employer shall have
the right, at any time, to release Employee from the covenants
contained in Section 5 hereof, at which time Employee's right
to receive and Employer's obligation to make any installment
payment shall terminate.
In the event that Employer terminates Employee for cause, as
defined in Section 4.3, then the provisions of this Section
4.4(e)(i) and (ii) shall not apply, and Employee will be
entitled to receive only his accrued, but unpaid, Base Salary
through the date such termination is effective and Employee
shall not be released from the covenants contained in Section
5 hereof. Employee shall forfeit his rights to any payment
under any bonus plan in which Employee participated at the
time of termination, whether or not payments under such bonus
plan have been accrued by Employer.
(f) Benefits. The Employee's accrual of, or participation in plans
providing for, Benefits, will cease at the effective date of
the termination of this Agreement, except as otherwise
specifically provided in writing in the documentation for any
such Benefit. The Employee will not receive, as part of his
termination pay pursuant to this Section 4, any payment or
other compensation for any vacation, holiday, sick leave, or
other leave unused on the date the notice of termination is
given under this Agreement, unless Employer's written
personnel policies provide otherwise.
(g) Bonus. Employee shall be entitled to a pro-rata distribution
of any Bonus, at the effective date of termination of this
Agreement, unless Employee has been terminated for cause, in
which case Employee shall forfeit any accrued, but unpaid
Bonus.
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<PAGE> 7
5. NON-COMPETITION AND NON-INTERFERENCE
5.1 ACKNOWLEDGMENTS BY THE EMPLOYEE
The Employee acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character, and (b) the provisions of
this Section 5 are reasonable and necessary to protect the goodwill
and other business interests of Employer.
5.2 COVENANTS OF THE EMPLOYEE
In consideration of the acknowledgments by the Employee, and in
consideration of the compensation and benefits to be paid or provided
to the Employee by the Employer, the Employee covenants that he will
not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period
(as defined below), without the express prior written consent
of Employer (as authorized by its board of directors), as
owner, officer, director, employee, stockholder, principal,
consultant, agent, lender, guarantor, cosigner, investor or
trustee of any corporation, partnership, proprietorship, joint
venture, association or any other entity of any nature,
engage, directly or indirectly, in any business of siting,
permitting, developing, constructing, or selling single-family
homes in (i) the following counties in the State of Texas:
(1) Harris County and all contiguous counties, (2) Travis
County and all contiguous counties, (3) Bexar County, and all
contiguous counties, (4) Dallas County and all contiguous
counties, and (5) any county in which Employer engages in
business during the Employment Period, and (ii) the following
counties in the State of Tennessee: (1) Williamson County and
all contiguous counties, and (2) any county in which Employer
engages in business during the Employment Period, provided,
however, that the Employee may purchase or otherwise acquire
up to (but not more than) one percent (1%) of any class of
securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(b) whether for the Employee's own account or for the account of
any other person, at any time during the Employment Period
(except for the account of Employer and its affiliates) and
the Post-Employment Period, solicit business of the same or
similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer,
whether or not the Employee had personal contact with such
person during and by reason of the Employee's employment with
the Employer;
(c) whether for the Employee's own account or the account of any
other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise
engage as an employee, independent contractor, or otherwise,
any person who is an employee of the Employer, or in any
manner induce, or attempt to induce, any employee of the
Employer to terminate his employment with the
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<PAGE> 8
Employer; or (ii) at any time during the Employment Period and
Post Employment Period, interfere with the Employer's
relationship with any person, including any person, who at any
time during the Employment Period, was an employee,
contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, parents, affiliates,
directors, officers, employees, or agents.
The term "Post-Employment Period" means the one (1) year period
beginning on the date of termination of the Employee's employment with
the Employer.
If any covenant in this Section 5.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered
to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not
arbitrary, and not against public policy, will be effective, binding,
and enforceable against the Employee. Employee hereby agrees that this
covenant is a material and substantial part of this Agreement and that
(i) the geographic limitations are reasonable; (ii) the one (1) year
term of the covenant is reasonable; and (iii) the covenant is not made
for the purpose of limiting competition per se and is reasonably
related to a protectable business interest of the Employer.
The period of time applicable to any covenant in this Section 5.2 will
be extended by the duration of any violation by the Employee of such
covenant.
The Employee will, while the covenant under this Section 5.2 is in
effect, give notice to the Employer, within ten (10) days after
accepting any other employment, of the identity of the Employee's
employer. The Employer may notify such employer that the Employee is
bound by this Agreement and, at the Employer's election, furnish such
employer with a copy of this Agreement or relevant portions thereof.
6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
6.1 ACKNOWLEDGMENTS BY THE EMPLOYEE
The Employee acknowledges that (a) during the Employment Period and as
a part of his employment, the Employee will be afforded access to
Confidential Information; (b) public disclosure of such Confidential
Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical
expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each
Employee Invention; and (d) the provisions of this Section 6 are
reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive
ownership of all Employee Inventions.
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<PAGE> 9
6.2 AGREEMENTS OF THE EMPLOYEE
In consideration of the compensation and benefits to be paid or
provided to the Employee by the Employer under this Agreement, the
Employee covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the
Employee will hold in confidence the Confidential
Information and will not disclose it to any person
other than in connection with the performance of his
duties and obligations hereunder, except with the
specific prior written consent of the Employer or
except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under the federal
and state trade secret and intellectual property laws
and any other applicable law. If any information
that the Employer deems to be a trade secret is found
by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such
information will, nevertheless, be considered
Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement
that the Employer submit proof of the economic value
of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information
that the Employee demonstrates was or became
generally available to the public other than as a
result of a disclosure by the Employee.
(iv) The Employee will not remove from the Employer's
premises (except to the extent such removal is for
purposes of the performance of the Employee's duties
at home or while traveling, or except as otherwise
specifically authorized by the Employer) any
document, record, notebook, plan, model, component,
device, or computer software or code, whether
embodied in a disk or in any other form belonging to
the Employer or used in Employer's business
(collectively, the "Proprietary Items"). The Employee
recognizes that, as between the Employer and the
Employee, all of the Proprietary Items, whether or
not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this
Agreement, or upon the request of the Employer during
the Employment Period, the Employee will return to
the Employer all of the Proprietary Items in the
Employee's possession or subject to the Employee's
control, and the Employee shall not retain any
copies, abstracts, sketches, or other physical
embodiment of any of the Proprietary Items.
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<PAGE> 10
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Employee acknowledges that
all of the Employee's writing, works of authorship and other
Employee Inventions are works made for hire and the property
of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire,
the Employee hereby assigns to the Employer all of the
Employee's right, title, and interest, including all rights of
copyright, patent, and other intellectual property rights, to
or in such Employee Inventions. The Employee covenants that he
will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without
additional compensation, all of the Employee's right
to the Employee Invention for the United States and
all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the
Employer may request in order to apply for and obtain
patents or other registrations with respect to any
Employee Invention in the United States and any
foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance but
without expense to the Employee in support of the
Employer's rights to any Employee Invention.
6.3 DISPUTES OR CONTROVERSIES
The Employee recognizes that should a dispute or controversy arising
from or relating to this Agreement be submitted for adjudication to
any court, arbitration panel, or other third party, the preservation
of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such
adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Employee, and their respective
attorneys and experts, who will agree, in advance and in writing, to
receive and maintain all such information in secrecy, except as may be
limited by them in writing.
7. GENERAL PROVISIONS
7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Employee acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this
Agreement (including any provision of Sections 5 and 6) would be
irreparable and that an award of monetary damages to the Employer for
such a breach would be an inadequate remedy. Consequently, the
Employer will have the right, in addition to any other rights it may
have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this
Agreement. Without limiting the Employer's rights under this Section
7 or any other remedies of the
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<PAGE> 11
Employer, if the Employee breaches any of the provisions of Sections 5
and 6 and such breach is proven in a court of competent jurisdiction,
the Employer will have the right to cease making any payments
otherwise due to the Employee under this Agreement.
7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Employee in Sections 5 and 6 are essential
elements of this Agreement, and without the Employee's agreement to
comply with such covenants, the Employer would not have entered into
this Agreement or continued the employment of the Employee. The
Employer and the Employee have independently consulted their
respective counsel and have been advised in all respects concerning
the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 and 6 are independent covenants
and the existence of any claim by the Employee against the Employer
under this Agreement or otherwise will not excuse the Employee's
breach of any covenant in Sections 5 or 6. If the Employee's
employment hereunder expires or is terminated, this Agreement will
continue in full force and effect as is necessary or appropriate to
enforce the covenants and agreements of the Employee in Sections 5 and
6.
7.3 LEGAL RECOURSE
Employee further agrees that these covenants are made to protect the
legitimate business interests of the Employer. Employee understands
as a part of these covenants that the Employer intends to exercise
whatever legal recourse against him for any breach of this Agreement
and in particular, for any breach of these covenants.
8. GENERAL PROVISIONS
8.1 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim
or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
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8.2 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns,
heirs, and legal representatives, including any entity with which the
Employer may merge or consolidate or to which all or substantially all
of its assets may be transferred. The duties and covenants of the
Employee under this Agreement, being personal, may not be delegated.
8.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of
receipt), provided that a copy is mailed by certified mail, return
receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service, in each case to the
appropriate addresses and facsimile numbers set forth below (or to
such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
If to Employer:
Newmark Home Corporation
1200 Soldiers Field Drive
Sugar Land, TX 77479
Facsimile No.: 281/243-0132
With a copy to:
Cathryn L. Porter
Pacific USA Holdings Corp.
3200 Southwest Freeway, Suite 1220
Houston, TX 77027
Facsimile No.: 713/871-0155
If to the Employee:
Steve Von Hofe
5215 Dogwood Trail
Richmond, Texas 77469
8.4 ENTIRE AGREEMENT; AMENDMENTS
Employee and Employer have entered into a Mutual Agreement to
Arbitrate Claims (the "Arbitration Agreement") incorporated herein for
all purposes as if set forth in full. This Agreement, together with
the Arbitration agreement, contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
prior agreements and
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<PAGE> 13
understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be
amended orally, but only by an agreement in writing signed by the
parties hereto.
8.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
8.6 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this
Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
"EMPLOYER"
NEWMARK HOME CORPORATION
By: /s/ LONNIE M. FEDRICK
-------------------------------
Name: Lonnie M. Fedrick
Title: President & CEO
"EMPLOYEE"
/s/ STEVE VON HOFE
----------------------------------
STEVE VON HOFE
13
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 1, 1998 (the
"Effective Date") by and between NEWMARK HOME CORPORATION, a Nevada corporation
(the "Employer"), and BRIAN SHIELDS, an individual residing in Austin, Texas
(the "Employee").
RECITALS
The Employer, its divisions, subsidiaries, and other affiliated entities are
primarily engaged in the business of constructing single family residences. It
is the intent and purpose of the parties hereto to specify in this Agreement
the terms and conditions of Employee's employment with the Employer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to time.
"Base Salary"--as defined in Section 3.1(a).
"Basic Compensation" means Base Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all intellectual property of
the Employer (or any of its affiliates), including but not limited to:
(a) trade secrets concerning the business and affairs of the
Employer (or any of its affiliates), product specifications,
data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and
development, current and planned manufacturing or distribution
methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business
plans, computer software and programs (including object code
and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae,
compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and
information), and any other information, however documented,
that is a trade secret under federal, state or other
applicable law; and
<PAGE> 2
(b) information concerning the business and affairs of the
Employer (or any of its affiliates) (which includes historical
financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented;
and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer (or any of its
affiliates) containing or based, in whole or in part, on any
information included in the foregoing.
"Disability"--as defined in Section 4.2.
"Effective Date" means the date stated in the first paragraph of this
Agreement.
"Employee Invention" means any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registerable or not), any mask work,
however fixed or encoded, that is suitable to be fixed, embedded or
programmed in a semiconductor product (whether recordable or not), and
any work of authorship (whether or not copyright protection may be
obtained for it) created, conceived, or developed by the Employee,
either solely or in conjunction with others, during the Employment
Period or at any time prior to the Employment Period that Employee was
an employee of Employer, or a period that includes a portion of the
Employment Period, that relates in any way to, or is useful in any
manner in, the business then being conducted or proposed to be
conducted by the Employer, and any such item created by the Employee,
either solely or in conjunction with others, following termination of
the Employee's employment with the Employer, that is based upon or
uses Confidential Information.
"Employment Period" means the term of the Employee's employment under
this Agreement.
"Fiscal Year" means the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"For cause"--as defined in Section 4.3.
"Person" means any individual, corporation (including any nonprofit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, business trust, association,
organization, or governmental body.
"Post-Employment Period"-- as defined in Section 5.2.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Employee, and the Employee hereby
accepts employment by the Employer, upon the terms and conditions set
forth in this Agreement.
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<PAGE> 3
2.2 TERM
The term of the Employee's employment under this Agreement shall
commence on the Effective Date and end on December 31, 2000, unless
terminated earlier in accordance with the provisions of Section 4
herein. Employer and Employee may extend the term of this Agreement by
execution of a written amendment hereto, setting forth the terms of
such extension. If the parties fail to execute such written amendment,
but the employment relationship has continued by mutual consent, then
the terms of such employment shall be deemed to be on a month-to-month
basis.
2.3 DUTIES
The Employee will serve as Senior Vice President - Austin Division of
the Employer for the term of this Agreement and will have such duties
as are assigned or delegated to the Employee by the Chief Executive
Officer of Employer, the Chief Executive Officer's designee, or
Employee's immediate supervisor. The Employee will devote his full
business time, attention, skill, and energy exclusively to the
business of the Employer, will use his best efforts to promote the
success of the Employer's business, and will cooperate fully with the
management and Board of Directors of Employer in the advancement of
the best interests of the Employer. Nothing in this Section 2.3,
however, will prevent the Employee from engaging in additional
activities in connection with personal investments and community
affairs that are not inconsistent with the Employee's duties under
this Agreement. If the Employee is elected an officer of any of
Employer's affiliates, the Employee will fulfill his duties as such
officer without additional compensation.
3. COMPENSATION
The compensation and other benefits payable to the Employee under this
Agreement shall constitute the full consideration to be paid to the
Employee for all services to be rendered by the Employee for the
Employer, its divisions, subsidiaries and other affiliated entities.
3.1 BASIC COMPENSATION
(a) The Employee will be paid an annual salary as set forth below
("Base Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll
practices, but no less frequently than monthly.
<TABLE>
<CAPTION>
Calendar Year Base Salary
------------- -----------
<S> <C>
1998 $150,000.00
1999 $165,000.00
2000 $180,000.00
</TABLE>
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<PAGE> 4
(b) The Employee will, during the Employment Period, be permitted
to participate in such pension, profit sharing, life
insurance, hospitalization, major medical and other employee
benefit plans of the Employer that may be in effect from time
to time, to the extent Employee is eligible under the terms of
those plans (collectively, the "Benefits").
(c) Employee will be eligible to participate in such bonus plans,
which will be consistent with previous bonus plans, except as
agreed to between Employee and Employer at the beginning of
each calendar year (the "Bonus").
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Employment Period, the Employee's Basic Compensation, and any and
all other rights of the Employee under this Agreement or otherwise as
an employee of the Employer will terminate (except as otherwise
provided in this Section 4):
(a) upon the death of the Employee;
(b) upon the disability of the Employee (as defined in Section
4.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 4.3), immediately upon notice
from the Employer to the Employee, or at such later time as
such notice may specify; or
(d) on December 31, 2000.
4.2 DEFINITION OF DISABILITY
For purposes of Section 4.1, the Employee will be deemed to have a
"disability" if, for physical or mental reasons, the Employee is
unable to perform the essential functions of the Employee's duties
under this Agreement for 120 consecutive days, or 180 days during any
twelve (12) month period, as determined in accordance with this
Section 4.2. The disability of the Employee will be determined by a
medical doctor selected by written agreement of the Employer and the
Employee upon the request of either party by notice to the other. If
the Employer and the Employee cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two
(2) medical doctors will select a third medical doctor who will
determine whether the Employee has a disability. The determination of
the medical doctor selected under this Section 4.2 will be binding on
both parties. The Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of
disability under this Section 4.2, and the Employee hereby authorizes
the disclosure and release to the Employer of such determination and
all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized
attorney-in-fact will act in the Employee's stead, under this Section
4.2, for the purposes of submitting the Employee to the examinations,
and providing the authorization of disclosure, required under this
Section 4.2.
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<PAGE> 5
4.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 4.1, the phrase "for cause" means: (a) the
commission of fraud, theft, embezzlement, or similar malfeasance
involving moral turpitude or the conviction of, or plea of nolo
contendere to, any felony; (b) gross negligence, nonfeasance,
insubordination, dishonesty, willful misconduct or substantial failure
to perform employment duties in a manner consistent with normal
standards of job performance after prior evaluation and warning
related to such standards of job performance; or (c) the appropriation
(or attempted appropriation) of a material business opportunity of the
Employer.
4.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is
provided in this Section 4.4, and in lieu of all other amounts and in
settlement and complete release of all claims the Employee may have
against the Employer. For purposes of this Section 4.4, the Employee's
designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Employee may designate by notice to
the Employer from time to time or, if the Employee fails to give
notice to the Employer of such a beneficiary, the Employee's estate.
(a) Termination by the Employer for Cause. If the Employer
terminates this Agreement for cause, the Employee will be
entitled to receive his accrued, but unpaid, Base Salary only
through the date such termination is effective. Employee shall
forfeit his rights to any payment under any bonus plan in
which Employee participated at the time of termination,
whether or not payments under such bonus plan have been
accrued by Employer. Employee shall not be released from the
covenants contained in Section 5 hereof.
(b) Termination upon Disability. If this Agreement is terminated by
either party as a result of the Employee's disability, as
determined under Section 4.2, the Employer will pay the
Employee his Base Salary through the remainder of the calendar
month during which such termination is effective.
(c) Termination upon Death. If this Agreement is terminated
because of the Employee's death, the Employee's estate will be
entitled to receive his Base Salary through the end of the
calendar month in which his death occurs.
(d) Termination on December 31, 2000. If on December 31, 2000, this
Agreement terminates because the parties have not extended the
Term (as provide in Section 2.2 hereof), the Employee shall be
entitled to receive (i) any unpaid Base Salary accrued through
December 31, 2000, and (ii) a pro-rated portion of any short
term bonus plan, under which Employee participated at the time
of termination, based on the actual months worked by the
Employee during the fiscal year on which the bonus is based.
Employee shall not be released from the covenants contained in
Section 5 hereof, provided however, that Employer shall pay
Employee an amount equal to one years Base Salary. Such amount
shall be payable in twelve (12) equal monthly installments,
determined by dividing Employee's Base Salary, on the last day
of Employee's
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<PAGE> 6
employment with Employer, by 12, with the first such
installment being due and payable on the last day of
Employee's employment with Employer, and the remaining
installments being due and payable on the same date in each
succeeding month. Employer shall have the right, at any time,
to release Employee from the covenants contained in Section 5
hereof, at which time Employee's right to receive and
Employer's obligation to make any installment payment shall
terminate.
(e) Termination after December 31, 2000. In the event Employer
and Employee agree to continue Employee's employment with
Employer after December 31, 2000, pursuant to the terms of
Section 2.2 hereof, such employment shall be continued, unless
otherwise agreed in writing, on a month to month basis and on
the same terms and conditions as set forth herein, and may be
terminated by Employer (i) at any time upon thirty (30) days
notice, or (ii) immediately, provided that Employer shall pay
Employee in a lump sum, an amount equal to one (1) months Base
Salary. Employee shall be entitled to receive a pro-rated
portion of any short term bonus plan, under which Employee
participated at the time of termination, based on the actual
months worked by the Employee during the fiscal year on which
the bonus is based. Employee shall not be released from the
covenants contained in Section 5 hereof, provided however,
that Employer shall pay Employee an amount equal to one years
Base Salary. Such amount shall be payable in twelve (12) equal
monthly installments, determined by dividing Employee's Base
Salary, on the last day of Employee's employment with
Employer, by 12, with the first such installment being due and
payable on the last day of Employee's employment with
Employer, and the remaining installments being due and payable
on the same date in each succeeding month. Employer shall have
the right, at any time, to release Employee from the covenants
contained in Section 5 hereof, at which time Employee's right
to receive and Employer's obligation to make any installment
payment shall terminate.
In the event that Employer terminates Employee for cause, as
defined in Section 4.3, then the provisions of this Section
4.4(e)(i) and (ii) shall not apply, and Employee will be
entitled to receive only his accrued, but unpaid, Base Salary
through the date such termination is effective and Employee
shall not be released from the covenants contained in Section
5 hereof. Employee shall forfeit his rights to any payment
under any bonus plan in which Employee participated at the
time of termination, whether or not payments under such bonus
plan have been accrued by Employer.
(f) Benefits. The Employee's accrual of, or participation in plans
providing for, Benefits, will cease at the effective date of
the termination of this Agreement, except as otherwise
specifically provided in writing in the documentation for any
such Benefit. The Employee will not receive, as part of his
termination pay pursuant to this Section 4, any payment or
other compensation for any vacation, holiday, sick leave, or
other leave unused on the date the notice of termination is
given under this Agreement, unless Employer's written
personnel policies provide otherwise.
(g) Bonus. Employee shall be entitled to a pro-rata distribution
of any Bonus, at the effective date of termination of this
Agreement, unless Employee has been terminated for cause, in
which case Employee shall forfeit any accrued, but unpaid
Bonus.
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<PAGE> 7
5. NON-COMPETITION AND NON-INTERFERENCE
5.1 ACKNOWLEDGMENTS BY THE EMPLOYEE
The Employee acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character, and (b) the provisions of
this Section 5 are reasonable and necessary to protect the goodwill
and other business interests of Employer.
5.2 COVENANTS OF THE EMPLOYEE
In consideration of the acknowledgments by the Employee, and in
consideration of the compensation and benefits to be paid or provided
to the Employee by the Employer, the Employee covenants that he will
not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post- Employment Period
(as defined below), without the express prior written consent
of Employer (as authorized by its board of directors), as
owner, officer, director, employee, stockholder, principal,
consultant, agent, lender, guarantor, cosigner, investor or
trustee of any corporation, partnership, proprietorship, joint
venture, association or any other entity of any nature,
engage, directly or indirectly, in any business of siting,
permitting, developing, constructing, or selling single-family
homes in (i) the following counties in the State of Texas:
(1) Harris County and all contiguous counties, (2) Travis
County and all contiguous counties, (3) Bexar County, and all
contiguous counties, (4) Dallas County and all contiguous
counties, and (5) any county in which Employer engages in
business during the Employment Period, and (ii) the following
counties in the State of Tennessee: (1) Williamson County and
all contiguous counties, and (2) any county in which Employer
engages in business during the Employment Period, provided,
however, that the Employee may purchase or otherwise acquire
up to (but not more than) one percent (1%) of any class of
securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(b) whether for the Employee's own account or for the account of
any other person, at any time during the Employment Period
(except for the account of Employer and its affiliates) and
the Post-Employment Period, solicit business of the same or
similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer,
whether or not the Employee had personal contact with such
person during and by reason of the Employee's employment with
the Employer;
(c) whether for the Employee's own account or the account of any
other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise
engage as an employee, independent contractor, or otherwise,
any person who is an employee of the Employer, or in any
manner induce, or attempt to induce, any employee of the
Employer to terminate his employment with the Employer; or
(ii) at any time during the Employment Period and Post
Employment
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<PAGE> 8
Period, interfere with the Employer's relationship with any
person, including any person, who at any time during the
Employment Period, was an employee, contractor, supplier, or
customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, parents, affiliates,
directors, officers, employees, or agents.
The term "Post-Employment Period" means the one (1) year period
beginning on the date of termination of the Employee's employment with
the Employer.
If any covenant in this Section 5.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered
to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not
arbitrary, and not against public policy, will be effective, binding,
and enforceable against the Employee. Employee hereby agrees that this
covenant is a material and substantial part of this Agreement and that
(i) the geographic limitations are reasonable; (ii) the one (1) year
term of the covenant is reasonable; and (iii) the covenant is not made
for the purpose of limiting competition per se and is reasonably
related to a protectable business interest of the Employer.
The period of time applicable to any covenant in this Section 5.2 will
be extended by the duration of any violation by the Employee of such
covenant.
The Employee will, while the covenant under this Section 5.2 is in
effect, give notice to the Employer, within ten (10) days after
accepting any other employment, of the identity of the Employee's
employer. The Employer may notify such employer that the Employee is
bound by this Agreement and, at the Employer's election, furnish such
employer with a copy of this Agreement or relevant portions thereof.
6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
6.1 ACKNOWLEDGMENTS BY THE EMPLOYEE
The Employee acknowledges that (a) during the Employment Period and as
a part of his employment, the Employee will be afforded access to
Confidential Information; (b) public disclosure of such Confidential
Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical
expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each
Employee Invention; and (d) the provisions of this Section 6 are
reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive
ownership of all Employee Inventions.
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<PAGE> 9
6.2 AGREEMENTS OF THE EMPLOYEE
In consideration of the compensation and benefits to be paid or
provided to the Employee by the Employer under this Agreement, the
Employee covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the
Employee will hold in confidence the Confidential
Information and will not disclose it to any person
other than in connection with the performance of his
duties and obligations hereunder, except with the
specific prior written consent of the Employer or
except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under the federal
and state trade secret and intellectual property laws
and any other applicable law. If any information
that the Employer deems to be a trade secret is found
by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such
information will, nevertheless, be considered
Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement
that the Employer submit proof of the economic value
of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information
that the Employee demonstrates was or became
generally available to the public other than as a
result of a disclosure by the Employee.
(iv) The Employee will not remove from the Employer's
premises (except to the extent such removal is for
purposes of the performance of the Employee's duties
at home or while traveling, or except as otherwise
specifically authorized by the Employer) any
document, record, notebook, plan, model, component,
device, or computer software or code, whether
embodied in a disk or in any other form belonging to
the Employer or used in Employer's business
(collectively, the "Proprietary Items"). The Employee
recognizes that, as between the Employer and the
Employee, all of the Proprietary Items, whether or
not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this
Agreement, or upon the request of the Employer during
the Employment Period, the Employee will return to
the Employer all of the Proprietary Items in the
Employee's possession or subject to the Employee's
control, and the Employee shall not retain any
copies, abstracts, sketches, or other physical
embodiment of any of the Proprietary Items.
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<PAGE> 10
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Employee acknowledges that
all of the Employee's writing, works of authorship and other
Employee Inventions are works made for hire and the property
of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire,
the Employee hereby assigns to the Employer all of the
Employee's right, title, and interest, including all rights of
copyright, patent, and other intellectual property rights, to
or in such Employee Inventions. The Employee covenants that he
will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without
additional compensation, all of the Employee's right
to the Employee Invention for the United States and
all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the
Employer may request in order to apply for and obtain
patents or other registrations with respect to any
Employee Invention in the United States and any
foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance but
without expense to the Employee in support of the
Employer's rights to any Employee Invention.
6.3 DISPUTES OR CONTROVERSIES
The Employee recognizes that should a dispute or controversy arising
from or relating to this Agreement be submitted for adjudication to
any court, arbitration panel, or other third party, the preservation
of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such
adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Employee, and their respective
attorneys and experts, who will agree, in advance and in writing, to
receive and maintain all such information in secrecy, except as may be
limited by them in writing.
7. GENERAL PROVISIONS
7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Employee acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this
Agreement (including any provision of Sections 5 and 6) would be
irreparable and that an award of monetary damages to the Employer for
such a breach would be an inadequate remedy. Consequently, the
Employer will have the right, in addition to any other rights it may
have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this
Agreement. Without limiting the Employer's rights under this Section
7 or any other remedies of the
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Employer, if the Employee breaches any of the provisions of Sections 5
and 6 and such breach is proven in a court of competent jurisdiction,
the Employer will have the right to cease making any payments
otherwise due to the Employee under this Agreement.
7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Employee in Sections 5 and 6 are essential
elements of this Agreement, and without the Employee's agreement to
comply with such covenants, the Employer would not have entered into
this Agreement or continued the employment of the Employee. The
Employer and the Employee have independently consulted their
respective counsel and have been advised in all respects concerning
the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 and 6 are independent covenants
and the existence of any claim by the Employee against the Employer
under this Agreement or otherwise will not excuse the Employee's
breach of any covenant in Sections 5 or 6. If the Employee's
employment hereunder expires or is terminated, this Agreement will
continue in full force and effect as is necessary or appropriate to
enforce the covenants and agreements of the Employee in Sections 5 and
6.
7.3 LEGAL RECOURSE
Employee further agrees that these covenants are made to protect the
legitimate business interests of the Employer. Employee understands
as a part of these covenants that the Employer intends to exercise
whatever legal recourse against him for any breach of this Agreement
and in particular, for any breach of these covenants.
8. GENERAL PROVISIONS
8.1 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim
or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
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8.2 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns,
heirs, and legal representatives, including any entity with which the
Employer may merge or consolidate or to which all or substantially all
of its assets may be transferred. The duties and covenants of the
Employee under this Agreement, being personal, may not be delegated.
8.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of
receipt), provided that a copy is mailed by certified mail, return
receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service, in each case to the
appropriate addresses and facsimile numbers set forth below (or to
such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
If to Employer:
Newmark Home Corporation
1200 Soldiers Field Drive
Sugar Land, TX 77479
Facsimile No.: 281/243-0132
With a copy to:
Cathryn L. Porter
Pacific USA Holdings Corp.
3200 Southwest Freeway, Suite 1220
Houston, TX 77027
Facsimile No.: 713/871-0155
If to the Employee:
Brian Shields
11916 Mira Mesa
Austin, Texas 78732
8.4 ENTIRE AGREEMENT; AMENDMENTS
Employee and Employer have entered into a Mutual Agreement to
Arbitrate Claims (the "Arbitration Agreement") incorporated herein for
all purposes as if set forth in full. This Agreement, together with
the Arbitration agreement, contains the entire agreement between the
parties with respect to the subject matter
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<PAGE> 13
hereof and supersedes all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
8.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
8.6 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this
Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
"EMPLOYER"
NEWMARK HOME CORPORATION
By: /s/ LONNIE M. FEDRICK
---------------------------------
Name: Lonnie M. Fedrick
Title: President & CEO
"EMPLOYEE"
/s/ BRIAN SHIELDS
-------------------------------------
BRIAN SHIELDS
13
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 1, 1998 (the
"Effective Date") by and between NEWMARK HOME CORPORATION, a Nevada corporation
(the "Employer"), and MIKE MOODY, an individual residing in Nashville,
Tennessee (the "Employee").
RECITALS
The Employer, its divisions, subsidiaries, and other affiliated entities are
primarily engaged in the business of constructing single family residences. It
is the intent and purpose of the parties hereto to specify in this Agreement
the terms and conditions of Employee's employment with the Employer.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement"--this Employment Agreement, as amended from time to time.
"Base Salary"--as defined in Section 3.1(a).
"Basic Compensation" means Base Salary and Benefits.
"Benefits"--as defined in Section 3.1(b).
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all intellectual property of
the Employer (or any of its affiliates), including but not limited to:
(a) trade secrets concerning the business and affairs of the
Employer (or any of its affiliates), product specifications,
data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions
and ideas, past, current, and planned research and
development, current and planned manufacturing or distribution
methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business
plans, computer software and programs (including object code
and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae,
compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and
information), and any other information, however documented,
that is a trade secret under federal, state or other
applicable law; and
<PAGE> 2
(b) information concerning the business and affairs of the
Employer (or any of its affiliates) (which includes historical
financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and
plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented;
and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer (or any of its
affiliates) containing or based, in whole or in part, on any
information included in the foregoing.
"Disability"--as defined in Section 4.2.
"Effective Date" means the date stated in the first paragraph of this
Agreement.
"Employee Invention" means any idea, invention, technique,
modification, process, or improvement (whether patentable or not), any
industrial design (whether registerable or not), any mask work,
however fixed or encoded, that is suitable to be fixed, embedded or
programmed in a semiconductor product (whether recordable or not), and
any work of authorship (whether or not copyright protection may be
obtained for it) created, conceived, or developed by the Employee,
either solely or in conjunction with others, during the Employment
Period or at any time prior to the Employment Period that Employee was
an employee of Employer, or a period that includes a portion of the
Employment Period, that relates in any way to, or is useful in any
manner in, the business then being conducted or proposed to be
conducted by the Employer, and any such item created by the Employee,
either solely or in conjunction with others, following termination of
the Employee's employment with the Employer, that is based upon or
uses Confidential Information.
"Employment Period" means the term of the Employee's employment under
this Agreement.
"Fiscal Year" means the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"For cause"--as defined in Section 4.3.
"Person" means any individual, corporation (including any nonprofit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, business trust, association,
organization, or governmental body.
"Post-Employment Period"-- as defined in Section 5.2.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
The Employer hereby employs the Employee, and the Employee hereby
accepts employment by the Employer, upon the terms and conditions set
forth in this Agreement.
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<PAGE> 3
2.2 TERM
The term of the Employee's employment under this Agreement shall
commence on the Effective Date and end on December 31, 2000, unless
terminated earlier in accordance with the provisions of Section 4
herein. Employer and Employee may extend the term of this Agreement by
execution of a written amendment hereto, setting forth the terms of
such extension. If the parties fail to execute such written amendment,
but the employment relationship has continued by mutual consent, then
the terms of such employment shall be deemed to be on a month-to-month
basis.
2.3 DUTIES
The Employee will serve as Senior Vice President - Nashville Division
of the Employer for the term of this Agreement and will have such
duties as are assigned or delegated to the Employee by the Chief
Executive Officer of Employer, the Chief Executive Officer's designee,
or Employee's immediate supervisor. The Employee will devote his full
business time, attention, skill, and energy exclusively to the
business of the Employer, will use his best efforts to promote the
success of the Employer's business, and will cooperate fully with the
management and Board of Directors of Employer in the advancement of
the best interests of the Employer. Nothing in this Section 2.3,
however, will prevent the Employee from engaging in additional
activities in connection with personal investments and community
affairs that are not inconsistent with the Employee's duties under
this Agreement. If the Employee is elected an officer of any of
Employer's affiliates, the Employee will fulfill his duties as such
officer without additional compensation.
3. COMPENSATION
The compensation and other benefits payable to the Employee under this
Agreement shall constitute the full consideration to be paid to the
Employee for all services to be rendered by the Employee for the
Employer, its divisions, subsidiaries and other affiliated entities.
3.1 BASIC COMPENSATION
(a) The Employee will be paid an annual salary as set forth below
("Base Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll
practices, but no less frequently than monthly.
<TABLE>
<CAPTION>
Calendar Year Base Salary
------------- -----------
<S> <C>
1998 $125,000.00
1999 $140,000.00
2000 $155,000.00
</TABLE>
3
<PAGE> 4
(b) The Employee will, during the Employment Period, be permitted
to participate in such pension, profit sharing, life
insurance, hospitalization, major medical and other employee
benefit plans of the Employer that may be in effect from time
to time, to the extent Employee is eligible under the terms of
those plans (collectively, the "Benefits").
(c) Employee will be eligible to participate in such bonus plans,
which will be consistent with previous bonus plans, except as
agreed to between Employee and Employer at the beginning of
each calendar year (the "Bonus").
4. TERMINATION
4.1 EVENTS OF TERMINATION
The Employment Period, the Employee's Basic Compensation, and any and
all other rights of the Employee under this Agreement or otherwise as
an employee of the Employer will terminate (except as otherwise
provided in this Section 4):
(a) upon the death of the Employee;
(b) upon the disability of the Employee (as defined in Section
4.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 4.3), immediately upon notice
from the Employer to the Employee, or at such later time as
such notice may specify; or
(d) on December 31, 2000.
4.2 DEFINITION OF DISABILITY
For purposes of Section 4.1, the Employee will be deemed to have a
"disability" if, for physical or mental reasons, the Employee is
unable to perform the essential functions of the Employee's duties
under this Agreement for 120 consecutive days, or 180 days during any
twelve (12) month period, as determined in accordance with this
Section 4.2. The disability of the Employee will be determined by a
medical doctor selected by written agreement of the Employer and the
Employee upon the request of either party by notice to the other. If
the Employer and the Employee cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two
(2) medical doctors will select a third medical doctor who will
determine whether the Employee has a disability. The determination of
the medical doctor selected under this Section 4.2 will be binding on
both parties. The Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of
disability under this Section 4.2, and the Employee hereby authorizes
the disclosure and release to the Employer of such determination and
all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized
attorney-in-fact will act in the Employee's stead, under this Section
4.2, for the purposes of submitting the Employee to the examinations,
and providing the authorization of disclosure, required under this
Section 4.2.
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<PAGE> 5
4.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 4.1, the phrase "for cause" means: (a) the
commission of fraud, theft, embezzlement, or similar malfeasance
involving moral turpitude or the conviction of, or plea of nolo
contendere to, any felony; (b) gross negligence, nonfeasance,
insubordination, dishonesty, willful misconduct or substantial failure
to perform employment duties in a manner consistent with normal
standards of job performance after prior evaluation and warning
related to such standards of job performance; or (c) the appropriation
(or attempted appropriation) of a material business opportunity of the
Employer.
4.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is
provided in this Section 4.4, and in lieu of all other amounts and in
settlement and complete release of all claims the Employee may have
against the Employer. For purposes of this Section 4.4, the Employee's
designated beneficiary will be such individual beneficiary or trust,
located at such address, as the Employee may designate by notice to
the Employer from time to time or, if the Employee fails to give
notice to the Employer of such a beneficiary, the Employee's estate.
(a) Termination by the Employer for Cause. If the Employer
terminates this Agreement for cause, the Employee will be
entitled to receive his accrued, but unpaid, Base Salary only
through the date such termination is effective. Employee shall
forfeit his rights to any payment under any bonus plan in
which Employee participated at the time of termination,
whether or not payments under such bonus plan have been
accrued by Employer. Employee shall not be released from the
covenants contained in Section 5 hereof.
(b) Termination upon Disability. If this Agreement is terminated
by either party as a result of the Employee's disability, as
determined under Section 4.2, the Employer will pay the
Employee his Base Salary through the remainder of the calendar
month during which such termination is effective.
(c) Termination upon Death. If this Agreement is terminated
because of the Employee's death, the Employee's estate will be
entitled to receive his Base Salary through the end of the
calendar month in which his death occurs.
(d) Termination on December 31, 2000. If on December 31, 2000,
this Agreement terminates because the parties have not extended
the Term (as provide in Section 2.2 hereof), the Employee shall
be entitled to receive (i) any unpaid Base Salary accrued
through December 31, 2000, and (ii) a pro-rated portion of any
short term bonus plan, under which Employee participated at the
time of termination, based on the actual months worked by the
Employee during the fiscal year on which the bonus is based.
Employee shall not be released from the covenants contained in
Section 5 hereof, provided however, that Employer shall pay
Employee an amount equal to one years Base Salary. Such amount
shall be payable in twelve (12) equal monthly installments,
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<PAGE> 6
determined by dividing Employee's Base Salary, on the last day
of Employee's employment with Employer, by 12, with the first
such installment being due and payable on the last day of
Employee's employment with Employer, and the remaining
installments being due and payable on the same date in each
succeeding month. Employer shall have the right, at any time,
to release Employee from the covenants contained in Section 5
hereof, at which time Employee's right to receive and
Employer's obligation to make any installment payment shall
terminate.
(e) Termination after December 31, 2000. In the event Employer
and Employee agree to continue Employee's employment with
Employer after December 31, 2000, pursuant to the terms of
Section 2.2 hereof, such employment shall be continued, unless
otherwise agreed in writing, on a month to month basis and on
the same terms and conditions as set forth herein, and may be
terminated by Employer (i) at any time upon thirty (30) days
notice, or (ii) immediately, provided that Employer shall pay
Employee in a lump sum, an amount equal to one (1) months Base
Salary. Employee shall be entitled to receive a pro-rated
portion of any short term bonus plan, under which Employee
participated at the time of termination, based on the actual
months worked by the Employee during the fiscal year on which
the bonus is based. Employee shall not be released from the
covenants contained in Section 5 hereof, provided however,
that Employer shall pay Employee an amount equal to one years
Base Salary. Such amount shall be payable in twelve (12) equal
monthly installments, determined by dividing Employee's Base
Salary, on the last day of Employee's employment with
Employer, by 12, with the first such installment being due and
payable on the last day of Employee's employment with
Employer, and the remaining installments being due and payable
on the same date in each succeeding month. Employer shall have
the right, at any time, to release Employee from the covenants
contained in Section 5 hereof, at which time Employee's right
to receive and Employer's obligation to make any installment
payment shall terminate.
In the event that Employer terminates Employee for cause, as
defined in Section 4.3, then the provisions of this Section
4.4(e)(i) and (ii) shall not apply, and Employee will be
entitled to receive only his accrued, but unpaid, Base Salary
through the date such termination is effective and Employee
shall not be released from the covenants contained in Section
5 hereof. Employee shall forfeit his rights to any payment
under any bonus plan in which Employee participated at the
time of termination, whether or not payments under such bonus
plan have been accrued by Employer.
(f) Benefits. The Employee's accrual of, or participation in plans
providing for, Benefits, will cease at the effective date of
the termination of this Agreement, except as otherwise
specifically provided in writing in the documentation for any
such Benefit. The Employee will not receive, as part of his
termination pay pursuant to this Section 4, any payment or
other compensation for any vacation, holiday, sick leave, or
other leave unused on the date the notice of termination is
given under this Agreement, unless Employer's written
personnel policies provide otherwise.
(g) Bonus. Employee shall be entitled to a pro-rata distribution
of any Bonus, at the effective date of termination of this
Agreement, unless Employee has been terminated for cause, in
which case Employee shall forfeit any accrued, but unpaid
Bonus.
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<PAGE> 7
5. NON-COMPETITION AND NON-INTERFERENCE
5.1 ACKNOWLEDGMENTS BY THE EMPLOYEE
The Employee acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character, and (b) the provisions of
this Section 5 are reasonable and necessary to protect the goodwill
and other business interests of Employer.
5.2 COVENANTS OF THE EMPLOYEE
In consideration of the acknowledgments by the Employee, and in
consideration of the compensation and benefits to be paid or provided
to the Employee by the Employer, the Employee covenants that he will
not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period
(as defined below), without the express prior written consent
of Employer (as authorized by its board of directors), as
owner, officer, director, employee, stockholder, principal,
consultant, agent, lender, guarantor, cosigner, investor or
trustee of any corporation, partnership, proprietorship, joint
venture, association or any other entity of any nature,
engage, directly or indirectly, in any business of siting,
permitting, developing, constructing, or selling single-family
homes in (i) the following counties in the State of Texas:
(1) Harris County and all contiguous counties, (2) Travis
County and all contiguous counties, (3) Bexar County, and all
contiguous counties, (4) Dallas County and all contiguous
counties, and (5) any county in which Employer engages in
business during the Employment Period, and (ii) the following
counties in the State of Tennessee: (1) Williamson County and
all contiguous counties, and (2) any county in which Employer
engages in business during the Employment Period, provided,
however, that the Employee may purchase or otherwise acquire
up to (but not more than) one percent (1%) of any class of
securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(b) whether for the Employee's own account or for the account of
any other person, at any time during the Employment Period
(except for the account of Employer and its affiliates) and
the Post-Employment Period, solicit business of the same or
similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer,
whether or not the Employee had personal contact with such
person during and by reason of the Employee's employment with
the Employer;
(c) whether for the Employee's own account or the account of any
other person (i) at any time during the Employment Period and
the Post-Employment Period, solicit, employ, or otherwise
engage as an employee, independent contractor, or otherwise,
any person who is an employee of the Employer, or in any
manner induce, or attempt to induce, any employee of the
Employer to terminate his employment with the
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<PAGE> 8
Employer; or (ii) at any time during the Employment Period and
Post Employment Period, interfere with the Employer's
relationship with any person, including any person, who at any
time during the Employment Period, was an employee,
contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, parents, affiliates,
directors, officers, employees, or agents.
The term "Post-Employment Period" means the one (1) year period
beginning on the date of termination of the Employee's employment with
the Employer.
If any covenant in this Section 5.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered
to be divisible with respect to scope, time, and geographic area, and
such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not
arbitrary, and not against public policy, will be effective, binding,
and enforceable against the Employee. Employee hereby agrees that this
covenant is a material and substantial part of this Agreement and that
(i) the geographic limitations are reasonable; (ii) the one (1) year
term of the covenant is reasonable; and (iii) the covenant is not made
for the purpose of limiting competition per se and is reasonably
related to a protectable business interest of the Employer.
The period of time applicable to any covenant in this Section 5.2 will
be extended by the duration of any violation by the Employee of such
covenant.
The Employee will, while the covenant under this Section 5.2 is in
effect, give notice to the Employer, within ten (10) days after
accepting any other employment, of the identity of the Employee's
employer. The Employer may notify such employer that the Employee is
bound by this Agreement and, at the Employer's election, furnish such
employer with a copy of this Agreement or relevant portions thereof.
6. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
6.1 ACKNOWLEDGMENTS BY THE EMPLOYEE
The Employee acknowledges that (a) during the Employment Period and as
a part of his employment, the Employee will be afforded access to
Confidential Information; (b) public disclosure of such Confidential
Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical
expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee
Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each
Employee Invention; and (d) the provisions of this Section 6 are
reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive
ownership of all Employee Inventions.
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<PAGE> 9
6.2 AGREEMENTS OF THE EMPLOYEE
In consideration of the compensation and benefits to be paid or
provided to the Employee by the Employer under this Agreement, the
Employee covenants as follows:
(a) Confidentiality.
(i) During and following the Employment Period, the
Employee will hold in confidence the Confidential
Information and will not disclose it to any person
other than in connection with the performance of his
duties and obligations hereunder, except with the
specific prior written consent of the Employer or
except as otherwise expressly permitted by the terms
of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under the federal
and state trade secret and intellectual property laws
and any other applicable law. If any information
that the Employer deems to be a trade secret is found
by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such
information will, nevertheless, be considered
Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement
that the Employer submit proof of the economic value
of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information
that the Employee demonstrates was or became
generally available to the public other than as a
result of a disclosure by the Employee.
(iv) The Employee will not remove from the Employer's
premises (except to the extent such removal is for
purposes of the performance of the Employee's duties
at home or while traveling, or except as otherwise
specifically authorized by the Employer) any
document, record, notebook, plan, model, component,
device, or computer software or code, whether
embodied in a disk or in any other form belonging to
the Employer or used in Employer's business
(collectively, the "Proprietary Items"). The Employee
recognizes that, as between the Employer and the
Employee, all of the Proprietary Items, whether or
not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this
Agreement, or upon the request of the Employer during
the Employment Period, the Employee will return to
the Employer all of the Proprietary Items in the
Employee's possession or subject to the Employee's
control, and the Employee shall not retain any
copies, abstracts, sketches, or other physical
embodiment of any of the Proprietary Items.
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<PAGE> 10
(b) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Employee acknowledges that
all of the Employee's writing, works of authorship and other
Employee Inventions are works made for hire and the property
of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is
determined that any such works are not works made for hire,
the Employee hereby assigns to the Employer all of the
Employee's right, title, and interest, including all rights of
copyright, patent, and other intellectual property rights, to
or in such Employee Inventions. The Employee covenants that he
will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without
additional compensation, all of the Employee's right
to the Employee Invention for the United States and
all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the
Employer may request in order to apply for and obtain
patents or other registrations with respect to any
Employee Invention in the United States and any
foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance but
without expense to the Employee in support of the
Employer's rights to any Employee Invention.
6.3 DISPUTES OR CONTROVERSIES
The Employee recognizes that should a dispute or controversy arising
from or relating to this Agreement be submitted for adjudication to
any court, arbitration panel, or other third party, the preservation
of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such
adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Employee, and their respective
attorneys and experts, who will agree, in advance and in writing, to
receive and maintain all such information in secrecy, except as may be
limited by them in writing.
7. GENERAL PROVISIONS
7.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Employee acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this
Agreement (including any provision of Sections 5 and 6) would be
irreparable and that an award of monetary damages to the Employer for
such a breach would be an inadequate remedy. Consequently, the
Employer will have the right, in addition to any other rights it may
have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provision of this
Agreement. Without limiting the Employer's rights under this Section
7 or any other remedies of the
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Employer, if the Employee breaches any of the provisions of Sections 5
and 6 and such breach is proven in a court of competent jurisdiction,
the Employer will have the right to cease making any payments
otherwise due to the Employee under this Agreement.
7.2 COVENANTS OF SECTIONS 5 AND 6 ARE ESSENTIAL AND INDEPENDENT COVENANTS
The covenants by the Employee in Sections 5 and 6 are essential
elements of this Agreement, and without the Employee's agreement to
comply with such covenants, the Employer would not have entered into
this Agreement or continued the employment of the Employee. The
Employer and the Employee have independently consulted their
respective counsel and have been advised in all respects concerning
the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 and 6 are independent covenants
and the existence of any claim by the Employee against the Employer
under this Agreement or otherwise will not excuse the Employee's
breach of any covenant in Sections 5 or 6. If the Employee's
employment hereunder expires or is terminated, this Agreement will
continue in full force and effect as is necessary or appropriate to
enforce the covenants and agreements of the Employee in Sections 5 and
6.
7.3 LEGAL RECOURSE
Employee further agrees that these covenants are made to protect the
legitimate business interests of the Employer. Employee understands
as a part of these covenants that the Employer intends to exercise
whatever legal recourse against him for any breach of this Agreement
and in particular, for any breach of these covenants.
8. GENERAL PROVISIONS
8.1 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by
either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim
or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
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8.2 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns,
heirs, and legal representatives, including any entity with which the
Employer may merge or consolidate or to which all or substantially all
of its assets may be transferred. The duties and covenants of the
Employee under this Agreement, being personal, may not be delegated.
8.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of
receipt), provided that a copy is mailed by certified mail, return
receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service, in each case to the
appropriate addresses and facsimile numbers set forth below (or to
such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
If to Employer:
Newmark Home Corporation
1200 Soldiers Field Drive
Sugar Land, TX 77479
Facsimile No.: 281/243-0132
With a copy to:
Cathryn L. Porter
Pacific USA Holdings Corp.
3200 Southwest Freeway, Suite 1220
Houston, TX 77027
Facsimile No.: 713/871-0155
If to the Employee:
Mike Moody
2866 Sugar Tree Road
Nashville, Tennessee 37215
8.4 ENTIRE AGREEMENT; AMENDMENTS
Employee and Employer have entered into a Mutual Agreement to
Arbitrate Claims (the "Arbitration Agreement") incorporated herein for
all purposes as if set forth in full. This Agreement, together with
the Arbitration agreement, contains the entire agreement between
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the parties with respect to the subject matter hereof and supersedes
all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This
Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
8.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
8.6 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this
Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
"EMPLOYER"
NEWMARK HOME CORPORATION
By: /s/ LONNIE M. FEDRICK
-----------------------------------
Name: Lonnie M. Fedrick
Title: President & CEO
"EMPLOYEE"
/s/ MIKE MOODY
--------------------------------------
MIKE MOODY
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EXHIBIT 10.26
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is
made as of the 1st day of January, 1998, between WESTBROOKE COMMUNITIES, INC.,
a Florida corporation (the "Company"), and JAMES CARR, an individual resident
of the State of Florida ("Executive").
RECITALS:
1. The Company considers it essential and in the best interest of
its stockholders to foster the continuous employment of key management
personnel and desires to continue the services of Executive on the terms and
conditions provided in this Agreement;
2. This Agreement amends and restates that certain Employment
Agreement between Company and Executive dated as of January 1, 1995 (the "1995
Agreement"); and
3. Executive desires to continue employment by the Company and to
render services to the Company on the terms and conditions provided in this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. Employment
(a) Employment and Duties. The Company hereby agrees to
employ Executive for the Term (as hereinafter defined) as President and Chief
Executive Officer. Executive shall have the rights and shall perform the duties
customary for the position of president and chief executive officer, subject to
the oversight of the Board of Directors of the Company (the "Board"). It is
the intention of Company and Executive that Executive have complete flexibility
in managing the day to day operations of the Company, subject to major
decisions which require the approval of the Board. The major decisions are
set forth in Item 1 of Schedule 1 hereto. However, the Company and Executive
do not intend to and the provisions contained in Schedule 1 hereto shall not
operate to remove the Board's ability to exercise its fiduciary
responsibilities which include, without limitation, the Board's oversight
responsibilities. Executive shall report to and consult with the Board at
regularly scheduled (or any special) board meetings and provide sufficient
information to the Board to enable it to comply with its fiduciary
responsibilities which include, without limitation, the Board's oversight
responsibilities. Executive's title and duties shall not be modified without
Executive's written consent. In performing his duties hereunder, Executive
shall give the Company the benefit of his special knowledge, skills, contacts
and business experience; shall perform his duties and carry out his
responsibilities hereunder in a diligent manner; shall be diligent in the
performance of his duties and in carrying out his
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responsibilities; and shall devote (except as provided herein) all of his
business time, attention, ability and energy exclusively to the performance of
his duties and responsibilities hereunder. Subject to the fiduciary
responsibilities of the Board, Executive shall report to the Chairman of
Newmark Homes Corp. Executive hereby accepts such employment and agrees to
render such services.
(b) The Westbrooke Partnership. The Company is the
Managing General Partner of The Westbrooke Partnership, a Florida general
partnership and will be acting as General Contractor and/or manager for certain
residential home building projects of The Westbrooke Partnership, a Florida
general partnership (the "Partnership"), The Adler Companies, Inc., and its
subsidiaries and any other entity that is a member of the Pacific USA or
Newmark Consolidated Group for financial accounting purposes and that is placed
under the Partnership's operational control (all of such entities referred to
as the "Subject Entities"). Those projects currently are comprised of
Oakridge, Keystone Lake, Sunset Lakes, West Lake Village, and Winston Trails.
Additional home building projects may be planned by the Subject Entities or may
be participated in by the Company through an operating agreement with other
entities. Executive's duties shall apply to all such projects, whether or not
the items of expense, income, gain or loss of such projects are considered for
purposes of determining the Additional Consideration pursuant to that certain
Stock Purchase Agreement dated January ___, 1998 between Executive, the
Company, Westbrooke Acquisition Corp., a Florida corporation ("Buyer"),
Westbrooke at West Lake, Inc., Westbrooke at Winston Trails, Inc., Westbrooke
at Pembroke Pines, Inc., Westbrooke at Oak Ridge, Inc., Harold L. Eisenacher,
Leonard R. Chernys and Diana Ibarria, the Partnership, Pacific USA Holdings
Corp., and Newmark Homes Corp. (the "Stock Purchase Agreement").
(c) Other Offices. Executive may, with the approval of
the Board, from time to time, serve, or continue to serve, on boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in the Board's judgment, will not present any conflict of
interest with the Company or any member of the "PUSA Consolidated Group", or
adversely affect the performance of Executive's duties pursuant to this
Agreement. The "PUSA Consolidated Group" shall mean Pacific USA Holdings Corp.
and each other entity that is consolidated with Pacific USA for financial
accounting purposes.
(d) Location. The principal location for performance of
Executive's services hereunder shall be at the offices of the Company, which
are currently located in Dade County, Florida, subject to reasonable travel
requirements during the course of such performance. Executive's duties require
travel between the principal office and each project on a regular basis. No
change in location of the principal office outside Dade or Broward Counties,
Florida, shall be made without Executive's prior written consent.
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2. Employment Term. The term of the Executive's employment
hereunder shall commence on the date hereof and shall end on the fourth (4th)
anniversary hereof (the "Term"), unless sooner terminated as provided herein.
3. Compensation and Benefits
(a) Base Salary. Initially, the Company shall pay
Executive an aggregate base salary at an annualized rate of FOUR HUNDRED NINE
THOUSAND FIVE HUNDRED DOLLARS ($409,500.00), payable in such equal installments
as may be customary for executive officers employed by the Company (but not
less frequently than twice per month) or such greater sum as may be agreed to
between the Company and Executive, in arrears ("Base Salary"). The Base Salary
for each year shall be prorated according to the number of days in such year
during which this Agreement is in effect. The Base Salary shall be reviewed
prior to and increased (if and as the Compensation Committee deems appropriate)
as of January 1 of each year beginning as of January 1, 1999. The Base Salary
may be increased by the Compensation Committee of the Board taking into
consideration Executive's performance, general cost of living increases, the
salaries provided by comparable businesses, the financial condition of the
Company and other similar matters.
(b) Bonuses. Executive shall be eligible to participate
in any discretionary bonus program instituted from time to time by the Board,
to the extent any such program makes the President and Chief Executive Officer
position eligible to participate.
(c) Participation in Benefit Plans. The payments
provided in Section 3 hereof are in addition to any benefits to which Executive
may be, or may become, entitled under any benefit plan or program of the
Company for which key executives are or shall become eligible. Executive's
benefits specifically include medical benefits provided by the Company,
including all dependents at a cost to Executive no greater than that paid by
employees in similar positions in the Company and its affiliates. Further,
Executive shall be eligible to receive during the period of his employment
under this Agreement, all benefits and emoluments for which key executives are
eligible under every such plan or program of the Company in effect from time to
time to the extent permissible under the general terms and provisions of such
plans or programs and in accordance with the provisions thereof.
(d) Vacation. Executive shall be entitled to twenty (20)
working days of compensated vacation in each fiscal year, to be taken at times
which do not unreasonably interfere with the performance of Executive's duties
hereunder; provided that time expended for the performance of Executive's
duties hereunder during vacation days shall not be deducted from said twenty
(20) days. Any unused vacation time from any fiscal year shall be subject to
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accumulation or forfeiture in accordance with Company policy as in effect from
time to time.
(e) Expenses. The Company will pay or reimburse
Executive for all reasonable and necessary out-of-pocket expenses incurred by
him in the performance of his duties under this Agreement. Executive shall
keep detailed and accurate records of expenses incurred in connection with the
performance of his duties hereunder and reimbursement therefor shall be in
accordance with policies and procedures to be established from time to time by
the Board.
4. Termination
(a) Termination of Executive's Employment for Cause. The
Board (acting by and through the majority of its members) may immediately
terminate Executive's employment under this Agreement by giving Executive
written notice of such termination upon or at any time following the occurrence
of any of the following events, and each such termination shall constitute a
termination for "cause":
(i) the material breach by Executive of his
agreements or obligations under this Agreement that remains uncured
thirty (30) days after written notice thereof from the Board of
Directors of the Company to Executive; provided that, with respect to
a non-monetary material breach that is curable but cannot be cured
through the exercise of reasonable efforts within such thirty (30) day
period (exclusive of any default described in subparagraphs (a)
through (d) below and any material default that causes the Company to
be or remain in violation of law subjecting it to material liability,
fines, interest or penalties), Executive shall have such additional
period of time as may be reasonably necessary to effect a cure
thereof, not to exceed an additional period of thirty (30) days, if
Executive shall so request in writing prior to expiration of the
initial thirty (30) day period. Without limiting the generality of
the foregoing, each of the following shall be deemed to be a material
breach of this Agreement:
(A) any act or failure to act (or series
or combination thereof) by Executive done with the intent to
harm in any material respect the interests of the Company or
any other Subject Entity;
(B) the perpetration by Executive of an
act of dishonesty (intended to cause, or having the effect of
causing material economic harm to the Company or any member of
the PUSA Consolidated Group) or common law fraud against the
Company or any affiliate thereof; and
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(C) a grossly negligent act or failure
to act (or series or combination thereof) by Executive
materially detrimental to the interests of the Company or any
other Subject Entity.
(ii) an adjudication that Executive has committed a felony.
Upon any determination by the Board (acting through majority of its
members) of the Company that a material breach of this Agreement has occurred
under Section 4(a)(i), the Board shall cause a special meeting of the Board of
Directors to be called and held not later than ten (10) business days after
Executive's receipt of the notice described in Section 4(a)(i). Executive
shall have the right to appear before such special meeting of the Board, with
or without legal counsel, to refute the Board's determination of material
breach. Executive or the Board may have a court reporter present to record any
such special meeting. Any termination of Executive's employment by reason of
such determination shall not be effective until Executive is afforded such
opportunity to appear. At the Board's election, Executive may be immediately
suspended from the performance of his duties, without suspension of salary or
benefits, until such material breach shall have been timely cured (if so
curable), or until the later of the special meeting of the Board or expiration
of the applicable cure period without cure. In such event, termination of
Executive's employment, salary and benefits shall become effective.
Notwithstanding the foregoing, if Executive is suspended, he may continue to
make efforts, in cooperation with management of the Company (if the Company's
participation is required to cure the breach), to cure the breach.
In the event Executive shall be terminated by reason of material
breach of this Agreement pursuant to Section 4(a)(i) above and Executive shall
commence arbitration contesting such termination pursuant to the provisions of
Section 7(j) hereof, then, from the commencement of such arbitration until a
decision of the arbitrators is rendered, Executive's Base Salary shall be paid
by the Company into an interest bearing escrow account to be held by a third
party designated by the Company (which may be the Company's legal counsel).
The funds so held in escrow shall be disbursed in accordance with the decision
of the arbitrators (subject to any appeals).
(b) Incapacity of Executive. Subject to applicable law,
in the event Executive shall become "disabled" (as hereinafter defined), the
Board may, at any time thereafter, by giving Executive twenty (20) days' prior
written notice of termination, fully and finally terminate his employment under
this Agreement. Termination under this Section 4(b) shall be effective as of
the date provided in such notice, which date shall not be fewer than thirty
(30) days after such notice of termination is delivered to Executive or his
representative, and the Company shall pay
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Executive his Base Salary accrued to the effective date of termination at the
rate in effect at the time of such notice, payable at the time such payment is
due. Upon payment of (i) such accrued Base Salary; (ii) an amount equal to the
bonus, if any, otherwise payable to Executive on account of the fiscal year in
which such termination occurs, multiplied by a fraction, the numerator of which
shall be the number of days in the fiscal year preceding the effective date of
termination and the denominator of which shall be 365; and (iii) all other
amounts to which Executive may be entitled hereunder, including, without
limitation, (A) any expense reimbursement amounts accrued to the effective date
of termination, and (B) any accrued amounts under any other benefit plan of the
Company, in each case at the time such payments are due, and the Company shall
have no further obligation to Executive under this Agreement. In the event of
such termination, Executive shall remain bound by the Non-Competition Agreement
and the Stock Purchase Agreement.
Executive will be deemed to be "disabled" if, for physical or mental
reasons, Executive is unable to perform the essential functions of Executive's
duties under this Agreement with reasonable accommodation by the Company for
ninety (90) consecutive days or for one hundred eighty (180) days during any
twelve (12) month period, determined as follows: The disability of Executive
will be determined by a medical doctor selected by written agreement of the
Company and Executive upon the request of either party by notice to the other.
If the Company and Executive cannot agree on the selection of a medical doctor,
each of them will select a medical doctor and the two medical doctors will
select a third medical doctor who will determine whether Executive is disabled.
The determination of the medical doctor selected hereunder will be binding on
both parties. Executive must submit to a reasonable number of examinations by
the medical doctor making the determination of disability and Executive hereby
authorizes the disclosure and release to the Company of such determination and
all supporting medical records. If Executive is not legally competent,
Executive's legal guardian or duly authorized attorney-in-fact will act in
Executive's stead, for the purpose of submitting Executive to the examinations
and providing the authorization of disclosure required hereunder.
(c) Death of Executive. This Agreement shall
automatically terminate upon the death of Executive. Upon the termination of
this Agreement as a result of death, the Company shall pay to Executive's
estate in a single installment: (i) an amount equal to Executive's Base Salary
accrued through the effective date of termination at the rate in effect at the
effective date of termination, payable at the time such payment is due; (ii) an
amount equal to the bonus, if any, otherwise payable to Executive on account of
the fiscal year in which such termination occurs, multiplied by a fraction, the
numerator of which shall be the number of days in the fiscal year preceding the
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effective date of termination and the denominator of which shall be 365; and
(iii) all other amounts to which Executive is entitled hereunder, including,
without limitation, (A) any expense reimbursement amounts accrued to the
effective date of termination, and (B) any accrued amounts under any other
benefit plan of the Company, in each case at the time such payments are due,
and the Company shall have no further obligations to Executive under this
Agreement.
(d) Termination in the Event of Breach under the Stock
Purchase Agreement. In addition to any other remedies which the Company (or
any other parties) may have under the Stock Purchase Agreement, the Board may
terminate Executive's employment under this Agreement by giving Executive
written notice of termination if a material breach by Executive occurs (or is
alleged to have occurred) and is not cured (or is disputed by Executive and an
Arbitrator determines that such material breach has in fact occurred (the
"Breach"), subject to the following:
(i) if the Arbitrator has determined that the Breach was
not an intentional breach and is capable of being cured by the payment of money
by Executive, and there are amounts owing to Executive available to offset
against under Section 11.8 of the Stock Purchase Agreement (or if such amounts
are not available, Executive has paid such amount within 90 days following the
arbitrator award); then there shall be no right to terminate under this Section
4(d);
(ii) if the Arbitrator has determined that the Breach was
not an intentional breach, and is not capable of being cured by the payment of
money by Executive but has not caused and is not expected to cause a material
adverse effect to the Company, then there shall be no right to terminate under
this Section 4(d);
(iii) if the Arbitrator has determined that the Breach was
not an intentional breach but is not capable of being cured by the payment of
money and has caused or is expected to cause a material adverse effect to the
Company, then the Board shall have the right to terminate Executive (which
termination shall not be deemed a "for cause" termination hereunder) and the
Company shall pay Executive in a single installment (i) an amount equal to
Executive's Base Salary accrued and unpaid through the effective date of
termination at the rate in effect at the effective date of termination; (ii) an
amount equal to the bonus, if any, otherwise payable to Executive on account of
the fiscal year in which such termination occurs, multiplied by a fraction, the
numerator of which shall be the number of days in the fiscal year preceding the
effective date of termination and the denominator of which shall be 365; and
(iii) all other amounts to which Executive is entitled hereunder, including,
without limitation, (A) any expense reimbursement amounts accrued to the
effective date of termination, and (B) any accrued and unpaid
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amounts under any other benefit plan of the Company, and the Company shall have
no further obligations to Executive under this Agreement;
(iv) if the Arbitrator has determined that the Breach was
an intentional breach by Executive (regardless of whether the Breach is capable
of being cured by the payment of money or is in fact cured by Executive) and
has caused material economic harm to the Company (without consideration of the
curing of such Breach), Company may terminate Executive and such termination
shall be treated as a "for cause" termination under this Agreement for all
purposes, including the last paragraph of Section 4(a) hereof;
(e) Termination Without Cause by Company. In addition to
any termination right or event provided in Sections 4(a), 4(b), 4(c) or 4(d),
Executive's employment under this Agreement may be terminated by the Company by
giving Executive written notice thereof, effective as of the date provided in
such notice. Upon such termination of the employment of Executive, the Company
shall pay in a single installment to Executive: (i) an amount equal to
Executive's Base Salary payable for the remainder of the Term at the rate in
effect on the date of termination, (ii) an amount equal to the bonus, if any,
otherwise payable to Executive on account of the fiscal year in which such
termination occurs, multiplied by a fraction, the numerator of which shall be
the number of days in the fiscal year preceding the effective date of
termination and the denominator of which shall be 365, and (iii) all other
amounts to which Executive is entitled hereunder, including (A) any expense
reimbursement amounts accrued to the effective date of termination, and (B) any
accrued and unpaid amounts under any other benefit plan of the Company, and the
Company shall have no further obligations to Executive or Executive's estate
under this Agreement. Notwithstanding the foregoing, the Company may elect to
pay the amount under Section 4(e)(i) in installments over the remainder of the
Term as and when such payments would otherwise have been due if Executive
remained employed, provided that the Company shall provide to Executive an
irrevocable letter of credit in the amount of the remaining installments, which
letter of credit shall be issued by Bank United of Texas, FSB, or any other
bank acceptable to Seller, such acceptance not to be unreasonably withheld. In
the event such termination without cause occurs in connection with an
assignment of this Agreement by the Company not permitted by Section 7(h)
below, then the only amount payable by the Company under Subsection 4(e)(i)
shall be an amount equal to double the annual rate of Executive's Base Salary
in effect on the date of termination, which shall be paid in a single
installment within sixty (60) days after such termination. In the event of
such a termination without cause, the Non-Competition Agreement shall be
terminated. All provisions of the Stock Purchase Agreement shall remain in
effect.
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(f) Termination With Cause by Executive. Executive may
terminate his employment under this Agreement by giving the Company written
notice of such termination upon or at any time following the occurrence of any
of the following events, and each such termination shall constitute a
termination for "cause":
(i) a material breach by the Company of its
agreements or obligations under this Agreement that remains uncured
more than thirty (30) days after written notice thereof from the
Executive to Company; provided that, with respect to a non-monetary
material breach that is curable but cannot be cured through the
exercise of reasonable efforts within such thirty (30) day period, the
Company shall have such additional period of time as may be reasonably
necessary to effect a cure thereof, not to exceed an additional period
of thirty (30) days, if the Company shall so request in writing prior
to expiration of the initial thirty (30) day period.
(ii) a default of monetary obligations owed to
Executive by Buyer, Newmark Homes Corp. or Pacific USA under the Stock
Purchase Agreement that remains uncured more than ninety (90) days
after written notice thereof from Executive to Company. For purposes
of this Subsection (ii), the term "monetary obligations" shall include
the failure to make any payment under any promissory note delivered to
Executive pursuant to the Stock Purchase Agreement and the failure to
deliver any letter of credit securing the same, in accordance with the
terms of the Stock Purchase Agreement.
The cure periods set forth in subsection (i) and (ii) above are
alternative and not cumulative. All such cure periods may be waived by the
Company in writing. In either of such events, Executive shall have the same
rights as provided in Section 4(e) above as to compensation and termination of
the Agreement and the Non-Competition Agreement shall immediately terminate.
5. Employment Covenants.
(a) Covenant Not to Compete. The provisions of that
certain Non-Competition Agreement by and between Executive, and the Company,
Westbrooke at West Lake, Inc., Westbrooke at Winston Trails, Inc., Westbrooke
at Pembroke Pines, Inc., Westbrooke at Oak Ridge, Inc. and the Partnership, of
even date herewith (the "Non-Competition Agreement"), are incorporated herein
by this reference. Executive acknowledges and agrees that the Non-Competition
Agreement is a material inducement for the Company to enter into this Agreement
and is additional consideration for the consideration to be paid to Executive
hereunder.
(b) Breach. Executive hereby recognizes and acknowledges
that irreparable injury or damage shall result to the
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Company in the event of a breach or threatened breach by Executive of any of
the terms of provisions of this Section 5, and Executive therefore agrees that
the Company shall be entitled to an injunction restraining Executive from
engaging in any activity constituting such breach or threatened breach.
Nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company at law or in equity for
such breach or threatened breach, including, but not limited to, the recovery
of damages from Executive and, if Executive is an employee of the Company, the
termination of his employment with the Company in accordance with the terms and
provisions of this Agreement.
6. Indemnification. The Company shall indemnify, defend and hold
Executive harmless from and against all liability, loss, cost and damage
arising out of Executive's performance of his duties and obligations in
accordance with this Agreement; provided that in no event shall Executive be
indemnified, defended or held harmless from any matter arising out of his gross
negligence or intentional misconduct.
7. Miscellaneous
(a) Notices. Any notices to be given hereunder by either
party to the other may be effected either by personal delivery in writing, via
facsimile transmission or by mail, registered or certified, postage prepaid
with return receipt requested. Notices shall be addressed to the parties as
follows:
If to the Company: c/o Mike McCraw
Pacific USA Holdings Corp.
5999 Summerside Drive, Suite 112
Dallas, Texas 75252
Facsimile No.: (972) 732-0167
With a copy to: Cathryn L. Porter, Esquire
Chief General Counsel
Pacific USA Holdings Corp.
3200 Southwest Freeway, Suite 1220
Houston, Texas 77027
Facsimile No.: (713) 871-0155
If to Executive: James M. Carr
94 South Hibiscus Drive
Miami Beach, FL 33139
With a copy to: Michael Kosnitzky, Esq.
Zack Kosnitzky, P.A.
One International Place, Suite 2800
100 S.E. 2nd Avenue
Miami, Florida 33131
Facsimile: (305) 539-1307
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Any party may change his or its address by written notice in
accordance with Section 7(a). Notices delivered personally shall be deemed
communicated as of actual receipt notices sent via facsimile transmission shall
be deemed communicated as of receipt by the sender of written confirmation of
transmission thereof; mailed notices shall be deemed communicated as of three
days after proper mailing.
(b) Inclusion of Entire Agreement Herein. This Agreement
supersedes any and all other prior or contemporaneous agreements, either oral
or in writing, between the parties hereto with respect to the subject matter
hereof (including without limitation the 1995 Agreement) and contains all of
the covenants and agreements between the parties with respect to employment of
Executive by the Company.
(c) Law Governing Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida.
(d) Waivers. No waiver at any time of any term or
provision of this Agreement shall be construed as a waiver of any other term or
provision of this Agreement and a waiver at any time of any term of provisions
of this Agreement shall not be construed as a waiver at any subsequent time of
the same term or provision.
(e) Amendments. Except as otherwise provided in Section
7(f) hereof, no amendment or modification of this Agreement shall be deemed
effective unless and until executed in writing by each party hereto.
(f) Severability and Limitation. All agreements and
covenants contained herein are severable and in the event any of them shall be
held to be invalid by competent authority, this Agreement shall be interpreted
as if such invalid agreements or covenants were not contained herein. Without
limiting the generality of the foregoing, in the event that the provisions of
this Agreement should ever be deemed to exceed the scope of business, time or
geographic limitations permitted by applicable law, then such provisions shall
be and are hereby reformed to the maximum scope, time or geographic limitations
permitted by such applicable law.
(g) Headings. All headings set forth in this Agreement
are intended for convenience only and shall not control or affect the meaning,
construction or effect of this Agreement or of any of the provisions hereof.
(h) Assignment. The Company shall have the right to
assign this Agreement and to delegate all of its rights, duties and obligations
hereunder to any entity which controls the Company, which the Company controls
or which may be the result of the
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merger, consolidation, acquisition or reorganization of the Company and another
entity; provided that, a sale of assets or merger by Westbrooke Acquisition
Corp. or Newmark Homes Corp. of the kind described in Section 2.2(b)(6)(ii) of
the Stock Purchase Agreement shall not be a permitted assignment hereunder and
shall constitute a termination of Executive without cause pursuant to Section
4(d) hereof; provided that Executive shall deliver to the Company written
notice declaring such termination within sixty (60) day after the effective
date of such sale or merger, time being strictly of the essence; failing which,
the same shall be deemed a permitted assignment hereunder. Executive agrees
that this Agreement is personal to him and his rights and interests hereunder
may not be assigned, nor may his obligations and duties hereunder be delegated
(except as to delegation in the normal course of operation of the Company), and
any attempted assignment or delegation in violation of this provision shall be
void.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(j) Arbitration; Jurisdiction and Venue.
(i) THE PARTIES HAVE AGREED TO THE RESOLUTION BY
ARBITRATION OF ALL CLAIMS PURSUANT TO THE ARBITRATION COVENANT AS SET FORTH IN
THE STOCK PURCHASE AGREEMENT, WHICH IS INCORPORATED HEREIN BY THIS REFERENCE.
(ii) IN THE EVENT THE ARBITRATION COVENANT IS
FOUND UNENFORCEABLE OR INAPPLICABLE TO ANY LEGAL ACTION WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN
CONNECTION WITH THIS AGREEMENT, SUCH LEGAL ACTION SHALL BE BROUGHT EXCLUSIVELY
IN THE COURTS OF THE STATE OF FLORIDA, COUNTY OF DADE, OR, IF IT HAS OR CAN
ACQUIRE JURISDICTION, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF FLORIDA, AND THE PARTIES CONSENT TO THE JURISDICTION OF SUCH COURTS
(AND THE APPROPRIATE APPELLATE COURTS) IN ANY SUCH LEGAL ACTION AND WAIVE ANY
OBJECTION TO VENUE LAID THEREIN.
(k) Joinder by Newmark Homes Corp.
Newmark Homes Corp. joins in the execution hereof for
the sole purpose of guaranteeing all obligations of the Company hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED EMPLOYMENT AGREEMENT as of the day and year first above written.
/s/ JAMES CARR WESTBROOKE COMMUNITIES, INC.,
- ------------------------------ a Florida corporation
James Carr
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By: /s/ JAMES CARR
---------------------------
Print Name: James Carr
-------------------
Title: President
------------------------
Joined herein pursuant to Section 7(k):
NEWMARK HOMES CORP.,
a Nevada corporation
By: /s/ MICHAEL K. MCCRAW
---------------------------
Print Name: Michael K. McCraw
-------------------
Title: Chairman
------------------------
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SCHEDULE "1"
RIGHTS AND DUTIES OF EXECUTIVE
1. OPERATIONAL MANAGEMENT
Executive shall manage the day to day operations of the
Company, its Subsidiaries and The Westbrooke Partnership;
provided that Executive shall not have authority to make major
operational decisions, except with written approval of the
Board of Directors of the Company. The following are the only
major decisions requiring approval of the Board of Directors:
a. acquire any real property or personal
property having a purchase price exceeding
$100,000 (tangible or intangible);
b. sell or otherwise dispose of all or any
portion of the assets other than in the
ordinary course of business;
c. modify in any material respect or refinance
any indebtedness or incur any indebtedness on
behalf of the Company or any of its
subsidiaries;
d. except for advances under purchase agreements
for real property, cause or permit the
Company or any of its subsidiaries to make
loans or advances to any person;
e. confess any judgment regardless of amount or
settle any claims in any amount greater than
$100,000; provided that Executive will
consult with the Company's counsel prior to
settling any claims regardless of amount; and
f. commence construction of any speculative
single-family residential dwelling (excluding
model homes) if the number of such dwellings,
together with the number of speculative
single-family residential dwellings already
owned by the Company and its subsidiaries
(whether or not under construction), shall
exceed fifty (50) and, except for such
speculative dwellings, shall not undertake
the construction of any residential dwelling
other than pursuant to a binding contract for
the purchase thereof entered into in the
ordinary course of business.
<PAGE> 15
2. GENERAL PROGRAMS, POLICIES AND PROCEDURES
Executive acknowledges that Newmark Homes Corp. has
implemented and plans to implement in the future, various
programs, policies and procedures in its subsidiary companies
in order to develop a common corporate culture, centralize
certain operations in order to reduce overall expenses and
manage overall risk. The Company shall, over a reasonable
transition period, adopt programs, policies and procedures
relating to human resource matters, compensation, benefits,
insurance matters (employee related, general corporate,
property and all other types of insurance needs of the Company
and the Subject Entities) and risk management; provided that
Company shall continue to maintain its separate accounting and
reporting system unless otherwise agreed by Company and
Executive. The Board shall consult with Executive regarding
the substance of such programs and the timing of the
implementation thereof so as not to interfere with the day to
day operation of the Company. Executive agrees to support the
Board in the implementation thereof during the transition
period. In the area of human resources, Executive and the
Company agree as follows:
a. Executive shall not have the authority to
create or modify any savings, bonus, deferred
compensation, pension, profit sharing,
retirement, insurance, severance or other
fringe benefit, arrangement or practice or
any other "employee benefit plan" as defined
by ERISA, whether formal or informal, enter
into or modify any employment agreement or
commitment, enter into or engage in any
negotiations with respect to any collective
bargaining or union agreement or commitment,
or agree to do any of the foregoing; and
b. Executive shall not have the authority to
modify compensation of any employees or
officers of the Company will be subject to
the review and approval of the Company's
Compensation Committee; provided however,
that modification of compensation by
Executive for non-key employees, on a case by
case basis (and not on a Company-wide basis),
to facilitate day to day operations and
activities is permitted; provided that
Executive shall comply with the
administrative procedures of the Company
relating to increases in compensation.
<PAGE> 1
EXHIBIT 10.27
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of January
15, 1998 ("Effective Date"), by and among JAMES CARR, an individual
("Seller"), WESTBROOKE COMMUNITIES, INC., a Florida corporation, WESTBROOKE AT
WEST LAKE, INC., a Florida corporation, WESTBROOKE AT WINSTON TRAILS, INC., a
Florida corporation, WESTBROOKE AT PEMBROKE PINES, INC., a Florida corporation,
and WESTBROOKE AT OAK RIDGE, INC., a Florida corporation (each of such
companies individually referred to as an "Acquired Company" and collectively
referred to as the "Acquired Companies"), HAROLD L. EISENACHER, LEONARD R.
CHERNYS AND DIANA IBARRIA (each of such three individuals individually referred
to as a "Key Employee" and collectively referred to as the "Key Employees"),
THE WESTBROOKE PARTNERSHIP, a Florida general partnership (the "Partnership"),
PACIFIC USA HOLDINGS CORP., a Texas corporation ("Pacific USA"), NEWMARK HOMES
CORP., a Nevada corporation ("Newmark") and WESTBROOKE ACQUISITION CORP., a
Florida corporation ("Buyer").
RECITALS
The Acquired Companies and the Key Employees collectively own, or will
at Closing collectively own, one hundred percent (100%) of the outstanding
partnership or other equity interests in the Partnership;
Seller owns one hundred percent (100%) of the issued and outstanding
shares of capital stock of each Acquired Company (the "Shares");
Seller desires to sell, and Buyer desires to purchase, all of the
Shares, for the consideration and on the terms set forth in this Agreement; and
The Key Employees and Buyer desire to enter into the "Option" and the
"Buyer's Option (as defined herein), pursuant to which, if exercised, the Key
Employees shall sell and Buyer shall purchase all of the partnership interests
or other equity interests in the Partnership owned by the Key Employees (the
"KE Partnership Interests"), for the consideration and on the terms set forth
in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
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For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACQUIRED COMPANIES"---Westbrooke Communities, Inc., a Florida
corporation, Westbrooke at West Lake, Inc., a Florida corporation,
Westbrooke at Winston Trails, Inc., a Florida corporation, Westbrooke
at Pembroke Pines, Inc., a Florida corporation, and Westbrooke at Oak
Ridge, Inc., a Florida corporation.
"ADJUSTMENT AMOUNT"--as defined in Section 2.6.
"ADJUSTMENT NOTE"--as defined in Section 2.7(b).
"ADLER COMPANIES"--The Adler Companies, Inc., and Adro Construction,
Inc., both Florida corporations, each a wholly owned Subsidiary of
Newmark, and any of their Subsidiaries.
"APPLICABLE CONTRACT"--any Contract (a) under which the Partnership or
any Acquired Company has or may acquire any rights, (b) under which
the Partnership or any Acquired Company has or may become subject to
any obligation or liability, or (c) by which the Partnership or any
Acquired Company or any of the assets owned or used by the Partnership
or any Acquired Company is or may become bound.
"APPLICABLE LAND CONTRACTS"--as defined in Section 3.17(a)(xv).
"APPLICABLE LOAN CONTRACTS"--as defined in Section 3.17(a)(xvi).
"ARBITRATION COVENANT"--as defined in Section 12.17.
"ATHENA" -- Athena Westbrooke Investors, L.P., a Delaware limited
partnership, and a general partner of the Partnership.
"ATHENA REDEMPTION"--as defined in Section 2.3.
"ATHENA REDEMPTION AGREEMENT" -- as defined in Section 2.3(a).
"ATHENA RELEASE" -- as defined in Section 2.5(a)(v).
"BALANCE SHEET"--as defined in Section 3.4.
"BEST EFFORTS"--the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that
such result is achieved as expeditiously as possible; provided,
however, that an obligation to use Best Efforts under this Agreement
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<PAGE> 3
does not require the Person subject to that obligation to take actions
that would result in a Material Adverse Effect in the benefits to such
Person of this Agreement and the Contemplated Transactions.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred
if there is or has been any inaccuracy in or breach of, or any failure
to perform or comply with, such representation, warranty, covenant,
obligation, or other provision.
"BUY NOTICE"--as defined in Section 10.10(a).
"BUYER"-- Westbrooke Acquisition Corp., a Florida corporation, a
wholly owned subsidiary of Newmark.
"BUYER'S CERTIFICATE"--as defined in Section 2.5(c)(vi).
"BUYER'S OPTION"--as defined in Section 10.10.
"BUYER'S STOCK POWERS"--as defined in Section 2.5(c)(v).
"CAPITAL PURCHASE PRICE"--as defined in Section 10.10(b).
"CERTIFICATE OF REDEMPTION" -- as defined in Section 2.5(a)(v).
"CLOSING"--as defined in Section 2.4.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CLOSING FINANCIAL STATEMENTS"--as defined in Section 2.7(a).
"COMBINED FINANCIAL STATEMENTS" -- the combined financial statements
of the Acquired Companies, with the accounts of the Partnership
consolidated therein.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement and the documents, instruments and agreements delivered
in connection with or under this Agreement, including without
limitation:
(a) the sale of the Shares by Seller to Buyer;
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(b) the execution, delivery, and performance of the Take-Out Loan,
the Take-Out LOC, the Athena Redemption, the Loan
Satisfaction, the Promissory Notes, the Athena Redemption
Agreement, the New Partners Agreement, the Loan Satisfaction
Agreement, the Adjustment Note, if any, the Seller Adjustment
Note, if any, the Replacement Note, the Pacific USA Guaranty,
the Pledge Agreement, the Substitute LOC, the Seller
Employment Agreement, the KE Employment Agreements, the Seller
Noncompetition Agreement, the KE Noncompetition Agreements,
the Seller Release, the KE First Releases and the KE Second
Releases;
(c) the performance by all parties hereto, of their respective
covenants and obligations under this Agreement and the
documents, instruments and agreements delivered in connection
with or under this Agreement;
(d) the grant of the Option to each of the Key Employees and
Buyer's acquisition and ownership of the KE Partnership
Interests to the extent that each Key Employee exercises his
or her Option and, in that event, the execution, delivery and
performance of the instruments required to be executed at the
Option Closing; and
(e) Buyer's acquisition and ownership of the Shares and exercise
of control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied)
that is legally binding on all parties thereto.
"CUMULATIVE NET INCOME" -- as defined in Section 2.2(b)(1).
"DAMAGES"--as defined in Section 11.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Seller to
Buyer concurrently with the execution and delivery of this Agreement.
"EMPLOYMENT AGREEMENTS"--the Seller Employment Agreement and the KE
Employment Agreements.
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind,
including any restriction on use, voting, transfer, receipt of income,
or exercise of any other attribute of ownership.
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"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life,
and any other environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages,
expense, liability, obligation, or other responsibility arising from
or under Environmental Law or Occupational Safety and Health Law and
consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational
safety and health, and regulation of chemical substances or
products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands
and response, investigative, remedial, or inspection costs and
expenses arising under Environmental Law or Occupational
Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental
Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or remedial
actions required under Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial," and "response action,"
include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or
other prohibitions and of the commencement of activities, such
as resource extraction or construction, that could have
significant impact on the Environment;
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<PAGE> 6
(b) preventing or reducing to levels deemed acceptable under legal
tolerances (if any) the release of pollutants or hazardous
substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
(d) assuring that products (including dwelling units constructed
by the Partnership or any Acquired Company) are designed,
formulated, packaged, and used so that they do not present
unreasonable risks to human health or the Environment when
used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to levels deemed acceptable under legal tolerances
(if any) the risks inherent in the transportation of hazardous
substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or
prevention, all to the extent of legal tolerances, if any; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public
interest to recover for injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act
or any successor law.
"ESCROW AGREEMENT (ADDITIONAL CONSIDERATION)"--as defined in Section
2.5(a)(xiii).
"ESCROW AGREEMENT (SHARES)"--as defined in Section 2.5(a)(xi).
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by the Partnership or any
Acquired Company and any buildings, plants, structures, equipment or
other tangible properties or assets (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by
the Partnership or any Acquired Company.
"GAAP"--generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance
Sheet and the other financial statements referred to in Section 3.4
were prepared.
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"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"GOVERNMENTAL BODY"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department,
official, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling,
importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment, or
use (including any withdrawal or other use of groundwater) of
Hazardous Materials in, on, under, about, or from the Facilities or
any part thereof into the Environment, and any other act, business,
operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that, by reason of such activities, may affect the
value of the Facilities, the Partnership or the Acquired Companies.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under
or pursuant to any Environmental Law, including any admixture or
solution thereof, and specifically including petroleum and all
derivatives thereof or synthetic substitutes therefor and asbestos or
asbestos-containing materials.
"INACTIVE WESTBROOKE COMPANIES"--as defined in Section 2.5(a)(vi).
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
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"IRC"--the Internal Revenue Code of 1986 or any successor law, and
rulings and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of
the Treasury.
"KE ASSIGNMENT"--as defined in Section 10.1(a).
"KE DISCLOSURE LETTERS"--the disclosure letters delivered by the Key
Employees to Buyer concurrently with the execution and delivery of
this Agreement.
"KE EMPLOYMENT AGREEMENTS"--as defined in Section 2.5(b)(i).
"KE NONCOMPETITION AGREEMENTS"--as defined in Section 2.5(b)(ii).
"KE PARTNERSHIP INTERESTS"-- the partnership or other equity interests
in the Partnership owned by the Key Employees on the Closing Date.
"KE FIRST CERTIFICATE"--as defined in Section 2.5(b)(iii).
"KE FIRST RELEASES"--as defined in Section 2.5(b)(vi).
"KE SECOND CERTIFICATE"--as defined in Section 10.1(c).
"KE SECOND RELEASES"--as defined in Section 10.1(b).
"KEY EMPLOYEES"--Harold L. Eisenacher, Leonard R. Chernys and Diana
Ibarria. The Key Employees are parties to this Agreement solely for
purposes of Section 2.5(b), 10 and 12.4 hereof.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter;
(b) such individual has received written notice of such fact or
other matter; or
(c) such fact or other matter is ascertainable from a reasonable
inquiry made in the Ordinary Course of Business regarding
another fact or matter of which such individual is actually
aware or has received written notice.
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A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving,
or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, Knowledge of such fact or other matter. Seller
and each Key Employee will be deemed to have "Knowledge" of a
particular fact or other matter if any one or more of them or any
other employee of the Partnership or any of the Acquired Companies
has, or at any time had, Knowledge of such fact or other matter
(provided that such other employee's regular duties include or
included responsibility for, or communication of, such fact or other
matter).
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative or judicial
Order, constitution, law, ordinance, principle of common law,
regulation, ruling statute, or treaty.
"LOAN SATISFACTION"--as defined in Section 2.3.
"LOAN SATISFACTION AGREEMENT" -- as defined in Section 2.3(b).
"MASTER DISCLOSURE LIST" -- as defined in Section 11.1.
"MATERIAL ADVERSE EFFECT"-- for a specific Person, a change or effect
on the business, operations, property, financial condition, prospects
or assets of such Person, taken as a whole that is, or with the
passage of time, will be materially adverse to the business,
operations, property, financial condition, prospects or assets of such
Person. With respect to the Partnership or any of the Acquired
Companies, Material Adverse Effect shall mean a change or effect on
the business or assets of the Partnership and the Acquired Companies,
taken as a whole.
"MORGAN GUARANTY RECEIPT" -- as defined in Section 2.5(a)(viii)
"NET INCOME" -- as defined in Section 2.2(b)(3).
"NEWMARK GUARANTY"--as defined in Section 2.7.
"NEW PARTNERS AGREEMENT"--as defined in Section 10.1.
"NONCOMPETITION AGREEMENTS"--the Seller Noncompetition Agreement and
the KE Noncompetition Agreements.
"NOTE AFFIDAVIT"--as defined in Section 2.5(a)(xii).
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"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed
to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any governmental program
and any program promulgated or sponsored by insurance companies
furnishing coverage to the Partnership or any Acquired Company, that
is designed to provide safe and healthful working conditions.
"OPTION"--as defined in Section 10.
"OPTION CLOSING"--as defined in Section 10.1.
"OPTION CLOSING DATE"--as defined in Section 10.1.
"OPTION PERIOD"--as defined in Section 10.1.
"ORDER"--any award, decision, injunction, judgment, order, decree,
ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any
arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only
if:
(a) such action is reasonably consistent with the past practices
of such Person from time to time and is taken in the ordinary
course of the normal day-to-day operations of such Person; and
(b) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising
similar authority), in the ordinary course of the normal
day-to-day operations of such Persons.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership
agreement and any statement of partnership authority of a general
partnership; (c) the limited partnership agreement, the certificate of
limited partnership and affidavit of capital contributions of a
limited partnership; (d) any charter or similar document adopted or
filed in connection with the creation, formation, or organization of a
Person; and (e) any amendment to any of the foregoing.
"PACIFIC USA GUARANTY"--as defined in Section 2.5(c)(iii).
"PARTNERSHIP AGREEMENT"--that certain Agreement of Partnership among
the Acquired Companies, Athena, and the Inactive Westbrooke Companies,
dated as of January 1, 1995.
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"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability
company or limited liability partnership, joint venture, estate,
trust, association, organization, labor union, or other entity or
Governmental Body.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by
or before, or otherwise involving, any Governmental Body or
arbitrator.
"PROMISSORY NOTES"--means the Non-Negotiable Promissory Note as
defined in Section 2.5(c)(i), the Negotiable Promissory Note as
defined in Section 2.5(c)(ii), and any Replacement Note.
"PUSA ENTITY"--as defined in Section 2.2(b)(3)(ix).
"RELATED PERSON"--with respect to a specified individual:
(a) each other member of the specified individual's Family;
(b) any Person that is directly or indirectly controlled by the
specified individual or one or more members of the specified
individual's Family;
(c) any Person in which such individual or members of the
specified individual's Family hold (individually or in the
aggregate) a Material Interest; and
(d) any Person with respect to which the specified individual or
one or more members of such individual's Family serves as a
director, officer, general partner, executor, or trustee (or
in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly
or indirectly controlled by, or is directly or indirectly
under common control with the specified Person;
(b) any Person that holds a Material Interest in the specified
Person;
(c) each Person that serves as a director, officer, general
partner, executor, or trustee of the specified Person (or in a
similar capacity);
(d) any Person in which the specified Person holds a Material
Interest;
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(e) any Person with respect to which the specified Person serves
as a general partner or trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause (b)
or (c).
For purposes of this definition, (a) the "Family" of a specified
individual includes (i) the specified individual, (ii) the specified
individual's spouse, (iii) any other natural person who is related to
the specified individual or the specified individual's spouse within
the second degree, and (iv) any other natural person who resides with
the specified individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests
representing at least 20% of the outstanding voting power of a Person
or equity securities or other equity interests representing at least
20% of the outstanding equity securities or equity interests in a
Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment,
whether intentional or unintentional.
"RENEWAL LOC"--as defined in Section 2.8.
"REPLACEMENT NOTE"--a negotiable Promissory Note to be issued by Buyer
in replacement of the Non-Negotiable Promissory Note, in accordance
with the provisions of Section 6.B.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative
of such Person, including without limitation, legal counsel,
accountants, and financial advisors.
"RESTATED PARTNERSHIP AGREEMENT"--as defined in Section 2.5(b)(iv).
"SALE CLOSING"--as defined in Section 10.10(c).
"SECURITIES ACT"--the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act
or any successor law.
"SECURITIES EXCHANGE ACT"--the Securities Exchange Act of 1934, as
amended, or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"SELLER"--James M. Carr.
"SELLER ADJUSTMENT NOTE"--as defined in Section 2.7(b).
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"SELLER'S CERTIFICATE"--as defined in Section 2.5(a)(viii).
"SELLER'S CLOSING DOCUMENTS"--as defined in Section 3.2(a).
"SELLER EMPLOYMENT AGREEMENT"--as defined in Section 2.5(a)(iii).
"SELLER NONCOMPETITION AGREEMENT"--as defined in Section 2.5(a)(iv).
"SELLER RELEASE"--as defined in Section 2.5(a)(ii).
"SELLING KEY EMPLOYEE"--as defined in Section 10.10.
"SHARE CERTIFICATES" -- as defined in Section 2.5(a)(1).
"SHARES"-- as defined in the Recitals of this Agreement.
"STATEMENT OF AUTHORITY"--as defined in Section 2.5(b)(v).
"STOCK POWERS" -- as defined in Section 2.5(a)(1).
"SUBSIDIARY" or "SUBSIDIARIES"--with respect to any Person (the
"Owner"), any corporation or other Person of which securities or other
interests having the power to elect a majority of that Person's board
of directors or similar governing body, or otherwise having the power
to direct the business and policies of that Person (other than
securities or other interests having such power only upon the
happening of a contingency that has not occurred) are held by the
Owner or one or more of its Subsidiaries.
"SUBSTITUTE COLLATERAL"--as defined in Section 2.8.
"SUBSTITUTE GUARANTEES"--as defined in Section 2.5(c)(xii).
"SUBSTITUTE LOC"--as defined in Section 2.8.
"TAKE-OUT LENDER" -- as defined in Section 2.3(c).
"TAKE-OUT LOAN"--as defined in Section 2.3(c).
"TAKE-OUT LOC"--as defined in Section 2.3(d).
"TAXES"--shall mean all foreign, federal, state, county, local and
other taxes, levies, impositions, deductions, charges and withholdings
for which Seller, the Partnership or
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<PAGE> 14
any Acquired Company is liable, including, without limitation, income
or franchise taxes or other taxes imposed on or with respect to net
income, or capital gain, gross receipts, profits, sales, use,
occupation, value added, ad valorem, transfer, withholding, payroll,
employment, excise or property taxes, and shall include any interest,
penalties or additions thereto.
"TAX RETURN"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted
to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with
the administration, implementation, or enforcement of or compliance
with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement
has been made (orally or in writing) or any notice has been given
(orally or in writing), or if any other event has occurred or any
other circumstances exist, that indicate that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future; provided that,
for purposes of Section 3.15 hereof, a claim, Proceeding, dispute,
action or other matter will be deemed to have been "Threatened" only
if a demand or statement has been made in writing or a notice has been
given in writing that would lead a prudent Person to conclude that
such a claim, Proceeding, dispute, action, or other matter is likely
to be asserted, commenced, taken, or otherwise pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 Shares
Subject to the terms and conditions of this Agreement, at the
Closing, Seller will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Seller.
2.2 Purchase Price
(a) The purchase price (the "Purchase Price") for the
Shares will be TWELVE MILLION THREE HUNDRED FORTY-ONE THOUSAND
DOLLARS ($12,341,000), plus the Adjustment Amount, and the
Additional
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<PAGE> 15
Consideration. The Purchase Price (exclusive of the Additional
Consideration) shall be paid by delivery of the Promissory
Notes and, if applicable, the Adjustment Note.
(b) In addition to the consideration paid at the Closing,
as set forth above, Buyer and Newmark jointly and severally
agree, subject to the contingencies set forth below, to pay
Seller additional consideration (herein called the "Additional
Consideration") as set forth below. Seller's right to receive
Additional Consideration shall be contingent, and shall be
based upon the Net Income of the "Subject Entities" for a
period of five (5) fiscal years commencing as of January 1,
1998 (individually, a "Calculation Year" and, collectively,
the "Calculation Years"). The term "Subject Entities" means:
(x) the Acquired Companies and the Partnership, the Net Income
of which shall be based upon their Combined Financial
Statements; and (y) any other Person that is a member of the
Pacific USA or Newmark consolidated group for financial
accounting purposes and that is placed under Seller's
operational control (which neither Buyer, Newmark nor Pacific
USA shall have any obligation to do), subject to applicable
restrictions in this Agreement and the Seller Employment
Agreement, and provided that: (i) Seller and Buyer shall have
executed an amendment to this Agreement acknowledging the
application of this Section to such other Person; and (ii) the
Net Income of such other Person shall be considered only to
the extent that such Net Income is included in the net income
of Pacific USA, Newmark or their Subsidiaries for financial
accounting purposes. Additional Consideration shall be
calculated and payable as follows:
(1) Additional Consideration shall be based on the
consolidated Net Income of the Subject Entities,
before federal and state income taxes, for the
Calculation Years and shall be payable only if the
Subject Entities achieve the Cumulative Net Income
for each such Calculation Year. For purposes of this
Section, the fiscal year end is December 31,
regardless of any Subject Entity's actual fiscal year
end. "Cumulative Net Income" for each Calculation
Year shall be as follows:
<TABLE>
<CAPTION>
Cumulative
----------
Net Income
----------
<S> <C>
1998: $3,400,000
1999: $7,040,000
2000: $10,920,000
2001: $15,040,000
2002: $19,400,000
</TABLE>
15
<PAGE> 16
Notwithstanding the foregoing, if Cumulative Net
Income is not achieved for any Calculation Year
(each, an "Earlier Calculation Year") and Additional
Consideration for the Earlier Calculation Year is
therefore not paid, but Cumulative Net Income for any
subsequent Calculation Year is achieved, the
Additional Consideration for each such Earlier
Calculation Year shall be paid, together with payment
of the Additional Consideration for Calculation Year
for which Cumulative Net Income is achieved.
(2) For each Calculation Year for which the Cumulative
Net Income has been achieved, or with respect to
which the last sentence in Section 2.2(b)(1) is
applicable, Buyer shall pay Seller $900,000; provided
that the aggregate Additional Consideration shall not
exceed $4,500,000. Any payment for a Calculation
Year will be paid on or before ten (10) days
following completion of the audit for that
Calculation Year, but in any event prior to April 30
of the year following that Calculation Year. All
payments of Additional Consideration shall be made by
bank wire transfer of immediately available funds to
an account designated by Seller in Section 12.4
hereof.
(3) "Net Income" means, for any period in respect of
which the amount thereof shall be determined, the
aggregate of the net income for such period (taken as
a cumulative whole), before federal and state income
taxes, determined in accordance with GAAP, and based
on audited financial statements, modified as follows:
(a) an amount equal to any and all interest paid by
Buyer on the Promissory Notes shall be deducted in
accordance with GAAP from the Net Income of the
Subject Entities; and (b) to the extent included in
the consolidated net income of the Subject Entities,
Net Income shall exclude the effect of the following
items:
(i) any item of extraordinary gain or loss
characterized as such in accordance with GAAP, except
any such items resulting from a breach of a
representation, warranty or obligation of Seller
under this Agreement, as determined in accordance
with the Arbitration Covenant or as otherwise agreed
by Seller and Buyer in writing;
(ii) any additional depreciation, amortization or
other cash or non-cash expense or income resulting
from the write-up or write-down of any asset and any
amortization of goodwill or other intangibles
relating to the acquisition of the Acquired Companies
by the Buyer;
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<PAGE> 17
(iii) any expenses, including interest (exclusive
of the interest referred to in Section 2.2(b)(3)(a)),
documentary stamp taxes, lender's attorneys' fees and
origination fees, incurred in connection with (x) the
financing of the acquisition of the Acquired
Companies, including, without limitation, the
Take-Out Loan, the Take-Out LOC, and the Promissory
Notes, the Adjustment Note, if any, and the
Substitute LOC (subject to the provisions of Section
3.11(f) and Subsection (z) hereof), (y) any loans
provided to the Subject Entities by Newmark, Buyer,
or any affiliate of Newmark or Buyer, and (z) fees
and expenses of accountants, and other professionals
(excluding attorneys) incurred by the Acquired
Companies or the Partnership in connection with the
Contemplated Transactions.
(iv) any gain, loss, income or expense resulting
from a change in the Subject Entities' accounting
methods, principles or practices after the Closing;
(v) any expenses directly or indirectly incurred
in connection with the acquisition of the Acquired
Companies by the Buyer;
(vi) any income, expenses, gain or loss relating
to Adler Companies;
(vii) any overhead cost related to Adler Companies,
such costs to be allocated consistent with the
Partnership's current methodology of allocating costs
to jobs; and
(viii) any corporate assessments or charges from
Pacific USA or any of its affiliates other than the
reimbursement of any out-of-pocket expenses incurred
by Pacific USA (or any affiliate of Pacific USA) that
the Subject Entities would incur on a stand-alone
basis (considering competitive market rates at which
the same could be obtained from third party sources),
and under no circumstances will any such
reimbursement exceed, on a pro rata basis, the
corresponding amounts charged to any other affiliate
of Pacific USA.
(ix) in the event dividends or other distributions
(other than for debt service payments) are paid or
distributed to Buyer by any of the Subject Entities
(excluding however, Tax payments payable by the
Subject Entities under any Tax Sharing Agreement with
Pacific USA), Net Income shall include deemed
interest income on such funds equivalent to 9% per
annum.
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<PAGE> 18
If any Subject Entity is merged or consolidated with
or liquidated into another Person during the
Calculation Years, Net Income shall be determined
only with respect to the such Subject Entity's
operations, as such operations were conducted prior
to such merger, consolidation or liquidation;
provided, however, that if any party to such a merger
or consolidation is not a PUSA Entity, then the
circumstances described in Section 2.2(b)(6)(ii)
shall be deemed to have occurred. The term "PUSA
Entity" shall mean any entity which, at the time of
determination, has been a member of the Pacific USA
consolidated group for financial accounting purposes
in accordance with GAAP for at least six (6) months.
(4) Each payment of Additional Consideration shall be
characterized as principal and interest. The portion
of the payment that represents interest shall be
determined by using the lowest federal mid-term rate
under Section 1274 of the Code that is effective as
of the Closing Date. The remaining portion of the
payment shall constitute an installment payment of
additional purchase price for the Shares.
(5) It is understood and agreed that payment of the
Additional Consideration is contingent, since it is
based on future operations of the Subject Entities.
(6) The payment of all unpaid Additional Consideration
shall be accelerated and due and payable in full upon
the following events:
(i) termination of the Seller Employment
Agreement by Buyer other than for "cause," as defined
in such agreement or by Seller for "cause", as
defined in such agreement;
(ii) the sale or liquidation by Buyer of
substantially all of its assets to a single purchaser
or distributee or a group of associated purchasers or
distributees in one or more related transactions, or
the sale or transfer of stock of Buyer resulting in
Buyer no longer being controlled by a PUSA Entity, or
a merger or consolidation of Buyer with another
entity or any similar transaction (except solely to
or with a PUSA Entity(ies)), other than through an
orderly liquidation of assets as a result of a
decision to abandon the Florida market due to two (2)
consecutive Calculation Years of failing to meet
Cumulative Net Income.
(7) The Additional Consideration will cease and no longer
be payable in the event of a voluntary termination of
the Subject Entities' business and liquidation of
their assets as a result of a decision to abandon the
Florida
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<PAGE> 19
market due to two consecutive Calculation Years of
failing to meet Cumulative Net Income.
(8) During each of the fourth and fifth Calculation
Years, Buyer shall escrow with a third party
acceptable to Seller, estimated Additional
Consideration for each such year on a quarterly
basis. Such escrow shall be established pursuant to
the Escrow Agreement (Additional Consideration)
("Escrow Agreement (Additional Consideration)" in the
form attached hereto as Exhibit 2.2(b).
(c) Buyer shall have the right to make a timely election under
Section 338(h)(10) or Section 754 of the IRC with respect to its purchase of
the Shares, and shall seek equivalent treatment of such purchase under all
applicable state and local tax laws, to the extent such treatment is available.
If required, the Acquired Companies and Seller shall join in such election.
If, as a result of a step-up in basis for Buyer as a result of Section 338 or
Section 754 of the IRC, Seller shall have an effective tax rate of greater than
the lowest capital gains rate then in effect and applicable to Seller with
respect to any purchase price paid in exchange for the Shares, then Buyer will
agree to increase the Purchase Price payable under Section 2.2(a) hereof so
that the net effective after-tax benefit to Seller reflects the rate that would
have been payable had Section 338 or Section 754 not applied. Any increase in
the Purchase Price shall increase the principal amount of the Adjustment Note,
if any, or reduce the principal amount of the Seller Adjustment Note, if any,
with any excess of that increase in the Purchase Price over the principal
amount of the Seller Adjustment Note, being the principal amount of an
Adjustment Note. Buyer and Seller agree to complete, within 120 days after the
Closing and file on a timely basis with IRS, the information required to be
prepared under the Sections 338 and 754 Regulations, including without
limitation the allocation of the adjusted gross-up basis as that term is
defined in the IRC, based upon Exhibit 2.2(c) and the Closing Financial
Statements. Buyer and Newmark agree to indemnify, defend and hold harmless
Seller, the Partnership and the Acquired Companies from and against any tax,
interest, penalty or other loss, cost, damage or liability.
2.3 Athena Redemption and Loan Satisfaction
On or before the Closing Date, Seller shall cause the Partnership to
redeem all of the partnership interests of Athena in the Partnership
(the "Athena Redemption") and to pay and satisfy in full the "Loan"
(as that term is defined in the Partnership Agreement) (the "Loan
Satisfaction"). In connection therewith, the parties agree as
follows:
(a) Simultaneously with, and subject to the occurrence
of the events described in Subsections (c) and (d) hereof, the
Athena Redemption shall be made pursuant to the Distribution
Agreement and Amendment No. 1 to the
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<PAGE> 20
Agreement of Partnership of The Westbrooke Partnership, in the
form attached hereto as Exhibit 2.3(a) (the "Athena Redemption
Agreement").
(b) Simultaneously with, and subject to the occurrence of
the events described in Subsections (c) and (d) hereof, the
Loan Satisfaction shall be made pursuant to the Loan
Satisfaction Agreement in the form attached hereto as Exhibit
2.3(b) (the "Loan Satisfaction Agreement"). The amount
required to pay and satisfy the Loan in full shall be
evidenced by a written payoff estoppel document binding upon
the holder of the Loan, a copy of which shall be furnished to
Buyer prior to the Closing Date.
(c) On or before the Closing Date, the Partnership shall
obtain a loan (the "Take-Out Loan") in the amount of
$10,000,000 from NationsBank, N.A., or other commercial
lending institution reasonably acceptable to Buyer (the
"Take-Out Lender"), all of the proceeds of which shall be used
solely (i) for the "Primary Payment" due Athena under the
Athena Redemption Agreement, and (ii) the Loan Satisfaction.
The terms of the Take-Out Loan and the form and substance of
the Take-Out Loan documents shall be subject to the
Partnership's and Buyer's review and approval, not to be
unreasonably withheld. Without limiting such right of
approval, the Take-Out Loan documents shall prohibit
disbursement of the proceeds thereof to the Partnership, the
Acquired Companies or to any Person other than Athena and the
holder of the Loan, respectively (or to their order) for the
purposes above stated; and
(d) Simultaneously with the Closing of the Take-Out Loan,
at Closing Newmark will deliver to the Take-Out Lender an
irrevocable letter of credit in the amount of $10,000,000 for
the account of Newmark in favor of the Take-Out Lender (the
"Take-Out LOC").
2.4 Closing
The purchase and sale (the "Closing") provided for in this
Agreement will take place at 10:00 a.m. (local time) on
January 15, 1998, or at such other time as the parties may
agree. Subject to the provisions of Section 9, failure to
consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined
pursuant to this Section 2.4 will not result in the
termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.5 Closing Obligations
At the Closing:
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<PAGE> 21
(a) Seller will deliver or cause to be delivered to
Buyer:
(i) original certificates representing the Shares
(collectively, the "Share Certificates"),
duly endorsed (or accompanied by duly
executed stock powers ("Stock Powers") in the
form attached hereto as Exhibit 2.5(a)(1)),
with signatures guaranteed by a commercial
bank or by a member firm of the New York
Stock Exchange, for transfer to Buyer;
(ii) release in the form of Exhibit 2.5(a)(ii)
executed by Seller (the "Seller Release");
(iii) an amended and restated employment agreement
in the form of Exhibit 2.5(a)(iii), executed
by Seller (the "Seller Employment
Agreement");
(iv) noncompetition agreement in the form of
Exhibit 2.5(a)(iv), executed by Seller (the
"Seller Noncompetition Agreement");
(v) Receipt for Payment and Certificate of
Redemption in the form of Exhibit 2.5(a)(v-1)
executed on behalf of Athena and the
Partnership (the "Certificate of Redemption")
and the ten (10) Releases in the form of
Exhibit 2.5(a)(v-2) executed on behalf of
Athena (the "Athena Releases");
(vi) Assignment of Partnership Interest in the
form of Exhibit 2.5(a)(vi) executed on behalf
of Westbrooke at Spring Valley, Inc.,
Westbrooke at Rock Creek, Inc. and Westbrooke
at Winston Park, Inc., (the "Inactive
Westbrooke Companies") all Florida
corporations, and Westbrooke Communities,
Inc.;
(vii) Morgan Guaranty Receipt in the form of
Exhibit 2.5(a)(viii) executed on behalf of
the lender of the Loan, and the original
promissory note evidencing the Loan marked
"paid" (the "Morgan Guaranty Receipt");
(viii) a certificate executed by Seller representing
and warranting to Buyer that each of Seller's
representations and warranties in this
Agreement was accurate in all respects as of
the date of this Agreement and is accurate in
all respects as of the Closing Date as if
made on the Closing Date (giving full effect
to any supplements to the Disclosure Letter
that were delivered by Seller
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<PAGE> 22
to Buyer immediately prior to Closing in
accordance with Section 5.5) ("Seller's
Certificate");
(ix) the Consents, if any, required by Section
8.3 hereof or identified in the Master
Disclosure List, the Disclosure Letter, or
any supplement thereto;
(x) the additional documents required by Section
7.4 hereof;
(xi) the Escrow Agreement (Shares) in the form of
Exhibit 2.5(a)(xi), executed by Seller (the
"Escrow Agreement (Shares)");
(xii) an affidavit regarding the place of
acceptance of delivery of the Promissory
Notes in the form of Exhibit 2.5(a)(xii)
executed by Seller (the "Note Affidavit");
and
(xiii) the Escrow Agreement (Additional
Consideration), executed by Seller.
(b) Each of the Key Employees will deliver to the
designated Person:
(i) an amended and restated employment agreement
in the form of Exhibit 2.5(b)(i), executed by
each Key Employee (collectively, the "KE
Employment Agreements") to be delivered to
Westbrooke Communities, Inc.;
(ii) noncompetition agreements in the form of
Exhibit 2.5(b)(ii), executed by the Key
Employees (collectively, the "KE
Noncompetition Agreements") to be delivered
to Westbrooke Communities, Inc.;
(iii) a certificate executed by each Key Employee
representing and warranting to Buyer such Key
Employee's representations and warranties in
this Agreement were accurate in all respects
as of the date of this Agreement and are
accurate in all respects as of the Closing
Date as if made on the Closing Date (giving
full effect to any supplements to the KE
Disclosure Letter that were delivered by such
Key Employee to Buyer prior to the Closing
Date in accordance with Section 10.8) to be
delivered to Buyer (the "KE First
Certificate");
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<PAGE> 23
(iv) an amended and restated agreement of
partnership of the Partnership in the form of
Exhibit 2.5(b)(iv), executed by each of the
Key Employees (the "Restated Partnership
Agreement") to be delivered to Buyer;
(v) evidence of filing with the Florida
Department of State of a statement of
partnership authority in the form of Exhibit
2.5(b)(v) (the "Statement of Authority") to
be delivered to Buyer.
(vi) releases in the form of Exhibit 2.5(b)(vi)
executed by each of the Key Employees (the
"KE First Releases") in favor of Seller and
each of the Acquired Companies;
(vii) New Partners Agreement;
(viii) Consent of Partners to the Assignment of
Partnership Interest described in Section
2.5(a)(vi); and
(vix) The Escrow Agreement (Additional
Consideration) executed by each of the Key
Employees.
(c) Buyer or Newmark, as the case may be, will deliver or
cause to be delivered to the designated Person:
(i) non-negotiable promissory note made by Buyer
payable to Seller in the principal amount of
$3,000,000 in the form of Exhibit 2.5(c)(i)
(the "Non-Negotiable Promissory Note") to be
delivered to Seller;
(ii) negotiable promissory note made by Buyer
payable to Seller in the principal amount of
$9,341,000 in the form of Exhibit 2.5(c)(ii)
(the "Negotiable Promissory Note") to be
delivered to Seller;
(iii) guaranty by Pacific USA of the Negotiable
Promissory Note and Non-Negotiable Promissory
Note by Pacific USA in the form of Exhibit
2.5(c)(iii) (the "Pacific USA Guaranty") to
be delivered to Seller;
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<PAGE> 24
(iv) pledge agreement between Buyer and Seller in
the form of Exhibit 2.5(c)(iv) (the "Pledge
Agreement") to be delivered to Seller;
(v) duly executed stock powers ("Buyer's Stock
Powers") in blank, with signatures guaranteed
by a commercial bank or by a member firm of
the New York Stock Exchange to be delivered
to the escrow agent pursuant to the Escrow
Agreement (Shares);
(vi) a certificate executed by Buyer to the effect
that, except as otherwise stated in such
certificate, each of Buyer's representations
and warranties in this Agreement was accurate
in all respects as of the date of this
Agreement and is accurate in all respects as
of the Closing Date as if made on the Closing
Date to be delivered to Seller ("Buyer's
Certificate");
(vii) the Seller Employment Agreement and the KE
Employment Agreements, executed by Westbrooke
Communities, Inc., to be delivered to Seller
and the respective Key Employees;
(viii) the Seller Non-Competition Agreement and the
KE Non-Competition Agreements, executed by
Westbrooke Communities, Inc., to be delivered
to Seller and the respective Key Employees;
(ix) the Consents, if any, referenced in Schedule
4.2 hereto;
(x) the additional documents, if any, required by
Section 8.4 hereof;
(xi) evidence of corporate existence and authority
of Buyer, Pacific USA and Newmark to be
delivered to Seller and the Key Employees;
(xii) guarantees of the Applicable Loan Contracts
in substitution for existing guarantees by
Seller, in form and substance reasonably
acceptable to Buyer and the lenders
thereunder, to be delivered to the respective
lenders ("Substitute Guarantees");
(xiii) the Restated Partnership Agreement executed
by all the partners of the Partnership, to be
delivered to the Key Employees;
(xiv) the Escrow Agreement (Shares);
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<PAGE> 25
(xv) the Escrow Agreement (Additional
Consideration) executed by Buyer and Newmark;
and
(xvi) the New Partners Amendment executed by all
the then partners of the Partnership.
2.6 Adjustment Amount
The "Adjustment Amount" (which may be a positive or negative
number) will be equal to (a) the combined capital of the
Acquired Companies as of 11:59 p.m. on December 31, 1997,
determined in accordance with GAAP and based on the Combined
Financial Statements, (except as follows) minus (b)
$5,000,000. For purposes of the calculation of combined
capital, the effect of the following items shall be excluded:
(i) any extraordinary gain or loss; and (ii) the expenses
described in Section 2.2(b)(3)(iii).
2.7 Adjustment Procedure
(a) Seller will prepare and will cause Ernst & Young, the
Acquired Companies' certified public accountants, to
audit the Combined Financial Statements as of 11:59
p.m. on December 31, 1997, and for the period from
the date of the Balance Sheet through the Closing
Date, including a computation of combined capital as
of 11:59 on December 31, 1997 ("Closing Financial
Statements"). Seller will deliver the Closing
Financial Statements to Buyer within sixty (60) days
after the Closing Date. If within thirty days
following delivery of the Closing Financial
Statements, Buyer has not given Seller notice of its
objection to the Closing Financial Statements (such
notice must contain a statement of the basis of
Buyer's objection), then the combined capital
reflected in the Closing Financial Statements will be
used in computing the Adjustment Amount. If Buyer
gives such notice of objection, then the issues in
dispute will be submitted for resolution to the
"Independent Accountant". The Independent Accountant
shall be an independent certified public accountant
jointly selected by Buyer's and Seller's respective
certified public accountants. If issues in dispute
are submitted to the Independent Accountant for
resolution, (i) each party will furnish to the
Independent Accountant such workpapers and other
documents and information relating to the disputed
issues as the Independent Accountant may request and
are available to that party or its Subsidiaries (or
its independent public accountants), and will be
afforded the opportunity to present to the
Independent Accountant any material relating to the
determination and to discuss the determination with
the Independent Accountant; (ii) the
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<PAGE> 26
determination by the Independent Accountant, as set
forth in a notice delivered to both parties by the
Independent Accountant, will be binding and
conclusive on the parties; and (iii) Buyer and Seller
will each bear 50% of the fees of the Independent
Accountant for such determination.
(b) On the tenth business day following the final
determination of the Adjustment Amount, if the
Adjustment Amount is a positive number, such amount
shall be payable by Buyer and Newmark by the delivery
by Buyer to Seller (or Seller's custodial designee)
of a demand negotiable promissory note made by Buyer,
in the form attached hereto as Exhibit 2.7(b)(-1)
(the "Adjustment Note") and by the delivery by
Newmark to Seller (or Seller's custodial designee) of
a guaranty made by Newmark in the form attached
hereto as Exhibit 2.7(b-2) (the "Newmark Guaranty").
Seller agrees that if the Adjustment Amount is a
negative number, Seller shall pay the Adjustment
Amount to Buyer within ten (10) business days
following Buyer's written request therefor or, at
Buyer's election, Seller shall execute and deliver to
Buyer or Buyer's designee a demand negotiable
promissory note ("Seller Adjustment Note") in the
principal amount of such negative Adjustment Amount
in the form attached hereto as Exhibit 2.7(b-3).
(c) Buyer and Seller have estimated that the combined
capital on the Closing Financial Statement will be
$11,375,000. Buyer agrees to deliver to Seller a
Preliminary Adjustment Note in the amount of
$6,375,000, which is the estimated Adjustment Amount.
Buyer acknowledges that up to $2,375,000 may be
demanded for payment on or before January 31, 1998.
Once the final determination of the Adjustment Amount
is made, Section 2.7(b) shall be implemented; i.e.,
(i) if the Adjustment Amount is a negative number,
the Preliminary Adjustment Note shall be canceled,
and Seller shall pay the Adjustment Amount, plus any
amounts paid to Seller under the Preliminary
Adjustment Note, to Buyer as provided in Section
2.7(b) above, and (ii) if the Adjustment Amount is a
positive number, such amount shall be payable by
Buyer by the delivery to Seller (or Seller's
custodial designee) of the Adjustment Note, which
shall replace the Preliminary Adjustment Note and be
in the amount of the Adjustment Amount less any
principal amount paid by Buyer to Seller under the
Preliminary Adjustment Note as provided above.
2.8 Termination of Pacific USA Guaranty and Pledge; Substitution
of Collateral
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Within five (5) business days following the earlier to occur
of (a) the closing of the initial public offering of capital
stock in Newmark, (b) the sale by Pacific USA of substantially
all of the assets of Pacific Southwest Bank, or (c) June 30,
1998, Newmark shall deliver to Seller irrevocable letters of
credit substantially in the form of Exhibit 2.8(A) each in the
initial amount equal to the then outstanding principal balance
of each of the respective Promissory Notes, plus interest
thereon for one (1) year (collectively, the "Substitute LOCs")
and, in addition, the Substitute LOCs shall have been
confirmed by the Federal Home Loan Bank of Dallas in the form
of the Confirmation of Letter of Credit attached hereto as
Exhibit 2.8(B). Upon delivery of both Substitute LOCs to
Seller, the Pacific USA Guaranty and Pledge Agreement shall
terminate, and Seller, Buyer, Newmark and Pacific USA shall
execute and deliver any and all instruments necessary or
appropriate to evidence such termination (including the filing
of UCC-3 Termination Statements, if requested by Buyer), and
the parties shall issue joint written instructions to the
escrow agent under the Escrow Agreement (Shares) to deliver
the Shares and Stock Powers to Buyer.
If either the Substitute LOCs or any Renewal LOC (as
hereinafter defined) by its terms, expires prior to the
maturity date of the respective Promissory Notes secured
thereby, Newmark shall deliver to Seller not less than thirty
(30) days prior to such expiration a renewal or replacement
letter of credit in the amount of the then outstanding
principal balance of that Promissory Note, plus interest
thereon for one (1) year (each, a "Renewal LOC"). Newmark
shall renew or replace, in the same fashion, any Renewal LOC
that likewise, by its terms, expires prior to the maturity
date of the Promissory Notes. The Substitute LOC and any
Renewal LOC shall be issued by Bank United of Texas, FSB, or
any other bank acceptable to Seller, such acceptance not to be
unreasonably withheld, and, in addition, the Renewal LOC's
(and each of them) shall have been confirmed by the Federal
Home Loan Bank of Dallas in the form of the confirmation of
Letter of Credit attached hereto as Exhibit 2.8(B). If
Newmark shall fail to deliver to Seller any Renewal LOC timely
and in accordance herewith, Seller shall have the right to
present for payment and draw upon, in full, the Substitute
LOCs or any Renewal LOC then in effect within thirty (30) days
prior to the expiration of the Substitute LOC or Renewal LOC
then in effect. The Renewal LOC shall have the same terms and
be of the same quality as the Substitute LOC.
In the event Newmark is unable to deliver the Substitute LOC
by June 30, 1998, for any reason after good faith, diligent
efforts to obtain and deliver the same, then Buyer, Newmark
and Seller shall negotiate for the substitution of collateral
under the Pledge Agreement in the place and stead of the
Shares (the "Substitute Collateral"), which Substitute
Collateral shall be, in all respects, subject to the
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approval and acceptance of Seller, in his sole and absolute
discretion. In the event such parties fail to agree upon
Substitute Collateral on or before September 30, 1998, and
Seller delivers to Buyer written notice declaring such
failure, then
(a) the Promissory Notes, the Pledge Agreement and the
Pacific USA Guaranty, shall each be deemed in default
without further notice and Seller shall be
immediately entitled to exercise all rights and
remedies thereunder, including, but not limited to,
the right of acceleration; and
(b) the Take-Out Loan shall be deemed in default for all
purposes, hereto, and, in such event, Seller shall be
entitled and is hereby authorized to make demand upon
the Take-Out Lender for presentment of the Take-Out
LOC by the beneficiary thereof and to apply the
proceeds to the Take-Out Loan (the "Seller's
Demands"); provided, however, that Seller shall have
first delivered to Buyer and Newmark not less than
ten (10) days prior written notice of Seller's intent
to demand presentment. The Take-Out Lender shall be,
and is hereby, authorized to accept and implement
such Seller's Demand and to so apply the proceeds.
The proceeds of the Take-Out LOC so applied shall
constitute an absolute limit on monetary damages for
Buyer's and Newmark's default, without limiting or
affecting in any manner Seller's rights pursuant to
the provisions of the Pledge Agreement. Such amount
is agreed upon by and between Seller, Newmark and
Buyer as an absolute limit on monetary damages, for
breach of this Agreement by Buyer, Newmark and
Pacific USA due to the difficulty and inconvenience
of ascertaining and measuring actual damages, and the
uncertainty thereof; and no other monetary damages,
rights or remedies shall in any case be collectible,
enforceable or available to Seller, other than in
this Section; and Seller shall accept said proceeds
and its rights and remedies under the Pledge
Agreement as Seller's total damages and relief, but
only if, as and when Seller realizes upon the
Collateral under the Pledge Agreement. In such
event, neither Buyer, Pacific USA, nor Newmark shall
have any right or remedy against Seller, the Acquired
Companies or the Partnership, whatsoever, whether by
subrogation or otherwise, in connection with the
Take-Out LOC, and such rights and remedies, if any,
shall then be waived.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
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3.1 Organization and Good Standing
(a) Part 3.1 of the Disclosure Letter contains a complete
and accurate list for the Partnership and each
Acquired Company of its name, its jurisdiction of
organization, other jurisdictions in which it is
authorized to do business, and its outstanding
capital stock or partners' capital (setting forth, in
the case of the Acquired Companies, the identity of
each stockholder and the number of shares held by
each and, in the case of the Partnership, the
identity of each partner and the percentage
Partnership interest held by each, after giving
effect to the Athena Redemption). Each Acquired
Company is a corporation duly organized, validly
existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate
power and authority to conduct its business as it is
now being conducted, to own or use the properties and
assets that it owns or uses, and to perform all its
obligations under Applicable Contracts. The
Partnership is a general partnership duly organized,
validly existing, and in good standing under the laws
of its jurisdiction of organization, with full
partnership power and authority to conduct its
business as it is now being conducted, to own or use
the properties and assets that it owns or uses, and
to perform all its obligations under Applicable
Contracts. The Partnership and each Acquired Company
are duly qualified to do business in, and are in
good standing under the laws of, each state or other
jurisdiction in which either the ownership or use of
the properties owned or used by it, or the nature of
the activities conducted by it, requires such
qualification.
(b) Seller has delivered to Buyer copies of the
Organizational Documents of the Partnership and each
Acquired Company, as currently in effect. The
Partnership Agreement is the sole contract governing
the subject matter thereof and has not been modified,
amended or supplemented in any respect, except for
the Athena Redemption Agreement and the New Partners
Agreement, which have been made or will be made on or
before the Closing Date.
3.2 Authority; No Conflict
(a) This Agreement constitutes the legal, valid, and
binding obligation of Seller, enforceable against
Seller in accordance with its terms. Upon the
execution and delivery by Seller, and all other
parties to the respective instruments, of the Share
Certificates, Stock Powers, Seller Release, Seller
Employment Agreement, Seller Noncompetition
Agreement, Escrow Agreement (Shares), Seller's
Certificate and the Note Affidavit,
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and additional documents required by Section 7.4
(collectively, the "Seller's Closing Documents"), the
Seller's Closing Documents will constitute the legal,
valid, and binding obligations of Seller, enforceable
against Seller in accordance with their respective
terms. Seller has the absolute and unrestricted
right, power, authority, and capacity to execute and
deliver this Agreement and the Seller's Closing
Documents and to perform his obligations under this
Agreement and the Seller's Closing Documents.
(b) Except as set forth in Part 3.2 of the Disclosure
Letter, neither the execution and delivery of this
Agreement nor the consummation or performance of any
of the Contemplated Transactions will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the
Organizational Documents of the Acquired
Companies or the Partnership, (B) any
resolution adopted by the board of directors
or the stockholders of any Acquired Company
or (C) any resolution or action of the
partners of the Partnership;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body
or other Person the right to challenge any of
the Contemplated Transactions or to exercise
any remedy or obtain any relief under, any
Legal Requirement or any Order to which the
Partnership, any Acquired Company or Seller,
or any of the assets owned or used by the
Partnership or any Acquired Company, may be
subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements
of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental
Authorization that is held by the Partnership
or any Acquired Company or that otherwise
relates to the business of, or any of the
assets owned or used by, the Partnership or
any Acquired Company;
(iv) cause Buyer, the Partnership or any Acquired
Company to become subject to, or to become
liable for the payment of, any Tax;
(v) contravene, conflict with, or result in a
violation or breach of any provision of, or
give any Person the right to declare a
default or
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exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel,
terminate, or modify, any Applicable
Contract; or
(vi) result in the imposition or creation of any
Encumbrance upon or with respect to any of
the assets owned or used by the Partnership
or any Acquired Company, except in
connection with the Take Out Loan and the
issuance of the KE Partnership Interests.
Except as set forth in Part 3.2 of the Disclosure
Letter, neither the Seller, the Partnership nor any
Acquired Company is or will be required to give any
notice to or obtain any Consent from any Person in
connection with the execution and delivery of this
Agreement or the consummation or performance of any
of the Contemplated Transactions.
(c) Seller is acquiring the Promissory Notes for his own
account and not with a view to their distribution
within the meaning of Section 2(11) of the Securities
Act; provided, however, that nothing herein shall be
deemed to restrict the negotiability of any
Promissory Note or the Adjustment Note made payable
to and delivered to Seller hereunder, to the extent
that such Promissory Note or the Adjustment Note is
by its terms negotiable. The Seller is an "accredited
investor" as such term is defined in Rule 501(a)
under the Securities Act.
3.3 Capitalization
(a) The authorized equity securities of Westbrooke
Communities, Inc. consist of 100 shares of common
stock, par value $1.00 per share, of which 100 shares
are issued and outstanding and constitute a portion
of the Shares. Seller is and will be on the Closing
Date the record and beneficial owner and holder of
100% of such shares, free and clear of all
Encumbrances.
(b) The authorized equity securities of Westbrooke at
West Lake, Inc. consist of 7,500 shares of common
stock, par value $1.00 per share, of which 7,500
shares are issued and outstanding and constitute a
portion of the Shares. Seller is and will be on the
Closing Date the record and beneficial owner and
holder of 100% of such shares, free and clear of all
Encumbrances.
(c) The authorized equity securities of Westbrooke at
Winston Trails, Inc., consist of 7,500 shares of
common stock, par value $1.00 per share, of which
7,500 shares are issued and outstanding and
constitute a portion
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of the Shares. Seller is and will be on the Closing
Date the record and beneficial owner and holder of
100% of such shares, free and clear of all
Encumbrances.
(d) The authorized equity securities of Westbrooke at
Pembroke Pines, Inc. consist of 7,500 shares of
common stock, par value $1.00 per share, of which
7,500 shares are issued and outstanding and
constitute a portion of the Shares. Seller is and
will be on the Closing Date the record and beneficial
owner and holder of 100% of such shares, free and
clear of all Encumbrances.
(e) The authorized equity securities of Westbrooke at Oak
Ridge, Inc. consist of 100 shares of common stock,
par value $0.01 per share, of which 100 shares are
issued and outstanding and constitute a portion of
the Shares. Seller is and will be on the Closing Date
the record and beneficial owner and holder of 100% of
such shares, free and clear of all Encumbrances.
(f) No legend or other reference to any purported
Encumbrance appears upon any certificate representing
equity securities of any Acquired Company. All of the
outstanding equity securities of each Acquired
Company have been duly authorized and validly issued
and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer
of any equity securities or other securities of any
Acquired Company. None of the outstanding equity
securities or other securities of any Acquired
Company was issued in violation of the Securities Act
or any other Legal Requirement. Except as set forth
in Part 3.3(f) of the Disclosure Letter, no Acquired
Company owns, or has any Contract to acquire, any
equity securities or other securities of any Person
(other than the Partnership) or any direct or
indirect equity or ownership interest in any other
business.
(g) All of the interests in the Partnership are owned by
the Acquired Companies in the proportions stated in
the Revised Interest Column of Exhibit 3.3, after
giving effect to the Athena Redemption. On the
Closing Date, the Acquired Companies and the Key
Employees will be the record and beneficial owners
and holders of all of the Partnership interests, in
the proportions designated in Exhibit 3.3 as "revised
interests", free and clear of all Encumbrances. No
legend or other reference to any purported
Encumbrance appears upon any certificate representing
equity securities of the Partnership. All of the
outstanding equity securities of the Partnership have
been duly authorized and validly issued and are fully
paid and nonassessable. There are no Contracts
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relating to the issuance, sale, or transfer of any
equity securities or other securities of the
Partnership. None of the outstanding equity
securities or other securities of the Partnership
were issued in violation of the Securities Act or any
other Legal Requirement. Except as set forth in Part
3.3(g) of the Disclosure Letter, the Partnership does
not own, and does not have any Contract to acquire,
any equity securities or other securities of any
Person or any direct or indirect equity or ownership
interest in any other business.
3.4 Financial Statements
Seller has delivered to Buyer: (a) audited combined balance
sheets of "Westbrooke Communities, Inc. and Affiliates" as of
December 31, 1992 through 1994, and the related audited
combined statements of income, and retained earnings, and cash
flow for the years then ended, together with the report
thereon of Ernst & Young, independent certified public
accountants, (b) audited combined balance sheets of the
Partnership as of December 31, 1995 and 1996 (the 1996 balance
sheet, including the notes thereto, is hereinafter referred to
as the "Balance Sheet"), and the related audited combined
statements of income, partners' capital, and cash flow for the
years then ended, together with the report thereon of Ernst &
Young, independent certified public accountants, (c) an
unaudited combined balance sheet of "Westbrooke Communities,
Inc., and Affiliates" as at September 30, 1997 (the "Interim
Balance Sheet"), and the related unaudited combined statements
of income, changes capital, and cash flow for the nine (9)
months then ended, including in each case the notes thereto,
if any (the "Interim Balance Sheet"), and (d) an unaudited
combined balance sheet of the Partnership, as of November 30,
1997, and the related unaudited combined statements of income,
for the eleven (11) months then ended (the "November Financial
Statements"). The financial statements and notes described in
Section 3.4(a), (b) and (c) fairly present the financial
condition and the results of operations, changes in
stockholders' equity or partners' capital (as the case may
be), and cash flow of Westbrooke Communities, Inc. and
Affiliates, or the Partnership as the case may be, as at the
respective dates of and for the periods referred to therein,
all in accordance with GAAP, subject, in the case of the
interim financial statements described in Section 3.4(c), to
normal recurring year-end adjustments (the effect of which
will not, individually or in the aggregate, constitute a
Material Adverse Effect) and the absence of notes (that, if
presented, would not differ materially from those included in
the Balance Sheet); such financial statements reflect the
consistent application of such accounting principles
throughout the periods involved, except as disclosed in the
notes to such financial statements. No financial statements of
any Person other than the Partnership and the Acquired
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Companies are required by GAAP to be included in the combined
financial statements of Westbrooke Communities, Inc. and
Affiliates or the Partnership, as the case may be. To the
Knowledge of the Partnership and the Acquired Companies, the
November Financial Statements fairly present the financial
condition and the results of operations, of the Partnership as
the case may be, as at the date of, and for the period
referred to in the November Balance Sheet, all in accordance
with GAAP, subject to the eleven (11) items described as
pending review for possible recording in the December 1997
financials in Part 3.4 of the Disclosure Letter.
3.5 Books and Records
The books of account, minute books, stock record books, and
other records of the Partnership and the Acquired Companies,
all of which have been made available to Buyer, are complete
and correct, and have been maintained in accordance with sound
business practices. The minute books of the Partnership and
the Acquired Companies contain accurate and complete records
of all meetings held of, and all action taken by, the
stockholders (or the partners of the Partnership acting on
behalf of the Partnership, as the case may be), the Boards of
Directors, and committees of the Boards of Directors of the
Acquired Companies (or the partners of the Partnership), and
no meeting of any such stockholders, partners, Board of
Directors, or committee has been held for which minutes have
not been prepared and are not contained in such minute books.
At the Closing, all of those books and records will be in the
possession of the Partnership and the Acquired Companies or
Charles D. Robbins, Esquire, as their Representative.
3.6 Title to Properties; Encumbrances
Part 3.6 of the Disclosure Letter contains a complete and
accurate list of all real property, leaseholds, or other
interests therein owned by the Partnership and any Acquired
Company. Seller has delivered to Buyer copies of the deeds and
other instruments (as recorded) by which the Partnership or
the Acquired Companies acquired such real property and
interests, and copies of all title insurance policies in the
possession of Seller, the Partnership or the Acquired
Companies and relating to such property or interests. The
Partnership and the Acquired Companies own such real property
(with good and marketable title subject only to the matters
permitted by the following sentence), leaseholds and other
interests therein and all personal property and other assets
(whether tangible or intangible) that are reflected in the
Balance Sheet and the Interim Balance Sheet (except for assets
held under capitalized leases disclosed or not required to be
disclosed in Part 3.6 of the Disclosure Letter, and property
sold since the date
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of the Balance Sheet and the Interim Balance Sheet, as the
case may be, in the Ordinary Course of Business), and all of
the property and other assets (whether tangible or intangible)
purchased or otherwise acquired by the Partnership or the
Acquired Companies since the date of the Balance Sheet (except
for property acquired and sold since the date of the Balance
Sheet in the Ordinary Course of Business and consistent with
past practice), which subsequently purchased or acquired
properties and assets (other than non-real estate inventory
and short-term investments) are listed in Part 3.6 of the
Disclosure Letter. Except as set forth noted in the
aforementioned title insurance policies and/or as set forth in
Part 3.6 of the Disclosure Letter, all material properties and
assets reflected in the Balance Sheet and the Interim Balance
Sheet are free and clear of all Encumbrances and are not, in
the case of real property, subject to any rights of way,
building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or
security interests shown on the Balance Sheet or the Interim
Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred
in connection with the purchase of property or assets after
the date of the Interim Balance Sheet (such mortgages and
security interests being limited to the property or assets so
acquired), with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a
default) exists, (c) liens for current taxes, impact fees or
governmental assessments not yet delinquent, and (d) with
respect to real property, (i) minor imperfections of title, if
any, none of which is substantial in amount, materially
detracts from the value or materially impairs the intended use
of any of the property subject thereto, or impairs the
operations of the Partnership or any Acquired Company, and
(ii) zoning laws and other land use restrictions that do not
materially impair the present or anticipated use of any of the
property subject thereto. All buildings, plants, and
structures owned by the Partnership and the Acquired Companies
lie wholly within the boundaries of the real property owned by
the Partnership and the Acquired Companies and do not encroach
upon the property of, or otherwise conflict with the property
rights of, any other Person.
3.7 Condition and Sufficiency of Assets
The buildings, plants, structures, and equipment of the
Partnership and the Acquired Companies, including all dwelling
units constructed or being constructed by or for one or more
of the Partnership and the Acquired Companies, are
structurally sound, are in good operating condition and
repair, are in compliance with all Governmental Authorizations
and Legal Requirements (except as set forth in Part 3.7 of the
Disclosure Letter), and are adequate for the
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uses to which they are being put, and none of such buildings,
plants, structures, or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost. The building, plants,
structures, and equipment of the Partnership and the Acquired
Companies are sufficient for the continued conduct of the
Partnership and the Acquired Companies' businesses after the
Closing in substantially the same manner as conducted prior to
the Closing.
3.8 Accounts Receivable
All accounts receivable of the Partnership and any Acquired
Company that are reflected on the Balance Sheet or the Interim
Balance Sheet, or on the accounting records of the Partnership
and any Acquired Company as of the Closing Date (collectively,
the "Accounts Receivable"), represent or will represent valid
obligations to the Partnership or such Acquired Company.
Unless received by the Partnership or any of the Acquired
Companies prior to the Closing Date, the Accounts Receivable
are or will be collectible as of the Closing Date, net of the
reserves, if any, shown on the Balance Sheet or the Interim
Balance Sheet or as set forth in Part 3.8 of the Disclosure
Letter. Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full,
without any set-off except as are disclosed on Part 3.8 of the
Disclosure Letter. Part 3.8 of the Disclosure Letter contains
a complete and accurate list and summary of the terms of all
Accounts Receivable as of the date of the Interim Balance
Sheet, which list sets forth the payment status of such
Accounts Receivable, and any reserves as of September 30, 1997
not shown on the Balance Sheet or the Interim Balance Sheet.
3.9 Inventory
All inventory of the Partnership and the Acquired Companies,
including all dwelling units constructed or being constructed
by or for one or more of the Partnerships and the Acquired
Companies, whether or not reflected in the Balance Sheet or
the Interim Balance Sheet, consists of a quality and quantity
usable and salable in the Ordinary Course of Business, except
for obsolete items and items of below- standard quality, all
of which have been written off or written down to net
realizable value in the Balance Sheet or the Interim Balance
Sheet or on the accounting records of the Partnership and the
Acquired Companies as of the Closing Date, as the case may be.
All inventories not written off are reflected on the Balance
Sheet and the Interim Balance Sheet in accordance with GAAP.
The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not
excessive, but are
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reasonable in the present circumstances of the Partnership and
the Acquired Companies.
3.10 No Undisclosed Liabilities
Except as set forth in Part 3.10 of the Disclosure Letter, the
Partnership and the Acquired Companies have no liabilities or
obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except
for (a) liabilities or obligations reflected or reserved
against in the Balance Sheet or the Interim Balance Sheet and
current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof; and (b)
warranties covering completed dwelling units more particularly
described in Section 3.17(a)(xiii) for which the cumulative
aggregate cost to the Partnership and the Acquired Companies
of performance of their obligations under all such warranties
shall not exceed $55,000.00.
3.11 Taxes
(a) The Partnership and the Acquired Companies have filed
or caused to be filed (on a timely basis since 1990)
all Tax Returns that are or were required to be filed
by or with respect to any of them, either separately
or as a member of a group of corporations, pursuant
to applicable Legal Requirements. Seller has
delivered to Buyer copies of, and Part 3.11 of the
Disclosure Letter contains a complete and accurate
list of, all such Tax Returns filed since 1990
relating to income or franchise taxes and ADP reports
of all such Tax Returns filed since 1996 relating to
payroll Taxes. The Partnership and the Acquired
Companies have paid, or made provision for the
payment of, all Taxes that have or may have become
due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by Seller or any
Acquired Company, except ad valorem real property
taxes and community development district assessments,
if any, as are described generally in Part 3.11 of
the Disclosure Letter and are either (i) being
contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have
been provided in the Balance Sheet and the Interim
Balance Sheet, or (ii) are current Taxes or
assessments not yet delinquent.
(b) No audit by the IRS or relevant state tax authorities
of United States federal or state income, franchise
or payroll Tax Returns of the Partnership and each
Acquired Company has ever resulted in a material
proposed deficiency or adjustment and all assessments
pursuant to any
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and all deficiencies and adjustments (and any and all
penalties and interest thereon) have been paid in
full.
(c) The charges, accruals, and reserves with respect to
Taxes on the respective books of each Acquired
Company are adequate (determined in accordance with
GAAP) and are at least equal to that Acquired
Company's liability for Taxes (including all
liability that may exist after giving effect to any
and all agreements for special allocations with
Athena pursuant to the Athena Redemption Agreement or
otherwise). There exists no proposed tax assessment
against any Acquired Company except as disclosed in
the Balance Sheet or in Part 3.11 of the Disclosure
Letter. No consent to the application of Section
341(f)(2) of the IRC has been filed with respect to
any property or assets held, acquired, or to be
acquired by any Acquired Company. All Taxes that any
Acquired Company is or was required by Legal
Requirements to withhold or collect have been duly
withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or
other Person.
(d) All Tax Returns filed by (or that include on a
consolidated basis) the Partnership or any Acquired
Company are true, correct, and complete. There is no
tax sharing agreement that will require any payment
by the Partnership or any Acquired Company after the
date of this Agreement.
(e) Except as disclosed in Part 3.11 of the Disclosure
Letter, all of the Acquired Companies have been since
they were organized, and will continue to be on the
date prior to the Closing Date, valid "S"
corporations for United States federal and state
income and franchise tax purposes and, as a result,
neither the Acquired Companies nor the Partnership
have incurred since they were organized, or will
incur through Closing, any United States federal or
state income or franchise tax liabilities.
(f) In the event the Promissory Notes shall be or become
subject to documentary stamp taxes or intangible
taxes, in any jurisdiction, Seller shall pay the same
and shall indemnify and hold Buyer, Newmark, Pacific
USA, the Partnership and the Acquired Companies
harmless from all loss, cost, damage and liability
with respect thereto and to all interest and
penalties thereon.
3.12 No Material Adverse Effect
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Since the date of the Balance Sheet, there has not been any
Material Adverse Effect with respect to the Partnership or any
Acquired Company, and no event has occurred or circumstance
exists that may result in a Material Adverse Effect.
3.13 Employee Benefits
(a) Schedule of Plans. Except as and to the extent
described in Part 3.13 of the Disclosure Letter, the
Partnership and the Acquired Companies do not
maintain and have never maintained and are not
required to contribute to and do not otherwise
participate in (and have not ever maintained,
contributed to or otherwise participated in) an
"employee benefit pension plan" or "multi-employer
plan" (as such terms are defined in ERISA), including
without limitation any pension, profit-sharing or
retirement plan, or any other retirement,
compensation, fringe benefit, stock purchase or stock
option plan or arrangement of any kind whatsoever,
whether formal or informal, providing for benefits
for or the welfare of any or all of the employees of
the Acquired Companies or the Partnership or their
beneficiaries. Part 3.13 of the Disclosure Letter
fully and accurately reflects, as of the date hereof
or as of the date noted on such schedule, the total
assets, the accrued benefits or other liabilities or
obligations, and the vested benefits or other
liabilities or obligations for each "employee pension
plan" or "multi- employer plan" or other retirement,
compensation or fringe benefit plan or arrangement of
any kind whatsoever maintained by the Partnership and
the Acquired Companies and which of such plans or
trusts the Partnership and the Acquired Companies
treats as qualified under Section 401 or Section 501
of the IRC.
(b) Reporting and Disclosure. Except as set forth in
Part 3.13 of the Disclosure Letter, the summary plan
descriptions and all other reports, documents,
statements and communication which are required to
have been filed, published or disseminated under
ERISA or other federal law and the rules and
regulations promulgated by the United States
Department of Labor under ERISA and the Treasury
Department under Section 's 401 through 415 inclusive
of the IRC with respect to the plans, trusts or other
arrangements described in subsection (a) above have
been filed, published or disseminated. Each of such
plans and trusts or arrangements which the
Partnership and the Acquired Companies treats as
qualified under Section 401 or Section 501 of the IRC
is so qualified, and no government agency or person
or entity has ever asserted that they are not so
qualified.
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(c) Prohibited Transactions; Reportable Events. None of
the "employee benefit plans" or arrangements
described in subsection (a) above, none of the trusts
or arrangements created thereunder, and no trustee,
custodian or administrator or any person or entity
holding or controlling assets of such plans, trusts
or arrangements has engaged in any "prohibited
transaction" (as such term is defined in ERISA and
the IRC) which could subject such plans, trusts or
arrangements or any of them, any trusts thereunder,
any trustee, custodian or administrator thereof, or
any person or entity holding or controlling assets of
such plans, trusts or arrangements or any person or
entity dealing with such plans, trusts or
arrangements to any tax, penalty, or other cost or
liability of any kind. None of such plans, trusts or
arrangements has been terminated; and there have not
been any "reportable events" (as such term is defined
in ERISA) with respect to any such plans, trusts or
arrangements.
(d) Funding. None of such plans, trusts or arrangements
described in subsection (a) above has incurred any
"accumulated funding deficiency" (as such term is
defined in ERISA), there is no "contingent employer
liability" with respect to any of such plans, trusts
or arrangements, as determined in accordance with
Section 4062 of Title IV of ERISA, and the actually
computed present value of the benefits, accrued to
the date hereof, in which participants under all of
such plans, trusts and arrangements have an interest
(whether or not vested or forfeitable), did not in
the aggregate exceed the value of the aggregate
amount of assets of such plans, trusts and
arrangements as of such date, except as and to the
extent disclosed in Part 3.13 of the Disclosure
Letter.
(e) Other. Except as disclosed in Part 3.13 of the
Disclosure Letter, the Partnership and the Acquired
Companies have fully complied in all material
respects with all provisions of ERISA and any and all
other laws, rules, and regulations applicable to
their employee benefit plans, trusts and arrangements
described in Section 3.13(a).
3.14 Compliance with Legal Requirements; Governmental Authorizations
(a) Except for the matters described in Section 3.14(c)
and as set forth in Part 3.14(a) of the Disclosure
Letter:
(i) the Partnership and each Acquired Company is,
and at all times since January 1, 1993 has
been, in full compliance with each Legal
Requirement that is or was applicable to it
or to the
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conduct or operation of its business or the
ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of
time) (A) may constitute or result in a
violation by the Partnership or any Acquired
Company of, or a failure on the part of the
Partnership or any Acquired Company to comply
with, any Legal Requirement, or (B) may give
rise to any obligation on the part of the
Partnership or any Acquired Company to
undertake, or to bear all or any portion of
the cost of, any remedial action of any
nature; and
(iii) neither the Partnership nor any Acquired
Company has received, at any time since
January 1, 1993, any notice or other
communication (whether oral or written) from
any Governmental Body or any other Person
regarding (A) any actual, alleged, possible,
or potential violation of, or failure to
comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential
obligation on the part of the Partnership or
any Acquired Company to undertake, or to bear
all or any portion of the cost of, any
remedial action of any nature.
(b) Part 3.14(b) of the Disclosure Letter contains a
complete and accurate list or description of each
Governmental Authorization that is held by the
Partnership or any Acquired Company or that otherwise
relates to the business of, or to any of the assets
owned or used by, the Partnership or any Acquired
Company. Each Governmental Authorization listed,
described or required to be listed or described in
Part 3.14(b) of the Disclosure Letter is valid and in
full force and effect in accordance with its terms,
has not been supplemented or modified, the permittee
has performed its obligations thereunder on a current
basis and no event exists that does or, with the
passage of time, giving of notice or both would,
cause a default on the part of the permittee or
prevent the satisfaction of conditions thereunder.
Except for the matters described in Section 3.14(c)
and as set forth in Part 3.14(b) of the Disclosure
Letter:
(i) the Partnership and each Acquired Company is,
and at all times since January 1, 1993 has
been, in full compliance with all of the
terms and requirements of each Governmental
Authorization identified or required to be
identified in Part 3.14(b) of the Disclosure
Letter;
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(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of
time) (A) constitute or result directly or
indirectly in a violation of or a failure to
comply with any term or requirement of any
Governmental Authorization listed or required
to be listed in Part 3.14(b) of the
Disclosure Letter, or (B) result directly or
indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of,
or any modification to, any Governmental
Authorization listed or required to be listed
in Part 3.14(b) of the Disclosure Letter;
(iii) neither the Partnership nor any Acquired
Company has received, at any time since
January 1, 1993, any notice or other
communication (whether oral or written) from
any Governmental Body or any other Person
regarding (A) any actual, alleged, possible,
or potential violation of or failure to
comply with any term or requirement of any
Governmental Authorization, or (B) any
actual, proposed, possible, or potential
revocation, withdrawal, suspension,
cancellation, termination of, or modification
to any Governmental Authorization; and
(iv) all applications required to have been filed
for the renewal of the Governmental
Authorizations listed or required to be
listed in Part 3.14(b) of the Disclosure
Letter have been duly filed on a timely basis
with the appropriate Governmental Bodies, and
all other filings required to have been made
with respect to such Governmental
Authorizations have been duly made on a
timely basis with the appropriate
Governmental Bodies.
(v) without limiting the generality of the
foregoing, all Governmental Authorizations,
all utility capacity, and any and all on-site
and off-site infrastructure, mitigation and
improvements, and dedications or
contributions in lieu thereof, that are
necessary to obtain building permits and
certificates of occupancy for dwelling units
constructed or to be constructed on each
parcel of real property owned by any of the
Partnership and the Acquired Companies have
been obtained, completed or paid, as the case
may be, including without limitation all
"Development Work" required to be performed
by the sellers under the Oakridge Contract
and the West Lake Contract (as described in
Schedules 3.17.22 and 3.17.21, respectively
to Part 3.17(a) of the Disclosure Letter),
all of the "Work" under the Design/Build
Agreement (as described in Schedule 3.17.20
to Part 3.17(a) of the Disclosure
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Letter) and all of the "improvements" under
the Winston Trails Contract (as described in
Schedule 3.17.17 to Part 3.17(a) of the
Disclosure Letter).
(vi) all on-site and off-site infrastructure,
mitigation and improvements and all dwelling
units and other structures constructed,
installed or performed by the Partnership or
the Acquired Companies comply with all
Governmental Authorizations, all Legal
Requirements and all Applicable Contracts
with end purchasers. To Seller's Knowledge,
all such infrastructure, mitigation and
improvements constructed, installed or
performed by parties other than the
Partnership or the Acquired Companies comply
with all Governmental Authorizations and
Legal Requirements.
(vii) Seller has no Knowledge of any pending or
Threatened matter, fact or event that does
or, with the passage of time, giving of
notice or both, would prevent the
satisfaction (on a continual basis) of any
conditions precedent or subsequent to
existing or required Governmental
Authorizations for the development of land or
construction of dwelling units on any of the
real property that is the subject of the
Applicable Land Contracts.
(viii) The Partnership and/or the Acquired Companies
have complied with the requirements of the
Construction Lien Law, Chapter 713, Part I,
Florida Statutes, with respect to any
Applicable Contract pertaining to the
furnishing of labor, materials or services
for the construction of improvements.
Without limiting the generality of the
foregoing, all payments made under
construction contracts let by the Partnership
and/or the Acquired Companies have been
"proper payments" within the meaning of that
term under the Construction Lien Law.
(ix) There are no Governmental Authorizations
pertaining to dredging, filling, drainage,
surface water management, or wetlands
mitigation as to which any performance by the
permittee remains pending and under which the
remedies for violation include the
prohibition of development and construction
work on the affected land or the imposition
of damages, fines or penalties, under which
the Partnership or any of the Acquired
Companies is the permittee or to which any of
their properties are subject, except those
Governmental Authorizations disclosed in Part
3.14(b) of the Disclosure Letter.
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The Governmental Authorizations listed in Part 3.14(b) of the
Disclosure Letter collectively constitute all of the
Governmental Authorizations necessary to permit the
Partnership and the Acquired Companies to lawfully conduct and
operate their businesses in the manner they currently conduct
and operate such businesses and to permit the Partnership and
the Acquired Companies to own and use their assets in the
manner in which they currently own and use such assets.
(c) Any violations of Legal Requirements, Governmental
Authorizations or Orders by the Partnership or any
Acquired Company that may have occurred from January
1, 1993 through the present shall either: (a) be
cured prior to the Closing Date, with any and all
liabilities and fines (and interest and penalties
thereon, if any) associated therewith fully paid and
any appellate process associated therewith fully
exhausted or otherwise barred; or (b) result in a
cumulative aggregate penalties and fines to the
Partnership or any Acquired Company of less than
$50,000.
3.15 Legal Proceedings; Orders
(a) Except as set forth in Part 3.15(a) of the Disclosure
Letter, there is no pending Proceeding:
(i) that has been commenced by or against the
Partnership or any Acquired Company or that
otherwise relates to or may affect the
business of, or any of the assets owned or
used by, the Partnership or any Acquired
Company; or
(ii) that challenges, or that may have the effect
of preventing, delaying, making illegal, or
otherwise interfering with, any of the
Contemplated Transactions.
Except as set forth in Part 3.15(a) of the Disclosure Letter,
to the Knowledge of Seller, the Partnership and the Acquired
Companies, (1) no such Proceeding has been Threatened, and (2)
no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such
Proceeding. Seller has delivered to Buyer copies of all
pleadings, correspondence, and other documents relating to
each Proceeding listed in Part 3.15(a) of the Disclosure
Letter. Except as set forth in Part 3.15(a) of the Disclosure
Letter, the Proceedings listed in Part 3.15(a) of the
Disclosure Letter will not have a Material Adverse Effect with
respect to the Partnership or any Acquired Company.
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(b) Except as set forth in Part 3.15(b) of the Disclosure
Letter:
(i) there is no Order to which any of the
Partnership, the Acquired Companies or any of
the assets owned or used by the Partnership
or any Acquired Company, is subject;
(ii) neither Seller nor the Partnership or the
Acquired Companies are subject to any Order
that relates to the business of, or any of
the assets owned or used by, the Partnership
or any Acquired Company; and
(iii) no officer, partner (after giving effect to
the Athena Redemption) director and, to the
Knowledge of Seller, the Partnership and the
Acquired Companies, no agent or employee, of
the Partnership or any Acquired Company, is
subject to any Order that prohibits such
officer, director, partner, agent, or
employee from engaging in or continuing any
conduct, activity, or practice relating to
the business of the Partnership or any
Acquired Company.
(c) Except for the matters described in Section 3.14(c)
and as set forth in Part 3.15(c) of the Disclosure
Letter:
(i) the Partnership and each Acquired Company is,
and at all times since January 1, 1993 has
been, in full compliance with all of the
terms and requirements of each Order to which
it, or any of the assets owned or used by it,
is or has been subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or
without notice or lapse of time) a violation
of or failure to comply with any term or
requirement of any Order to which the
Partnership or any Acquired Company, or any
of the assets owned or used by the
Partnership or any Acquired Company, is
subject; and
(iii) neither the Partnership nor any Acquired
Company has received, at any time since
January 1, 1993, any notice or other
communication (whether oral or written) from
any Governmental Body or any other Person
regarding any actual, alleged, possible, or
potential violation of, or failure to comply
with, any term or requirement of any Order to
which the Partnership or any Acquired
Company, or any of the assets owned or used
by the Partnership or any Acquired Company,
is or has been subject.
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3.16 Absence of Certain Changes and Events
Except as set forth in Part 3.16 of the Disclosure Letter, and
except for the Contemplated Transactions, since the date of
the Balance Sheet, the Partnership and the Acquired Companies
have conducted their businesses only in the Ordinary Course of
Business and there has not been any:
(a) change in the Partnership or any Acquired Company's
authorized or issued capital stock or equity
interests; grant of any outstanding stock option or
right to purchase shares of capital stock or equity
interests of the Partnership or any Acquired Company;
issuance of any security convertible into such
capital stock; grant of any registration rights;
purchase, redemption, retirement, or other
acquisition by the Partnership or any Acquired
Company of any shares of any such capital stock or
Partnership interests; or declaration or payment of
any dividend or other distribution or payment in
respect of shares of capital stock or Partnership
interests;
(b) amendment to the Organizational Documents of the
Partnership or any Acquired Company;
(c) payment or increase by the Partnership or any
Acquired Company of any bonuses, salaries, or other
compensation (excluding expense reimbursements) to
any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into
any employment, severance, or similar Contract with
any director, officer, or employee;
(d) adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred
compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or
with any employees of the Partnership or any Acquired
Company;
(e) damage to or destruction or loss of any asset or
property of the Partnership or any Acquired Company,
whether or not covered by insurance, having a
Material Adverse Effect on the Partnership and the
Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship,
dealer, sales representative, joint venture, credit,
or similar agreement, or (ii) any Contract or
transaction involving a total remaining commitment by
or to the Partnership or any Acquired Company of at
least $100,000;
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(g) sale (other than sales of property in the Ordinary
Course of Business), lease, or other disposition of
any asset or property of the Partnership or any
Acquired Company or mortgage, pledge, or imposition
of any lien or other encumbrance on any material
asset or property of the Partnership or any Acquired
Company, including the sale, lease, or other
disposition of any of the Intellectual Property
Assets;
(h) cancellation or waiver of any claims or rights with a
value to the Partnership or any Acquired Company in
excess of $100,000;
(i) material change in the accounting methods used by the
Partnership or any Acquired Company; or
(j) agreement, whether oral or written, by the
Partnership or any Acquired Company to do any of the
foregoing.
3.17 Contracts; No Defaults
(a) Part 3.17(a) of the Disclosure Letter contains a
complete and accurate list and, except for the
Contemplated Transactions and as otherwise indicated
below, Seller has delivered to Buyer true and
complete copies, of:
(i) each Applicable Contract that involves the
performance of services and/or the delivery
of goods or materials by one or more of the
Partnership and the Acquired Companies of an
amount or value in excess of $100,000.
(ii) each Applicable Contract that involves the
performance of services and/or delivery of
goods or materials to the Partnership or any
Acquired Company of an amount or value in
excess of $100,000. With respect to
Applicable Contracts with the Partnership or
any Acquired Company for the furnishing of
labor, services and/or materials with
subcontractors and suppliers for the
construction of dwelling units, Seller has
furnished to Buyer construction cost
breakdown that discloses all costs to the
Partnership or any Acquired Company for the
construction of dwelling units in effect
through December 31, 1997, pursuant to
corresponding subcontracts or material supply
agreements (substantially all of which
subcontracts and material supply agreements
expired by their terms on December 31, 1997),
and a
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specimen form of contract for construction
labor, services or materials;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and
that involves expenditures or receipts of one
or more of the Partnership and the Acquired
Companies in excess of $100,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale
agreement, and other Applicable Contract
affecting the ownership of, leasing of, title
to, use of, or any leasehold or other
interest in, any real or personal property
(except personal property leases, licenses
and installment and conditional sales
agreements having a value per item or
aggregate payments of less than $100,000 and
with terms of less than one year);
(v) each licensing agreement or other Applicable
Contract with respect to Intellectual
Property Assets, including agreements with
current or former employees, consultants, or
contractors regarding the appropriation or
the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and
other Applicable Contract to or with any
labor union or other employee representative
of a group of employees;
(vii) each joint venture, partnership, and other
Applicable Contract (however named) involving
a sharing of profits, losses, costs, or
liabilities by the Partnership or any
Acquired Company with any other Person;
(viii) each Applicable Contract containing covenants
that in any way purport to restrict the
business activity of the Partnership or any
Acquired Company or any Affiliate of an
Acquired Company or limit the freedom of the
Partnership or any Acquired Company or any
Affiliate of an Acquired Company to engage in
any line of business or to compete with any
Person;
(ix) each Applicable Contract providing for
payments to or by any Person based on sales,
purchases, or profits, other than direct
payments for goods;
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(x) each power of attorney that is currently
effective and outstanding;
(xi) each Applicable Contract entered into other
than in the Ordinary Course of Business that
contains or provides for an express
undertaking by the Partnership or any
Acquired Company to be responsible for
consequential damages;
(xii) each Applicable Contract for capital
expenditures in excess of $25,000 (other than
relating to construction of single family
houses);
(xiii) each written warranty, guaranty, and other
similar undertaking with respect to
contractual performance extended by the
Partnership or any Acquired Company other
than in the Ordinary Course of Business. The
sole written warranties, guaranties and other
similar undertakings with respect to
contractual performance extended or arranged
by the Partnership or any Acquired Company in
connection with the sale of dwelling units
consist of warranties covering completed
dwelling units for a period of one (1) year
(or ten (10) years, in connection with the
sale of dwelling units within the Keystone
Lake project or with respect to which
purchaser financing is obtained through the
Veterans' Administration or Federal Housing
Administration, through the Bonded Builders
Service Corp. "Builder Limited Warranty
Program") following closing of sale, as to
which Seller has furnished Buyer copies of
the form(s) thereof. The cumulative
aggregate cost to the Partnership and the
Acquired Companies of performance of their
obligations under all warranties which were
previously issued by any of them to
purchasers, and that do not conform to the
form one (1) year warranty described above
will not exceed $10,000.00.
(xiv) in addition to the foregoing, each Applicable
Contract for the sale of any lot or parcel of
real property with or without a completed
dwelling unit thereon by one or more of the
Partnership and the Acquired Companies, with
respect to which Seller has, with Buyer's
permission, delivered only the following:
Seller has furnished to Buyer a copy of its
form agreement for sales of dwelling units in
each existing project, together with a
schedule of its standard pricing for each
type of dwelling unit product in each project
and for all extras and premiums.
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(xv) in addition to the foregoing, each Applicable
Contract for or related to the purchase of
real property by one or more of the
Partnership and the Acquired Companies
(collectively, the "Applicable Land
Contracts"). Seller has completed, or will
have completed as of Closing, all
acquisitions of land required as a condition
to the continued enforceability of such
Applicable Land Contracts against the sellers
thereunder through December 31, 1997. The
term of the Winston Trails Option (as
described in Schedule 3.17.17 to Part 3.17(a)
of the Disclosure Letter) expires on January
1, 2002. The seller under the Sunset Lakes
Townhouse Contract (as described in Schedule
3.17.23 to Part 3.17(a) of the Disclosure
Letter) has approved one or more applications
for Governmental Authorizations submitted by
Westbrooke Communities, Inc., pursuant to
which use of the subject land for town-houses
or attached single family residences is
requested.
(xvi) in addition to the foregoing, each Applicable
Contract for the borrowing of money for
acquisition of real property and construction
of dwelling units and related infrastructure
and improvements thereon by any one or more
of the Partnership and the Acquired Companies
(collectively, the "Applicable Loan
Contracts").
(xvii) each amendment, supplement, and modification
(whether oral or written) in respect of any
of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth the
following concerning such Contracts: the parties to
the Contracts, and the Partnership and the Acquired
Companies' office where details relating to the
Contracts are located. Part 3.17(a) of the
Disclosure Letter includes a Lot Purchase Commitment
Summary as of November 18, 1997. Seller represents
and warrants that the Partnership and the respective
Acquired Companies have substantially achieved the
lot takedowns projected through December 31, 1997.
(b) Except as set forth in Part 3.17(a) or Part 3.17(b)
of the Disclosure Letter:
(i) Seller (and Related Persons of Seller) does
not have and may not acquire any rights
under, and the Seller does not have and will
not become subject to any obligation or
liability under, any
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Contract that relates to the business of, or
any of the assets owned or used by, the
Partnership or any Acquired Company; and
(ii) no officer, director, partner (after giving
effect to the Athena Redemption), and, to the
Knowledge of Seller, the Partnership and the
Acquired Companies, no agent, employee,
consultant, or contractor, of the Partnership
or any Acquired Company is bound by any
Contract that limits the ability of such
officer, director, partner, agent, employee,
consultant, or contractor to (A) engage in or
continue any conduct, activity, or practice
relating to the business of the Partnership
or any Acquired Company, or (B) assign to the
Partnership or any Acquired Company or to any
other Person any rights to any invention,
improvement, or discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure
Letter, each Contract identified or required to be
identified in Part 3.17(a) of the Disclosure Letter
is in full force and effect and is valid and
enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure
Letter:
(i) no event has occurred or circumstance exists
that (with or without notice or lapse of
time) may contravene, conflict with, or
result in a violation or breach of, or give
the Partnership or any Acquired Company or
other Person the right to declare a default
or exercise any remedy under, or to
accelerate the maturity or performance of, or
to cancel, terminate, or modify, any
Applicable Contract;
(ii) no Acquired Company has given to or received
from any other Person, any notice or other
communication (whether oral or written)
regarding any actual, alleged, possible, or
potential incurred violation or breach of, or
default under, any Contract;
(iii) without limiting the generality of any of the
foregoing, the Partnership, each Acquired
Company and each Person for whose conduct
they are or may be held to be responsible,
have performed all obligations and have paid
all assessments, deficits, reserves and any
other sums required to be performed or paid
by it or them through the Closing Date to any
homeowners',
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neighborhood, community, master or similar
association or entity (collectively,
"Homeowners' Associations");
(iv) as to each Applicable Loan Contract, all
conditions precedent to advances of principal
have been satisfied or waived through the
Closing Date and Seller has no Knowledge of
any matter, fact or event (whether existing
or threatened) that does or, with the passage
of time, giving of notice or both, would
cause a failure of any such condition from
the Closing Date through maturity of the term
thereof; and
(v) as to each Applicable Land Contract, all
conditions precedent to closing of
acquisitions thereunder have been satisfied
and, except as set forth in Part 3.17(d) of
the Disclosure Letter, Seller has no
Knowledge of any matter, fact or event that
does or, with the passage of time, giving of
notice or both, would prevent satisfaction of
any such condition through the respective
terms of such Applicable Land Contracts.
(e) There are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any
material amounts paid or payable to the Partnership
or any Acquired Company under current or completed
Contracts with any Person and no such Person has made
written demand for such renegotiation.
(f) The Contracts relating to the sale, design,
manufacture, or provision of products, services, real
property or dwelling units by the Partnership and the
Acquired Companies have been entered into in the
Ordinary Course of Business and have been entered
into without the commission of any act alone or in
concert with any other Person, or any consideration
having been paid or promised, that is or would be in
violation of any Legal Requirement.
3.18 Insurance
(a) Except as set forth in Part 3.18(a) of the Disclosure
Letter, Seller has delivered to Buyer:
(i) true and complete copies of all policies of
insurance to which the Partnership or any
Acquired Company is a party or under which
the Partnership or any Acquired Company, or
any director of the
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Partnership or any Acquired Company, is or
has been covered at any time within the five
(5) years preceding the Closing Date;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any written statement to management of the
Partnership or any of the Acquired Companies
by the auditor of the Partnership or any
Acquired Company's financial statements or
Combined Financial Statements with regard to
the adequacy of such entity's coverage or of
the reserves for claims.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or
affecting the Partnership or any Acquired
Company, including any reserves established
thereunder;
(ii) any contract or arrangement, other than a
policy of insurance, for the transfer or
sharing of any risk by the Partnership or any
Acquired Company; and
(iii) all obligations of the Partnership and the
Acquired Companies to third parties with
respect to insurance (including such
obligations under leases and service
agreements) and identifies the policy under
which such coverage is provided.
(c) Part 3.18(c) of the Disclosure Letter sets forth, for
the current policy year and each of the two (2)
preceding policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of
$10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by
insurer, type of insurance, and
period of coverage; and
(C) the amount and a brief description
of the claim; and
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(iii) a statement describing the loss experience
for all claims that were self-insured,
including the number and aggregate cost of
such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure
Letter:
(i) All policies to which the Partnership or any
Acquired Company is a party or that provide
coverage to either Seller, the Partnership or
any Acquired Company, or any director or
officer of an Acquired Company:
(A) are valid, outstanding, and
enforceable;
(B) taken together, provide adequate
insurance coverage for the assets
and the operations of the
Partnership and the Acquired
Companies for all risks normally
insured against by a Person carrying
on the same business or businesses
as the Partnership and the Acquired
Companies;
(C) are sufficient for compliance with
all applicable Legal Requirements
and Contracts to which the
Partnership or any Acquired Company
is a party or by which any of them
is bound;
(D) will continue in full force and
effect following the consummation of
the Contemplated Transactions; and
(E) do not provide for any retrospective
premium adjustment or other
experienced- based liability on the
part of the Partnership or any
Acquired Company, except those for
which sufficient reserves have been
provided on the Balance Sheet and
Interim Balance Sheet for such
retrospective premium adjustments,
as set forth in Part 3.18 of the
Disclosure Letter.
(ii) None of Seller, the Partnership or any
Acquired Company has received (A) any refusal
of coverage or any notice that a defense will
be afforded with reservation of rights, or
(B) any notice of cancellation or any other
indication that any insurance policy is no
longer in full force or effect or will not be
renewed or that the issuer of any policy is
not willing or able to perform its
obligations thereunder.
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(iii) The Partnership and the Acquired Companies
have paid all premiums due, and have
otherwise performed all of their respective
obligations, under each policy to which the
Partnership or any Acquired Company is a
party or that provides coverage to the
Partnership or any Acquired Company or
director thereof.
(iv) The Partnership and the Acquired Companies
have given notice to the insurer of all
claims that may be insured thereby.
3.19 Environmental Matters
Except as set forth in Part 3.19 of the Disclosure Letter:
(a) The Partnership and each Acquired Company is in full
compliance with, and is not in violation of or liable
under, any Environmental Law. The Partnership and
each Acquired Company has cured any and all prior
events of non-compliance with and violations of, and
has satisfied all liabilities under, all
Environmental Laws. None of the Seller, the
Partnership or any Acquired Company has any Knowledge
of, nor has any of them or, to their Knowledge, any
other Person for whose conduct they are or may be
held to be responsible received, any actual or
Threatened order, notice, or other communication from
(i) any Governmental Body or private citizen acting
in the public interest, or (ii) the current or prior
owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened
obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with
respect to any of the Facilities in which Seller, the
Partnership or any Acquired Company has or had an
interest, or with respect to any Facility or other
property at, from or to which Hazardous Materials
generated, manufactured, refined, transferred,
imported, used, or processed by or for Seller, the
Partnership or any Acquired Company, or any other
Person for whose conduct they are or may be held
responsible, have been transported, treated, stored,
handled, transferred, disposed, recycled, or
received.
(b) There are no pending or, to the Knowledge of Seller,
the Partnership and the Acquired Companies,
Threatened claims, Proceedings, Encumbrances, or
other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law,
with respect to or affecting any of the Facilities in
which Seller, the Partnership or any Acquired Company
has or had an interest.
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(c) None of Seller, the Partnership or any Acquired
Company has any Knowledge of, nor has any of them
or, to their Knowledge, any other Person for whose
conduct they are or may be held responsible, received
any citation, directive, inquiry, notice, Order,
summons, warning, or other communication that relates
to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to
comply with any Environmental Law, or of any alleged,
actual, or potential obligation to undertake or bear
the cost of any Environmental, Health, and Safety
Liabilities, with respect to any of the Facilities in
which Seller, the Partnership or any Acquired Company
has or had an interest, or with respect to any
property or Facility at, from or to which Hazardous
Materials generated, manufactured, refined,
transferred, imported, used, or processed by or for
Seller, the Partnership or any Acquired Company, or
any other Person for whose conduct they are or may be
held responsible, have been transported, treated,
stored, handled, transferred, disposed, recycled, or
received.
(d) None of Seller, the Partnership or any Acquired
Company, nor any other Person for whose conduct they
are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with
respect to the Facilities in which Seller, the
Partnership or any Acquired Company (or any
predecessor), has or had an interest, or at any
property geologically or hydrologically adjoining the
Facilities.
(e) Neither Seller, the Partnership nor any Acquired
Company had any Knowledge of the presence, as of the
date of acquisition by the Partnership or any of the
Acquired Companies of an interest in any Facility, of
any Hazardous Materials on or in the Environment at
such Facility, or at any geologically or
hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits,
dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any
other part of such Facility or such adjoining
property, or incorporated into any structure therein
or thereon. Except as set forth in Paragraph 3.19(e)
of the Disclosure Letter, each of the matters
disclosed in Part 3.19(e) of the Disclosure Letter
has been remediated so as to render the affected
Facility, property or asset in compliance with all
Environmental Laws and Seller, the Partnership and
the Acquired Companies have satisfied any and all
Environmental, Health and Safety Liabilities with
respect thereto.
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From and after the date of acquisition of an interest
in any Facility (as owner or operator) by the
Partnership or any of the Acquired Companies, no
Hazardous Materials have become present on or in the
Environment at the Facilities or, to the Knowledge of
Seller, the Partnership and the Acquired Companies,
at any geologically or hydrologically adjoining
property, including any Hazardous Materials contained
in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either
temporary or permanent, and deposited or located in
land, water, sumps, or any other part of the
Facilities or such adjoining property, or
incorporated into any structure therein or thereon.
None of Seller, the Partnership, any Acquired
Company, or any other Person for whose conduct they
or any of them are or may be held responsible or, to
their Knowledge, any other Person, has permitted or
conducted, or has Knowledge of, any Hazardous
Activity conducted in, at or upon the Facilities in
which Seller, the Partnership or any Acquired Company
has or had an interest.
(f) From and after the date of acquisition of an interest
in any Facility (as owner or operator) by the
Partnership or any Acquired Company, there has been
no Release in violation of any Environmental Law of
any Hazardous Materials at or from such Facilities
or, to the Knowledge of Seller, the Partnership and
the Acquired Companies, at any other locations, where
any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or
processed from or by the Facilities or any
geologically or hydrologically adjoining property,
whether by Seller, the Partnership or any Acquired
Company, or any other Person.
To the Knowledge of Seller, the Partnership and the
Acquired Companies, there has been no Release prior
to the date of acquisition of an interest in any
Facility by the Partnership or any Acquired Company
(except for the matters disclosed in Part 3.19(e) of
the Disclosure Letter, each of which has been
remediated so as to render the affected Facility,
property or asset in compliance with all
Environmental Laws) in violation of any Environmental
Law, and no Threat of Release, of any Hazardous
Materials at or from such Facilities or, to the
Knowledge of Seller, the Partnership and the Acquired
Companies, at any other locations, where any
Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or
processed from or by the Facilities or any
geologically or hydrologically adjoining property,
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whether by Seller, the Partnership or any Acquired
Company, or any other Person.
(g) Seller has delivered to Buyer true and complete
copies of any and all reports, studies, analyses,
tests, or monitoring possessed or initiated by
Seller, the Partnership or any Acquired Company
pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or
concerning compliance by Seller, the Partnership or
any Acquired Company, or any other Person for whose
conduct they or any of them are or may be held
responsible, with Environmental Laws.
3.20 Employees
(a) Part 3.20 of the Disclosure Letter contains a
complete and accurate list of the following
information for each employee or director of the
Partnership and the Acquired Companies, including
each employee on leave of absence or layoff status
(but excluding any individual that is an independent
contractor); employer; name; job title; current
compensation paid or payable and any change in
compensation since January 1, 1997; vacation accrued;
service credited for purposes of vesting and
eligibility to participate under the Partnership or
any Acquired Company's pension, retirement,
profit-sharing, thrift-savings, deferred compensation
stock bonus, outstanding stock option, cash bonus,
employee stock ownership (including investment credit
or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other
employee pension benefit plan or employee welfare
benefit plan, or any other employee benefit plan or
any director plan.
(b) No Key Employee, officer or director of any Acquired
Company and, to the Knowledge of Seller, the
Partnership and the Acquired Companies, no employee
of the Partnership or any Acquired Company, is a
party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement,
between such employee or director and any other
Person ("Proprietary Rights Agreement") that in any
way adversely affects or will affect (i) the
performance of his duties as an employee or director
of the Partnership and the Acquired Companies, or
(ii) the ability of the Partnership or any Acquired
Company to conduct its business, including any
Proprietary Rights Agreement with Seller or the
Partnership and the Acquired Companies by any such
employee or director. No Key Employee or any director
or officer of any Acquired Company has Threatened to
terminate his employment with the Partnership or such
Acquired Company.
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(c) Part 3.20 of the Disclosure Letter also contains a
complete and accurate list of the following
information for each retired employee or director of
the Partnership and the Acquired Companies, or their
dependents, receiving benefits or scheduled to
receive benefits in the future: name, pension
benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage,
and other benefits.
(d) There are no written employment agreements between
the Partnership or any Acquired Company and any
employee thereof, except Seller and the Key
Employees.
3.21 Labor Relations; Compliance
Except as set forth in Part 3.21 of the Disclosure Letter,
since January 1, 1993: (a) neither the Partnership nor any
Acquired Company has been or is a party to any collective
bargaining or other labor Contract; and (b) there has not
been, there is not currently pending or existing, and there is
not Threatened, (i) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (ii) any Proceeding
against or affecting the Partnership or any Acquired Company
relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including
any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body,
organizational activity, or other labor or employment dispute
against or affecting any of the Partnership and the Acquired
Companies or their premises, or (iii) any application for
certification of a collective bargaining agent. To the
Knowledge of Seller, the Partnership and the Acquired
Companies, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor
dispute. There is no lockout of any employees by the
Partnership or any Acquired Company, and no such action is
contemplated by the Partnership or any Acquired Company.
Except as set forth in Part 3.21 of the Disclosure Letter, (x)
the Partnership and each Acquired Company has complied in all
respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and
health, and plant closing; and (y) neither the Partnership nor
any Acquired Company is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of
the foregoing Legal Requirements.
3.22 Intellectual Property
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(a) Intellectual Property Assets--The term "Intellectual
Property Assets" includes:
(i) the name Westbrooke, all fictional business
names, trading names, registered and
unregistered trademarks, service marks, and
applications, excluding the name "Carr" and
any name including "Carr" (collectively,
"Marks");
(ii) all patents, patent applications, and
inventions and discoveries that may be
patentable (collectively, "Patents");
(iii) all copyrights in both published works and
unpublished works (collectively,
"Copyrights");
(iv) all rights in mask works (collectively,
"Rights in Mask Works"); and
(v) all know-how, trade secrets, confidential
information, customer lists, software,
technical information, data, process
technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used,
or licensed by the Partnership or any
Acquired Company as licensee or licensor.
(b) Agreements--Part 3.22(b) of the Disclosure Letter
contains a complete and accurate list and summary
description, including any royalties paid or received
by the Partnership and the Acquired Companies, of all
Contracts relating to the Intellectual Property
Assets to which the Partnership or any Acquired
Company is a party or by which the Partnership or any
Acquired Company is bound, except for any license
implied by the sale of a product and perpetual, paid-
up licenses for commonly available software programs
with an original purchase price to the Partnership or
any Acquired Company of less than $50,000 under which
an Acquired Company or the Partnership is the
licensee. There are no outstanding and, to Seller's
Knowledge, no Threatened disputes or disagreements
with respect to any such agreement.
(c) Know-How Necessary for the Business
(i) One or more of the Acquired Companies or the
Partnership is the owner of all right, title,
and interest in and to each of the
Intellectual Property Assets, free and clear
of all liens, security interests, charges,
encumbrances, equities, and other adverse
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claims, and except as set forth in Part
3.22(c) of the Disclosure Letter has the
right to use without payment to a third party
all of the Intellectual Property Assets.
(ii) Except as set forth in Part 3.22(c) of the
Disclosure Letter, all former and current
employees of the Partnership and each
Acquired Company have executed written
Contracts with one or more of the Acquired
Companies or the Partnership that assign to
one or more of the Acquired Companies or the
Partnership all rights to any inventions,
improvements, discoveries, or information
relating to the business of the Partnership
or any Acquired Company. No Key Employee and,
to the Knowledge of Seller, the Partnership
and the Acquired Companies, no employee of
the Partnership or any Acquired Company has
entered into any Contract that restricts or
limits in any way the scope or type of work
in which the employee may be engaged or
requires the employee to transfer, assign, or
disclose information concerning his work to
anyone other than one or more of the Acquired
Companies or the Partnership.
(d) Patents Neither the Partnership nor any Acquired
Company nor the Seller own any Patents.
(e) Trademarks
(i) Part 3.22(e) of Disclosure Letter contains a
complete and accurate list and summary
description of all Marks. One or more of the
Acquired Companies or the Partnership is the
owner of all right, title, and interest in
and to each of the Marks, free and clear of
all liens, security interests, charges,
encumbrances, equities, and other adverse
claims.
(ii) All Marks that have been registered with the
United States Patent and Trademark Office are
currently in compliance with all formal legal
requirements (including the timely
post-registration filing of affidavits of use
and incontestability and renewal
applications), are valid and enforceable, and
are not subject to any maintenance fees or
taxes or actions falling due within ninety
days after the Closing Date.
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(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation
and, to Seller's Knowledge, no such action is
Threatened with the respect to any of the
Marks.
(iv) To Seller's Knowledge, there is no
potentially interfering trademark or
trademark application of any third party.
(v) No Mark is infringed or, to Seller's
Knowledge, has been challenged or threatened
in any way. None of the Marks used by the
Partnership or any Acquired Company infringes
or is alleged to infringe any trade name,
trademark, or service mark of any third
party.
(vi) All products and materials containing a Mark
bear the proper federal registration notice
where permitted by law.
(f) Copyrights. Except as set forth in Part 3.22(f) of
the Disclosure Letter, neither the Partnership nor
any Acquired Company nor the Seller own any
Copyrights.
3.23 Certain Payments
Neither the Seller, the Partnership, the Acquired Companies
nor any director, officer, agent, employee, consultant or
contractor, of the Partnership or any Acquired Company, has
directly or indirectly:
(a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for
business secured, (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the
Partnership or any Acquired Company or any affiliate of the
Partnership or an Acquired Company, or (iv) in violation of
any Legal Requirement; or
(b) established or maintained any fund or asset that has
not been recorded in the books and records of the Partnership
and the Acquired Companies.
3.24 Disclosure
(a) The representation(s) and warranties of Seller in
this Agreement and the statements in the Disclosure
Letter, supplements to the Disclosure Letter
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and the Master Disclosure List, collectively, do not
omit to state a material fact necessary to make the
statements herein or therein, in light of the
circumstances in which they were made, not
misleading.
(b) No notice given pursuant to Section 5.5 will contain
any untrue statement of a material fact or omit to
state a material fact necessary to make the
statements made therein or in this Agreement, or in
the Disclosure Letter, the supplements to the
Disclosure Letter or the Master Disclosure List,
collectively, in light of the circumstances in which
they were made, not misleading.
(c) There is no fact to the Knowledge of Seller that has
specific application to Seller, the Partnership or
any Acquired Company (other than general economic or
industry conditions) that would have a Material
Adverse Effect or Threatens to have a Material
Adverse Effect upon the Partnership and the Acquired
Companies (on a consolidated basis) that has not been
set forth in this Agreement, the Disclosure Letter,
supplements to the Disclosure Letter and the Master
Disclosure List, collectively.
3.25 Relationships with Related Persons
Except as set forth in Part 3.25 of the Disclosure Letter,
neither Seller nor any Related Person of Seller or of the
Partnership or any Acquired Company:
(a) has, or since the first day of the next to last
completed fiscal year of the Partnership and the
Acquired Companies has had, any interest in any
property (whether real, personal, or mixed and
whether tangible or intangible, but excluding such
inherently personal effects as, without limitation,
desk ornaments, wall decorations, and fish tanks,
fish (living or otherwise), and related accessories,
used in or pertaining to the Partnership's or the
Acquired Companies' businesses;
(b) is, or since the first day of the next to last
completed fiscal year of the Partnership and the
Acquired Companies has owned (of record or as a
beneficial owner), an equity interest or any other
financial or profit interest in, a Person that has
(i) had business dealings or a material financial
interest in any transaction with the Partnership or
any Acquired Company other than business dealings or
transactions conducted in the Ordinary Course of
Business with the Partnership and the Acquired
Companies at substantially prevailing market prices
and on substantially prevailing market terms, or (ii)
engaged in competition with the
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Partnership or any Acquired Company with respect to
any line of the products or services of the
Partnership or any such Acquired Company (a
"Competing Business") in any market presently served
by the Partnership or any such Acquired Company
except for ownership (of records or as a beneficial
owner) of less than one percent of the outstanding
capital stock of any Competing Business that is
publicly traded on any national, regional or foreign
recognized exchange, the NASDAQ, Stock Market or the
over-the-counter market; or
(c) is a party to any Contract with, or has any claim or
right against, the Partnership or any Acquired
Company.
3.26 Brokers or Finders
Seller and his agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in
connection with this Agreement.
3.27 No Partnership, Joint Venture, etc.
Except for their interest in the Partnership or as set forth
in Part 3.27 of the Disclosure Letter, none of the Acquired
Companies has an interest in any general or limited
partnership, joint venture, corporation, limited liability
company, trust or other entity.
3.28 Hart-Scott-Rodino
Seller represents and warrants that the real estate inventory
reflected on the Interim Balance Sheet consists of (i)
residential property, or (ii) unproductive real property, and
that the fair market value of the remaining non-real estate
inventory assets reflected on the Interim Balance Sheet is
less than $15 Million. For purposes of this Section 3.28, the
term "residential property" shall mean: real property that is
used primarily for residential purposes, including residences,
common areas on the property (including parking and
recreational facilities), and assets incidental to the
ownership of such property, including cash, prepaid taxes or
insurance, rental receivables and the like. For purposes of
this Section 3.28, the term "unproductive real property" shall
mean: any real property, including raw land, structures or
other improvements (but excluding equipment), associated
production and exploration assets, natural resources and
assets incidental to the ownership of the real property, that
has not generated total revenues in excess of $5 million
during the thirty-six (36) months preceding Closing; provided
that unproductive real property does not include
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manufacturing or non-manufacturing facilities that have not
begun operation, manufacturing or non- manufacturing
facilities that were in operation at any time during the
twelve (12) months preceding Closing, and real property that
is either adjacent to or used in conjunction with real estate
that is not unproductive real property. "Associated
production and exploration assets" means equipment, machinery,
fixtures and other assets that are integral and exclusive
current or future exploration or production activities
associated with the carbon-based mineral reserves that are
being acquired. "Associated production and exploration
assets" do not include the following: any pipeline and
pipeline system or processing facility which transports or
processes oil and gas after it passes through the meter of a
producing field located within reserves that are being
acquired, and any pipeline or pipeline system that receives
gas directly from gas wells for transportation to a natural
gas processing facility or other destination. Nothing in this
representation or warranty shall be deemed to imply that
Seller or his Representatives have determined whether any
exemption to the filing requirements of the Hart Scott Rodino
Antitrust Improvement Act has been satisfied. The provisions
of this Section shall be interpreted according to their plain
meaning and no preference shall be given to regulatory or
judicial interpretations of similar terms and provisions of
the Hart Scott Rodino Antitrust Improvement Act.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, Newmark and Pacific USA, respectively, represent and warrant to
Seller as follows:
4.1 Organization and Good Standing
Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Florida, with
full corporate power and authority to acquire and own the
Shares.
4.2 Authority; No Conflict
(a) Buyer:
(i) This Agreement constitutes the legal, valid,
and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms. Upon the
execution and delivery by Buyer of the Escrow
Agreement (Shares), the Escrow Agreement (Additional
Consideration), the Employment Agreements, the
Non-Competition Agreement, the Promissory Notes, the
Pledge Agreement, Buyer's Stock Powers, Buyer's
Certificate, the
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Substitute Guarantees and the additional documents
required by Section 8.4 (collectively, the "Buyer's
Closing Documents"), the Buyer's Closing Documents
will constitute the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Buyer has the
absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and the Buyer's
Closing Documents and to perform its obligations
under this Agreement and the Buyer's Closing
Documents.
(ii) Except as set forth in Schedule 4.2, neither
the execution and delivery of this Agreement by Buyer
nor the consummation or performance of any of the
Contemplated Transactions by Buyer will, with or
without the giving of notice or passage of time:
(x) contravene, conflict with, or result
in a violation of any provision of
the Organizational Documents of
Buyer or any resolution adopted by
the board of directors or the
stockholders of Buyer,
(y) contravene, conflict with, or result
in a violation of, or give any
Governmental Body or other Person
the right to challenge any of the
Contemplated Transactions or to
exercise any remedy or obtain any
relief under, any Legal Requirement
or any Order to which Buyer is
subject, or
(z) contravene, conflict with, or result
in violation or breach of any
provision of, or give any Person the
right to declare a default or
exercise a remedy under, or to
accelerate the maturity or
performance of, or to cancel,
terminate or modify any Contract to
which Buyer is a party or by which
Buyer may be bound,
to the extent the same would have a Material Adverse
Effect upon Buyer's ability to perform its
obligations under this Agreement or any agreement
delivered by it hereunder.
(b) Newmark:
(i) This Agreement constitutes the legal, valid,
and binding obligation of Newmark, enforceable
against Newmark in accordance with its terms. Upon
the execution and delivery by Newmark of this
Agreement, the Escrow Agreement (Additional
Consideration) and any documents
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required by Section 2.5(c) (collectively, "Newmark
Closing Documents"), the Newmark Closing Documents
will constitute the legal, valid, and binding
obligations of Newmark enforceable against Newmark in
accordance with their respective terms. Newmark has
the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and
the Newmark Closing Documents and to perform its
obligations under this Agreement and the Newmark
Closing Documents.
(ii) Except as set forth in Schedule 4.2, neither
the execution and delivery of this Agreement by
Newmark nor the consummation or performance of any of
the Contemplated Transactions by Newmark will, with
or without the giving of notice or passage of time:
(x) contravene, conflict with, or result
in a violation of any provision of
the Organizational Documents of
Newmark or any resolution adopted by
the board of directors or the
stockholders of Newmark,
(y) contravene, conflict with, or result
in a violation of, or give any
Governmental Body or other Person
the right to challenge any of the
Contemplated Transactions or to
exercise any remedy or obtain any
relief under, any Legal Requirement
or any Order to which Newmark is
subject, or
(z) contravene, conflict with, or result
in violation or breach of any
provision of, or give any Person the
right to declare a default or
exercise a remedy under, or to
accelerate the maturity or
performance of, or to cancel,
terminate or modify any Contract to
which Newmark is a party or by which
Newmark may be bound,
to the extent the same would have a Material Adverse
Effect upon Newmark's ability to perform its
obligations under this Agreement or any agreement
delivered by it hereunder.
(c) Pacific USA:
(i) This Agreement constitutes the legal, valid,
and binding obligation of Pacific USA, enforceable
against Pacific USA in accordance with its terms.
Upon the execution and delivery by Pacific USA of
this Agreement and any documents required by Section
2.5(c) (collectively,
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"Pacific Closing Documents"), the Pacific Closing
Documents will constitute the legal, valid, and
binding obligations of Pacific USA enforceable
against Pacific USA in accordance with their
respective terms. Pacific USA has the absolute and
unrestricted right, power, and authority to execute
and deliver this Agreement and the Pacific Closing
Documents and to perform its obligations under this
Agreement and the Pacific Closing Documents.
(ii) Except as set forth in Schedule 4.2, neither
the execution and delivery of this Agreement by
Pacific USA nor the consummation or performance of
any of the Contemplated Transactions by Pacific USA
will, with or without the giving of notice or passage
of time:
(x) contravene, conflict with, or result
in a violation of any provision of
the Organizational Documents of
Pacific USA or any resolution
adopted by the board of directors or
the stockholders of Pacific USA,
(y) contravene, conflict with, or result
in a violation of, or give any
Governmental Body or other Person
the right to challenge any of the
Contemplated Transactions or to
exercise any remedy or obtain any
relief under, any Legal Requirement
or any Order to which Pacific USA is
subject, or
(z) contravene, conflict with, or result
in violation of any provision of, or
give any Person the right to declare
a default or exercise a remedy
under, or to accelerate the maturity
or performance of or to cancel,
terminate or modify any Contract to
which Pacific USA is a party or by
which it may be bound,
to the extent the same would have a Material Adverse
Effect upon Pacific USA's ability to perform its
obligations under this Agreement or any agreement
delivered by it hereunder.
(d) Except as set forth in Schedule 4.2, neither Buyer,
Newmark, nor Pacific USA is or will be required to give any
notice or obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated
Transactions.
4.3 Investment Intent
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Buyer is acquiring the Shares and, if the Option is elected by
a Key Employee, shall acquire the electing Key Employee's KE
Partnership Interest, for its own account and not with a view
to distribution thereof within the meaning of Section 2(11) of
the Securities Act. Newmark owns 100% of the capital stock of
Buyer and is an "accredited investor," as such term is defined
in Rule 501(a) under the Securities Act.
4.4 Certain Proceedings
There is no pending Proceeding that has been commenced by or
against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions. To the Knowledge
of Buyer, Newmark and Pacific USA, no such Proceeding has been
Threatened and no event has occurred or circumstance exists
that may give rise to or serve as a basis for the commencement
of any such Proceeding.
4.5 Brokers or Finders
Buyer, Newmark, Pacific USA and their respective officers and
agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this
Agreement and will indemnify and hold Seller harmless from any
such payment alleged to be due by or through Buyer as a result
of the action of Buyer or its shareholders, directors,
officers or agents.
4.6 Buyer acknowledges receipt of all documents specifically
identified in the Disclosure Letter in the Master Disclosure
List or in any attachment thereto.
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE
5.1 Access and Investigation
Between the date of this Agreement and the Closing Date (if
any such period exists), Seller will, and will cause the
Partnership and each Acquired Company and their
Representatives to, (a) afford Buyer and its Representatives
and prospective lenders and their Representatives
(collectively, "Buyer's Advisors") full and free access to the
Partnership's and each Acquired Company's personnel,
properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish Buyer
and Buyer's Advisors with copies of all such contracts, books
and records, and other existing documents and data as Buyer
may reasonably request, and (c) furnish Buyer and Buyer's
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Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
5.2 Operation of the Businesses of the Partnership and the
Acquired Companies
Between the date of this Agreement and the Closing Date (if
any such period exists), Seller will, and will cause the
Partnership and each Acquired Company to:
(a) conduct the business of the Partnership such Acquired
Company only in the Ordinary Course of Business;
(b) use their Best Efforts to preserve intact the current
business organization of the Partnership and each
Acquired Company, keep available the services of the
current officers, employees, and agents of the
Partnership and each Acquired Company, and maintain
the relations and good will with suppliers,
customers, landlords, creditors, employees, agents,
and others having business relationships with the
Partnership and Acquired Company;
(c) confer with Buyer concerning operational matters of a
material nature; and
(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of
the Partnership and each Acquired Company.
5.3 Negative Covenant
Except as otherwise expressly permitted by this Agreement,
between the date of this Agreement and the Closing Date (if
any such period exists), Seller will not, and will cause the
Partnership and each Acquired Company not to, without the
prior consent of Buyer, take any affirmative action, or fail
to take any reasonable action within their or its control, as
a result of which any of the changes or events listed in
Section 3.16 is likely to occur.
5.4 Required Approvals
Seller has or will, and has caused or will cause the
Partnership and each Acquired Company to, make all filings
required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions. Seller will, and
will cause the Partnership and each Acquired Company to, (a)
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cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in
Schedule 4.2.
5.5 Notification
Between the date of this Agreement and the Closing Date (if
any such period exists) and thereafter, Seller will promptly
notify Buyer in writing if Seller, the Partnership or any
Acquired Company becomes aware of any fact or condition that
causes or constitutes a Breach of any of Seller's
representations and warranties as of the date of this
Agreement, or if such Seller, the Partnership or any Acquired
Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute
a Breach of any such representation or warranty had such
representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Disclosure
Letter if the Disclosure Letter were dated the date of the
occurrence or discovery of any such fact or condition, Seller
will promptly deliver to Buyer a supplement to the Disclosure
Letter specifying such change. During the same period, Seller
will promptly notify Buyer of the occurrence of any Breach of
any covenant of Seller in this Section 5 or of the occurrence
of any event that may make the satisfaction of the conditions
in Section 7 impossible or unlikely.
5.6 Payment of Indebtedness by Related Persons
Except as expressly provided in this Agreement, Seller will
cause all indebtedness owed to the Partnership or any Acquired
Company by Seller or any Related Person of Seller to be paid
in full prior to Closing.
5.7 No Negotiation
Until such time, if any, as this Agreement is terminated
pursuant to Section 9, Seller will not, and will cause the
Partnership and each Acquired Company and each of their
Representatives not to, directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or
proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets
(other than in the Ordinary Course of Business) of the
Partnership or any Acquired Company, or any of the capital
stock of the Partnership or any Acquired Company, or any
merger,
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consolidation, business combination, or similar transaction
involving the Partnership or any Acquired Company.
5.8 Best Efforts
Between the date of this Agreement and the Closing Date,
Seller will use his Best Efforts to cause the conditions in
Section 7 to be satisfied.
6.A COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.A.1 Approvals of Governmental Bodies
As promptly as practicable after the date of this Agreement,
Buyer will, and will cause each of its Related Persons to,
make all filings required by Legal Requirements to be made by
them to consummate the Contemplated Transactions. Between the
date of this Agreement and the Closing Date, Buyer will, and
will cause each Related Person to, cooperate with Seller with
respect to all filings that Seller is required by Legal
Requirements to make in connection with the Contemplated
Transactions, and (ii) cooperate with Seller in obtaining all
consents identified in Part 3.2 of the Disclosure Letter;
provided that this Agreement will not require Buyer to dispose
of or make any change in any portion of its business or to
incur any other burden to obtain a Governmental Authorization.
6.A.2 Best Efforts
Except as set forth in the proviso to Section 6.1, between the
date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Section 7 to be
satisfied.
6.B COVENANTS OF BUYER AFTER CLOSING DATE
6.B.1 Special Allocation Agreement
Buyer agrees that Seller shall, at Buyer's expense, have prepared at
Seller's direction the federal income tax returns for the Partnership
and each Acquired Company for the tax year ended December 31, 1997.
Before the due date for filing the Partnership's federal income tax
return for its 1997 fiscal year, Buyer further agrees to cause the
Acquired Companies to amend the Partnership Agreement at the direction
of Seller in order to make any retroactive changes to the allocation
of income, gain, loss, deductions and credits (and any items thereof)
for the tax year ended December 31, 1997 as permitted by Section 706
of the Internal Revenue Code of 1986, as amended.
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6.B.2 Replacement Note Delivery
On or before the day after the second anniversary of the Closing Date
(time being of the essence), upon and in exchange for surrender and
delivery to Buyer of the Non-Negotiable Promissory Note, Buyer shall
execute and deliver to Seller, or any other Person designated by
Seller by notice given to Buyer in accordance with Section 12.4, a
promissory note, which in all respects shall be a fully negotiable
instrument, in the form of Exhibit 6.B.2 (the "Replacement Note").
The original principal amount of the Replacement Note shall be the
outstanding principal balance of the Non-Negotiable Promissory Note on
such date, less the amount of any set off(s) made in accordance with
Section 11.8 hereof.
6.B.3 Release of Seller Guarantees
Buyer and Newmark shall use their Best Efforts to obtain and deliver
to Seller releases from liability for the matters described in Exhibit
6.B.3; provided that Buyer's and Newmark's Best Efforts shall include
the giving of its guaranty in consideration for such release, but
shall otherwise exclude any obligation to incur any out of pocket cost
or expense in connection therewith.
6.B.4 Operations
Buyer agrees that all business operations to be managed by Seller
under Seller Employment Agreement shall be conducted solely by the
Partnership, any partner of the Partnership or any other Subject
Entity.
6.B.5. Certain Indemnifications in favor of Seller.
Buyer and Newmark shall, jointly and severally, indemnify, defend and
hold Seller harmless for and will pay to Seller the amount of, any
loss, liability claim, damage, or expense arising out of, or in
connection with the matters described in Exhibit 6.B.5. Provided,
however, such obligation to indemnify, defend and hold harmless shall
not apply to such matters to the extent the same results from Seller's
material breach of any covenant, representation or warranty herein.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Buyer, in whole or in part):
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7.1 Accuracy of Representations
(a) All of Seller's representations and warranties in
this Agreement (considered collectively), and each of
these representations and warranties (considered
individually), must have been accurate in all
material respects as of the date of this Agreement,
and must be accurate in all material respects as of
the Closing Date as if made on the Closing Date,
without giving effect to any supplement to the
Disclosure Letter delivered after the Effective Date.
(b) Each of Seller's representations and warranties in
Sections 3.3, 3.4, 3.12, and 3.24 must have been
accurate in all respects as of the date of this
Agreement, and must be accurate in all respects as of
the Closing Date as if made on the Closing Date,
without giving effect to any supplement to the
Disclosure Letter delivered after the Effective Date.
7.2 Performance by Seller and Key Employees:
(a) All of the covenants and obligations that Seller is
required to perform or to comply with pursuant to
this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and
obligations (considered individually), must have been
duly performed and complied with in all material
respects.
(b) Each document required to be delivered by Seller
pursuant to Section 2.5(a) must have been delivered,
and each of the other covenants and obligations in
Sections 5.4 and 5.8 must have been performed and
complied with in all respects.
(c) All of the covenants and obligations that the Key
Employees are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing
(considered collectively) and each of these covenants
and obligations (considered individually), must have
been duly performed and complied with in all material
respects.
(e) Each document required to be delivered by the Key
Employees pursuant to Section 2.5(b) must have been
delivered.
7.3 Consents
Each of the Consents identified in subparts _____ and _____ of
Part 3.2 of the Disclosure Letter, must have been obtained and
must be in full force and effect.
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7.4 Additional Documents
Each of the following documents must have been delivered to
Buyer:
(a) opinions of Zack Kosnitzky, P.A. and Wampler,
Buchanan & Breen, P.A., each dated the Closing Date,
in the forms of Exhibit 7.4(a)-1 and Exhibit
7.4(a)-(2);
(b) estoppel certificates executed on behalf of the
holder of each Applicable Loan Contract as of the
Closing Date each in the approved form set forth in
Exhibit 7.4(b) and by the managing agent or other
authorized agent of each Homeowners' Association
dated within fifteen (15) days prior to the Closing
Date, each in the applicable form in Exhibit 7.4(b);
and
(c) such other documents as Buyer may reasonably request
for the purpose of (i) enabling its counsel to
provide the opinions referred to in Section 8.4(a),
(ii) evidencing the accuracy of any of Seller's
representations and warranties, (iii) evidencing the
performance by Seller of, or the compliance by Seller
with, any covenant or obligation required to be
performed or complied with by Seller, (iv) evidencing
the satisfaction of any condition referred to in this
Section 7, or (v) otherwise facilitating the
consummation or performance of any of the
Contemplated Transactions.
7.5 No Proceedings
Since the date of this Agreement, there must not have been
commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection
with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated
Transactions.
7.6 No Claim Regarding Stock Ownership or Sale Proceeds
There must not have been made or Threatened by any Person any
claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, any of the Partnership and
the Acquired Companies, or (b) is entitled to all or any
portion of the Purchase Price payable for the Shares or the
consideration payable for any of the KE Partnership Interests.
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7.7 No Prohibition
Neither the consummation nor the performance of any of the
Contemplated Transactions will, directly or indirectly (with
or without notice or lapse of time), materially contravene, or
conflict with, or result in a material violation of, or cause
Buyer or any Person affiliated with Buyer to suffer any
Material Adverse Effect under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise formally
proposed by or before any Governmental Body.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Seller, in whole or in
part):
8.1 Accuracy of Representations
All of Buyer's, Newmark's and Pacific USA's representations
and warranties in this Agreement (considered collectively),
and each of these representations and warranties (considered
individually), must have been accurate in all material
respects as of the date of this Agreement and must be accurate
in all material respects as of the Closing Date as if made on
the Closing Date.
8.2 Buyer's and Newmark's Performance
(a) All of the covenants and obligations that Buyer or
Newmark is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these
covenants and obligations (considered individually),
must have been performed and complied with in all
material respects.
(b) Buyer and Newmark must have delivered each of the
documents required to be delivered by Buyer and
Newmark, respectively, pursuant to Section 2.5(c) and
2.3(d).
8.3 Consents
Each of the Consents identified in Subparts _____ and ______
of Part 3.2 of the Disclosure Letter must have been obtained
and must be in full force and effect.
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8.4 Additional Documents
Buyer, Newmark and Pacific USA, as the case may be, must have
caused the following documents to be delivered to Seller:
(a) opinions of Katz, Barron, Squitero, Faust & Berman,
P.A. and Wolin, Ridley & Fuller, each dated the
Closing Date, in the applicable forms of Exhibit
8.4(a)-1 and Exhibit 8.4(a)-2; and
(b) such other documents as Seller may reasonably request
for the purpose of (i) enabling his counsel to
provide the opinions referred to in Section 7.4(a),
(ii) evidencing the accuracy of any representation or
warranty of Buyer, Newmark and Pacific USA, (iii)
evidencing the performance by Buyer, Newmark and
Pacific USA of, or the compliance by Buyer, Newmark
and Pacific USA with, any covenant or obligation
required to be performed or complied with by Buyer,
Newmark and Pacific USA, (ii) evidencing the
satisfaction of any condition referred to in this
Section 8, or (v) otherwise facilitating the
consummation or performance of any of the
Contemplated Transactions.
8.5 No Injunction
There must not be in effect any Legal Requirement or any
injunction or other Order that (a) prohibits the sale of the
Shares by Seller to Buyer, and (b) has been adopted or issued,
or has otherwise become effective, since the date of this
Agreement.
9. TERMINATION
9.1 Termination Events
This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by either Buyer or Seller if a material Breach of any
provision of this Agreement has been committed by the
other party and such Breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section
7 has not been satisfied as of the Closing
Date or if satisfaction of such a condition
is or becomes impossible (other than through
the failure of Buyer, Newmark or Pacific USA
to comply with its respective obligations
under this Agreement) and Buyer has not
waived such
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condition on or before the Closing Date; or
(ii) by Seller, if any of the conditions in
Section 8 has not been satisfied of the
Closing Date or if satisfaction of such a
condition is or becomes impossible (other
than through the failure of Seller to comply
with his obligations under this Agreement)
and Seller has not waived such condition on
or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not
occurred (other than through the failure of any party
seeking to terminate this Agreement or the failure of
any Related Person of that party to comply fully with
its or his obligations under this Agreement) on or
before January 15, 1998, or such later date as the
parties may agree upon.
9.2 Effect of Termination
Each party's right of termination under Section 9.1 is in
addition to any other rights it or he may have under this
Agreement or otherwise, and the exercise of a right of
termination will not be an election of remedies. If this
Agreement is terminated pursuant to Section 9.1, all further
obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 12.1 and
12.3 will survive; provided, however, that if this Agreement
is terminated by a party because of the Breach of the
Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's
failure to comply with its obligations under this Agreement,
the terminating party's right to pursue all legal remedies
will survive such termination unimpaired.
10. OPTION OF KEY EMPLOYEES
10.1 Option Grant and Exercise Period
Each of the Key Employees shall have the Option, as that term
is hereinafter defined, exercisable during the period (the
"Option Period") (a) commencing on the later of (i) January 1,
2000 and (ii) the day after the second anniversary of the
effectiveness of admission of the Key Employees as partners of
the Partnership in accordance with the provisions of Amendment
No. 2 of the Agreement of Partnership of The Westbrooke
Partnership, which agreement is to be executed and delivered
in the form attached hereto as Exhibit 10.1 (the "New Partners
Agreement"), and in accordance with the provisions of the
Partnership Agreement and the Florida Revised Uniform
Partnership Act of
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1995, as those terms are defined in the New Partners
Agreement, and (b) continuing through February 29, 2000. The
Option shall be exercised, if at all, by delivering to Buyer
during the Option Period, time being strictly of the essence:
(a) three (3) original counterparts of the assignment of
the electing Key Employee's KE Partnership Interest
in the form of Exhibit 10.1(b), duly executed by such
Key Employee (the "KE Assignment");
(b) release in the form of Exhibit 10.1(c) duly executed
by such Key Employee (the "KE Second Releases"); and
(c) a certificate executed by such Key Employee
representing and warranting to Buyer such Key
Employee's representations and warranties in this
Agreement were accurate in all respects as of the
date of this Agreement and are accurate in all
respects as of the then current date as if made on
that date (giving full effect to any supplements to
the KE Disclosure Letter that were delivered by such
Key Employee to Buyer prior to the Closing Date or
the date of exercise of the Option in accordance with
Section 10.8) (the "KE Second Certificate").
Subject to satisfaction of the conditions set forth in Section
10.9 below, the closing of the sale of the KE Partnership
Interest of any Key Employee exercising his or her Option
hereunder (the "Option Closing") shall occur on the date (the
"Option Closing Date") of Buyer's written acceptance of the
documents in (a) through (c) above.
Upon occurrence of any of the events described in Section
10.3(c)(ii) as to any Key Employee, such Key Employee shall be
deemed to have irrevocably waived the Option and his or her
right to exercise the same hereunder.
10.2 Definition of the Option and Option Exercise Price
The "Option" is the option of each Key Employee to sell to the
Buyer the entire right, title and interest of that Key
Employee in and to all (but not less than all) of the KE
Partnership Interest of that Key Employee, as that term is
defined in the New Partners Agreement, in consideration for
the payments described below in this Section 10 by Buyer and
Newmark:
(a) For each of the two Calculation Years beginning on
January 1, 1998, and ending on December 31, 1999:
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(i) the amount equal to 1.98% of the Net
Income, as defined in Section
2.2(b), for the respective
Calculation Year; plus
(ii) $200,000; if Cumulative Net Income
(as determined in accordance with
the provisions of Section 2.2(b))
has been achieved, or if the last
sentence in Section 2.2(b)(1) with
respect to such Calculation Year
applies; plus
(iii) an amount equal to the interest rate
calculated, during the calculation
period commencing on April 30, 1999
and continuing through the date or
dates of payment of the sums due
under this Subsection 10.2(a), on
the sum of the amounts determined
under Sections 10.2(a)(i) and (ii)
for the Calculation Year beginning
on January 1, 1998 and ending
December 31, 1998, at the lowest
federal mid-term rate under Section
1274 of the IRC that is effective on
April 30, 1999.
(b) For each Calculation Year commencing after December
31, 1999 and ending December 31, 2002:
(i) the amount equal to 2.00% of the Net
Income for the respective
Calculation Year; plus
(ii) $200,000 if Cumulative Net Income
(as determined in accordance with
the provisions of Section 2.2(b))
has been achieved, or if the last
sentence in Section 2.2(b)(1)
applies to such Calculation Year.
10.3 Payment Terms of the Option Exercise Price
(a) Buyer and Newmark jointly and severally shall make
all payments due under Section 10.2(a) and (b) for
the applicable Calculation Year at the respective
times and in the manner in which Buyer or Newmark is
obligated to make payments to Seller for that
Calculation Year pursuant to the provisions of
Section 2.2(b), except that (i) such payments
pursuant to the provisions of Section 10.2(a) shall
be due and payable on or before ten (10) days
following completion of the audit for the fiscal year
ending December 31, 1999, but in any event prior to
April 30, 2000 and (ii) all payments pursuant to the
provisions of this Section 10 shall be subject to the
provisions of Section 10.3(c)(ii).
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(b) The characterization of each payment under Sections
10.2(a)(ii) and 10.2(b)(ii) shall be in accordance
with the provisions for characterization of
Additional Consideration under Section 2.2(b)(4).
(c) It is understood and agreed that each payment
pursuant to the provisions of this Section 10 is
contingent:
(i) since it is based on future operations of the
Subject Entities; and
(ii) since it shall not be payable for any
Calculation Year during which the respective
Key Employee's employment under the
applicable KE Employment Agreement is
terminated
(A) by the employer therein for "cause"
or by that Key Employee otherwise
than for "cause" as each such term
is defined in the applicable KE
Employment Agreement, or
(B) because of the disability or death
of that Key Employee, as those terms
are contemplated by the KE
Employment Agreements, except that
any amount that otherwise would be
payable in respect of the
Calculation Year during which that
Key Employee's employment is
terminated for a reason stated in
this Section 10.3(c)(ii)(B) shall be
payable to the extent of the product
of that amount multiplied by a
fraction of which the numerator is
the number of days in that
Calculation Year expired as of the
date of termination of employment
for that reason and the denominator
is 365. If, as of the date of death
or disability of a Key Employee, the
Cumulative Net Income allocable to
the year of death or disability
and/or one or more subsequent
Calculation Year has been achieved,
then the deceased or disabled Key
Employee (or his or her estate)
shall be entitled to receive payment
of sums under Section 10.2(a)(ii)
and (iii) and (b)(ii) on account of
such Calculation Year(s), subject to
adjustment for any reduction in
Cumulative Net Income in any such
Subsequent Calculation Year(s) and
any such payment shall be made in
the time and manner required by
Section 10.2(a) and (b), as if no
death or disability had occurred.
If, as of the date of death or disability of a Key
Employee, the cumulative Net Income allocable to the
year of death or disability and/or
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one or more subsequent Calculation Year has been
achieved, then the deceased or disabled Key Employee
(or his or her estate) shall be entitled to receive
payment of sums under Section 10.2(a)(ii) and (iii)
and (b)(ii) on account of such calculation year(s),
subject to adjustment for any reduction in cumulative
Net Income in any such subsequent Calculation
Year(s), and any such payment shall be made in the
time and manner required by Section 10.2(a) and (b),
as if no death or disability had occurred.
10.4 The provisions of Section 2.2(b)(7) and (8) shall
apply to all payments under Sections 10.2(a)(ii) and
10.2(b)(ii) with the same effect as though such
provisions were sent forth herein with the reference
therein to "Additional Consideration" were changed to
"payment under Sections 10.2(a)(ii) and 10.2(b)(ii)."
10.5 Buyer shall have the right to make a timely election
under Section 754 (as applicable) of the IRC with
respect to its purchase of the KE Partnership
Interest of each Key Employee that exercises his or
her Option, and shall seek equivalent treatment of
such purchase under all applicable state and local
tax laws, to the extent such treatment is available.
If required, the Key Employees shall join in such
election. If, as a result of a step-up in basis for
Buyer as a result of Section 754 (as applicable) of
the IRC, such Key Employee(s) shall have an effective
tax rate of greater than the lowest capital gains
rate then in effect and applicable to such Key
Employee(s) with respect to any purchase price paid
in exchange for the KE Partnership Interests, then
Buyer will agree to increase the sums payable under
Section 10.2(a) or (b) hereof so that the net
effective after-tax benefit to such Key Employee(s)
reflects the rate that would have been payable by
each had Section 754 (as applicable) of the IRC not
applied.
10.6 Each of the Key Employees shall severally, but not
jointly, indemnify the Partnership and the Buyer and
hold each of them harmless for, and will pay them in
the aggregate the amount of, any liability or
reasonable expense or cost relating to any
requirement to treat as compensation any of the
payments to that Key Employee pursuant to the
provisions of this Section 10.
10.7 Representations and Warranties of Key Employees
10.7.1 Authority; No Conflict
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(a) This Agreement constitutes the legal, valid, and
binding obligation of the Key Employees, enforceable
against each of them in accordance with its terms.
Upon the execution and delivery by the Key Employees
of the Employment Agreements, the KE Noncompetition
Agreements, the New Partners Agreement, the Restated
Partnership Agreement, and the KE First Releases, the
KE Second Releases, the KE Assignment, KE First
Certificate and the KE Second Certificate,
(collectively, the "KE Closing Documents"), the KE
Closing Documents will constitute the legal, valid,
and binding obligations of the respective Key
Employee enforceable against such Key Employee in
accordance with their terms. The Key Employees each
have the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and
the KE Closing Documents and to perform their
obligations under this Agreement and the KE Closing
Documents.
(b) Except as set forth in Part 10.7.1 of the KE
Disclosure Letter, neither the execution and delivery
of this Agreement by any of the Key Employees nor the
consummation or performance of any of the
Contemplated Transactions by any Key Employee will
give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated
Transactions pursuant to:
(i) any Legal Requirement or Order to which such
Key Employee may be subject; or
(ii) any Contract to which any Key Employee is a
party or by which any Key Employee may be
bound.
Except as set forth in Part 10.7.1 of the KE Disclosure
Letter, the Key Employees are not and will not be required to
obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
10.7.2 Certain Proceedings
There is no pending Proceeding that has been commenced against
any Key Employee and that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions. To the
Key Employees' Knowledge, no such Proceeding has been
Threatened.
10.7.3 Brokers or Finders
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The Key Employees have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or
agents' commissions or other similar payment in connection
with this Agreement and will indemnify and hold Buyer harmless
from any such payment alleged to be due by or through any Key
Employee as a result of the action of any Key Employee or its
agents.
10.7.4 Ownership of KE Partnership Interests
On the Closing Date, the Key Employees will be the record and
beneficial owners and holders of all of the KE Partnership
Interests, in the proportions designated in Exhibit 3.3 as
"revised interests", free and clear of all Encumbrances. No
legend or other reference to any purported Encumbrance
appears, or shall appear, upon any certificate representing
equity securities of the Partnership. All of the KE
Partnership Interests have been duly authorized and validly
issued and are fully paid and nonassessable. None of the KE
Partnership Interests were issued in violation of the
Securities Act or any other Legal Requirement.
10.7.5 Stock Options
The Key Employees are not a party to any Contract under which
he or she holds an option to purchase Shares or an interest in
the Partnership, other than the KE Partnership Interests.
10.7.6 No Proprietary Rights Agreements
No Key Employee is a party to, or is otherwise bound by,
Proprietary Rights Agreement that in any way adversely affects
or will affect the performance of his or her duties under the
KE Employment Agreements, including any Proprietary Rights
Agreement with Seller, the Partnership or the Acquired
Companies.
10.7.7 Certain Payments
No Key Employee has directly or indirectly:
(a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money,
property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for
business secured, (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of the
Partnership or any Acquired Company or any Affiliate of the
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Partnership or an Acquired Company, or (iv) in violation of
any Legal Requirement; or
(b) established or maintained any fund or asset that has
not been recorded in the books and records of the Partnership
and the Acquired Companies.
10.7.8 Relationships with Related Persons
No Key Employee:
(a) has, or since the first day of the next to last
completed fiscal year of the Partnership and the
Acquired Companies has had, any interest in any
property (whether real, personal, or mixed and
whether tangible or intangible), used in or
pertaining to the Partnership's or the Acquired
Companies' businesses;
(b) is, or since the first day of the next to last
completed fiscal year of the Partnership and the
Acquired Companies has owned (of record or as a
beneficial owner) an equity interest or any other
financial or profit interest in, a Person that has
(i) had business dealings or a material financial
interest in any transaction with the Partnership or
any Acquired Company other than business dealings or
transactions conducted in the Ordinary Course of
Business with the Partnership and the Acquired
Companies at substantially prevailing market prices
and on substantially prevailing market terms, or (ii)
engaged in a Competing Business in any market
presently served by the Partnership or any such
Acquired Company except for less than one percent of
the outstanding capital stock of any Competing
Business that is publicly traded on any recognized
exchange or in the over-the-counter market; or
(c) is a party to any Contract with, or has any claim or
right against, the Partnership or any Acquired
Company.
10.7.9 Employment Agreements
There are no or, as of Closing shall not be any,
written employment agreements between the Partnership
or any Acquired Company and the Key Employees, except
the KE Employment Agreements.
Each Key Employee shall indemnify, defend and hold Buyer
harmless of and from any and all damages, loss, cost and
liability suffered by Buyer, including reasonable attorneys'
fees and expenses, incurred by Buyer as a result of the
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falsity of any representation or warranty made by such Key
Employee in this Agreement.
10.8 Between the date of this Agreement and the Option Closing
Date, each Key Employee will promptly notify Buyer in writing
if such Key Employee becomes aware of any fact or condition
that causes or constitutes a Breach of any of such Key
Employee's representations and warranties as of the date of
this Agreement, or if such Key Employee becomes aware of the
occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty
been made as of the time of occurrence or discovery of such
fact or condition. Should any such fact or condition require
any change in the KE Disclosure Letter if the KE Disclosure
Letter were dated the date of the occurrence or discovery of
any such fact or condition, such Key Employee will promptly
deliver to Buyer a supplement to the KE Disclosure Letter
specifying such change. During the same period, the Key
Employees will promptly notify Buyer of the occurrence of any
Breach of any covenant of Key Employee in this Section 10.8 or
of the occurrence of any event that may make the satisfaction
of the conditions in Section 10.9 impossible or unlikely.
10.9 Conditions to Buyer's Obligation under Option
Buyer's obligation to purchase the KE Partnership Interests is
subject to the satisfaction, at or prior to the Option
Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
10.9.1 Accuracy of Representations
All of the representations and warranties in this Agreement of
the Key Employee exercising the Option must have been accurate
in all respects as of the date of this Agreement, and must be
accurate in all respects as of the Option Closing Date as if
made on the Option Closing Date, without giving effect to any
supplement to the KE Disclosure Letter.
10.9.2 Key Employee's Performance
(a) All of the covenants and obligations that the Key
Employee exercising the Option is required to perform
or to comply with pursuant to this Agreement at or
prior to the Option Closing (considered
collectively), and each of these covenants and
obligations (considered individually),
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must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered pursuant to
Section 10.1 must have been delivered, and each of
the other covenants and obligations in Section 10
must have been performed and complied with in all
respects.
10.9.3 Seller's Performance
The conditions of Section 7 of this Agreement shall have been
satisfied or waived.
11. INDEMNIFICATION; REMEDIES
11.1 Survival; Right to Indemnification not Affected by Knowledge
All representations, warranties, covenants, and obligations in
this Agreement, the Disclosure Letter, the supplements to the
Disclosure Letter, Seller's Certificate, Buyer's Certificate,
and any other certificate or document delivered pursuant to
this Agreement and identified in this Agreement or in the
Disclosure Letter or in any supplement thereto, or in the
Master Disclosure List attached to this Agreement (the "Master
Disclosure List") will survive the Closing for the period set
forth in Section 11.5. The right to indemnification, payment
of Damages or other remedy based on such representations,
warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement
or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition
to Closing based on the accuracy of any representation or
warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on
such representations, warranties, covenants, and obligations.
11.2 Indemnification and Payment of Damages by Seller
(a) Seller will indemnify and hold harmless Pacific USA,
Newmark, Buyer, the Partnership and the Acquired Companies,
and their respective Representatives, stockholders,
controlling persons (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of,
any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of
investigation and defense and reasonable attorneys'
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fees) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with:
(i) any Breach of any representation or warranty
made by Seller in this Agreement (without
giving effect to any supplement to the
Disclosure Letter), the Disclosure Letter,
the supplements to the Disclosure Letter
delivered after the Effective Date, if any,
or any other certificate or document
delivered by Seller pursuant to this
Agreement and identified in this Agreement,
in the Disclosure Letter and any supplement
thereto or in the Master Disclosure List;
(ii) any Breach of any representation or warranty
made by Seller in this Agreement as if such
representation or warranty were made on and
as of the Closing Date without giving effect
to any supplement to the Disclosure Letter,
delivered after the Effective Date, if any,
other than any such Breach that is disclosed
in a supplement to the Disclosure Letter;
(iii) any Breach by Seller of any covenant or
obligation of Seller in this Agreement; and
(iv) all matters described in Exhibit 11.2.
(b) With respect to Breach of any representation or
warranty in Section 3.19, such Damages shall include without
limitation Damages costs of cleanup, containment, or other
remediation, any bodily injury (including illness, disability,
and death, and regardless of when any such bodily injury
occurred, was incurred, or manifested itself), personal
injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real
property), or other damage of or to any Person, including any
employee or former employee of Seller or the Partnership or
any Acquired Company or any other Person for whose conduct
they are or may be held responsible. As to any Facility owned
or operated by Buyer at the time the Breach is discovered,
Buyer will be entitled to control any such Cleanup and any
related Proceeding. The procedure described in Section 11.9
will apply to any other claim relating to a matter covered by
this Section 11.2(b). Notwithstanding the foregoing, if a
Cleanup of a Facility then owned or operated by Buyer has not
been required or requested by a Governmental Body, then
Buyer's Damages for the cost of such Cleanup under this
Section 11.2(b) shall be limited to those costs incurred by
Buyer in its reasonable business judgment.
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(c) The remedies provided in this Section 11.2 will not
be exclusive of or limit any other remedies that may be
available to Buyer or the other Indemnified Persons, except
that Buyer waives its right to seek rescission of this
Agreement.
11.3 Indemnification and Payment of Damages by Seller -- Certain
Environmental Matters
In addition to the provisions of Section 11.2 and subject to
the provisions of Section 11.6 hereof, Seller will indemnify
and hold harmless Buyer, the Partnership and the Acquired
Companies, and the other Indemnified Persons for and will pay
to Buyer, the Partnership and the Acquired Companies, and the
other Indemnified Persons the amount of any Damages (including
the Damages described in Section 11.2(b)), arising directly or
indirectly from or in connection with any Environmental,
Health and Safety Liabilities arising out of or relating to
the ownership, operation or condition at any time of any real
property, improvements, fixtures or equipment thereon that is
or was owned or operated (including operations as general
contractor or project manager by Westbrooke Communities, Inc.)
by the Partnership or any Acquired Company, other than the
residential real estate projects commonly known as Winston
Trails, Oakridge, West Lake Village, Keystone Lake.
11.4 Indemnification and Payment of Damages by Buyer
(a) Buyer will indemnify and hold harmless Seller, and
each Key Employee and their respective Representatives and
will pay to such Party the amount of any Damages arising,
directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer to the
indemnified party in this Agreement or in any certificate,
document, instrument or agreement delivered by Buyer pursuant
to this Agreement, (b) any Breach of any representation or
warranty made by Buyer in this Agreement as if such
representation or warranty were made on and as of the Closing
Date other than any such Breach that is expressly identified
in the Buyer's Certificate as having caused the condition
specified in Section 8.1 not to be satisfied; or (c) any
Breach by Buyer of any covenant or obligation of Buyer in this
Agreement or in any certificate, document, instrument or
agreement delivered by Buyer pursuant to this Agreement, or
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person
with Buyer (or any Person acting on its behalf) in connection
with any of the Contemplated Transactions.
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(b) Newmark will indemnify and hold harmless Seller, and
each Key Employee and their respective Representatives and
will pay to such Party the amount of any Damages arising,
directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Newmark to
the indemnified party in this Agreement or in any certificate,
document, instrument or agreement delivered by Newmark
pursuant to this Agreement, (b) any Breach of any
representation or warranty made by Newmark in this Agreement
as if such representation or warranty were made on and as of
the Closing Date other than any such Breach that is expressly
identified in the Buyer's Certificate as having caused the
condition specified in Section 8.1 not to be satisfied; or (c)
any Breach by Newmark of any covenant or obligation of Newmark
in this Agreement or in any certificate, document, instrument
or agreement delivered by Newmark pursuant to this Agreement,
or (d) any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person
with Newmark (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions.
(c) Pacific USA will indemnify and hold harmless Seller,
and each Key Employee and their respective Representatives and
will pay to such Party the amount of any Damages arising,
directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Pacific USA
to the indemnified party in this Agreement or in any
certificate, document, instrument or agreement delivered by
Pacific USA pursuant to this Agreement, (b) any Breach of any
representation or warranty made by Pacific USA in this
Agreement as if such representation or warranty were made on
and as of the Closing Date other than any such Breach that is
expressly identified in the Buyer's Certificate as having
caused the condition specified in Section 8.1 not to be
satisfied; or (c) any Breach by Pacific USA of any covenant or
obligation of Pacific USA in this Agreement or in any
certificate, document, instrument or agreement delivered by
Pacific USA pursuant to this Agreement, or (d) any claim by
any Person for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Pacific USA
(or any Person acting on its behalf) in connection with any of
the Contemplated Transactions.
(d) Seller, the Acquired Companies and the Partnership
(the "Seller and Entities") have not participated in the
preparation of any portion of, nor reviewed, nor have any
responsibility to any of Buyer, Newmark, Pacific USA or any
other Person with respect to, any registration statement or
other filing with the federal Securities and Exchange
Commission or any state securities law authority by Pacific
USA, Newmark, Buyer or any affiliate of any of them
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(each, a "Securities Filing"). The Pacific Entities shall
indemnify and hold harmless the Seller and Entities and their
respective Representatives, stockholders, controlling persons,
affiliates, directors, officers and employees from and against
the amount of any loss, liability, claim, damage (including
incidental and consequential damages), expense (including
costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third
party claim, arising or resulting from or in connection with
any Securities Filing, except to the extent that such
liabilities result from information regarding the Seller and
Entities supplied by them and upon which Buyer is entitled to
rely pursuant to the provisions of this Agreement.
11.5 Time Limitations
If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be
performed and complied with on or prior to the Closing Date,
other than those in Sections 3.3 and 3.11, unless on or before
two (2) years following the Closing Date (time being of the
essence) Buyer notifies Seller of a claim specifying the
factual basis of that claim in reasonable detail to the extent
then known by Buyer; provided that the time within which Buyer
must notify Seller shall be four (4) years following the
Closing Date with respect to any claim of Buyer in any manner
related to that certain Proceeding styled Allstate Insurance
Company v. Westbrook [sic] Communities, Inc. and Red Dot
Builders, Inc., Case No. 96-17092 in the Circuit Court of the
11th Judicial Circuit in and for Dade County, Florida, or to
any representation, warranty, or covenant or obligation of
Seller to be performed and complied with prior to the Closing
Date in Section 3.19 solely with respect to the project known
as Keystone Lake. A claim with respect to Section 3.3 or 3.11
or a claim for indemnification or reimbursement not based upon
any representation or warranty or any covenant or obligation
to be performed and complied with on or prior to the Closing
Date, may be made at any time prior to expiration of the
applicable statute of limitations. If the Closing occurs,
Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with on or
prior to the Closing Date, unless on or before two (2) years
following the Closing Date Seller notifies Buyer of a claim
specifying the factual basis of that claim in reasonable
detail to the extent then known by Seller.
11.6 Limitations on Amount -- Seller
Seller will have no liability (for indemnification or
otherwise) with respect to the matters described in Sections
11.2 or 11.3 until the total of all Damages with
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respect to such matters exceeds $600,000, and then only for
the amount by which such Damages exceed $600,000. However,
this Section 11.6 will not apply to any Breach of any of
Seller's representations and warranties in Section 3.11.
Notwithstanding any provision of this Agreement qualifying
Seller's obligations under any representation, warranty or
covenant (whether in the text hereof or by reference to
matters set forth in the Disclosure Letter containing such
qualifications) by materiality, all Damages incurred by any
Indemnified Person shall be applied to the deductible amounts
set forth above, as if no such qualification were imposed on
such representation, warranty or covenant.
11.7 Intentionally omitted.
11.8 Right of Set-Off
(a) Upon written notice to Seller specifying in
reasonable detail the basis for such set-off, subject to the
provisions of Section 11.8(b), Buyer may set off any amount to
which it may be entitled under this Section 11, first, against
amounts otherwise payable under the Non-Negotiable Promissory
Note, second, (to the extent of the excess of such set off
amount over the amounts otherwise payable under the
Non-Negotiable Promissory Note) against amounts otherwise
payable under the Seller Employment Agreement and, third, (to
the extent of the excess of such set off amount over the
amounts otherwise payable under the Non-Negotiable Promissory
Note and the Seller Employment Agreement) against amounts
otherwise payable on account of Additional Consideration. The
exercise of such right of set-off by Buyer in good faith,
whether or not ultimately determined to be justified, will not
constitute an event of default hereunder, under the Seller
Employment Agreement, the Non-Negotiable Promissory Note, the
Pacific USA Guaranty, the Pledge Agreement or any other
instrument securing the Non-Negotiable Promissory Note.
Neither the exercise of nor the failure to exercise such right
of set-off will constitute an election of remedies or limit
Buyer in any manner in the enforcement of any other remedies
that may be available to it.
(b) Notwithstanding the foregoing:
(i) Buyer shall have no right of setoff if
Newmark has failed to deliver the Substitute
LOC in the time and manner required by
Section 2.8, unless an award for the claim
for which such setoff is asserted has been
made by the Arbitrator in accordance with the
Arbitration Covenant.
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(ii) Except as provided in (i) above, Buyer's
right of setoff against amounts otherwise
payable under the Seller Employment Agreement
or on account of Additional Consideration, or
under the Non-Negotiable Promissory Note
prior to delivery of the Substitute LOC, are
subject to the requirement that Buyer shall,
within ten (10) business days after Seller's
written demand therefor, deposit into an
interest bearing account with an independent
custodian to which Seller consents (such
consent not to be unreasonably withheld)
immediately available funds in the amount of
the set off, to the extent of the payment
then due.
(c) Interest shall continue to accrue under the
Non-Negotiable Promissory Note as to any set off determined to
be unjustified. All interest accruing to the account
described in (ii) above shall be paid to the Party that is
entitled to receive the principal in respect of which such
interest accrues.
11.9 Procedure for Indemnification -- Third Party Claims
(a) Promptly after receipt by an indemnified party under
Section 11.2, 11.4, or (to the extent provided in the
last sentence of Section 11.3) Section 11.3 of notice
of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made
against an indemnifying party under such Section,
give notice to the indemnifying party of the
commencement of such claim, but the failure to notify
the indemnifying party will not relieve the
indemnifying party of any liability that it may have
to any indemnified party, except to the extent that
the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnified
party's failure to give such notice.
(b) If any Proceeding referred to in Section 11.9(a) is
brought against an indemnified party and he, she or
it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying
party will, unless the claim involves Taxes, be
entitled to participate in such Proceeding and, to
the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding
and the indemnified party determines in good faith
that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide
reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and
provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding
with counsel reasonably satisfactory to the
indemnified party and, after notice from the
indemnifying party to the indemnified party of its
election to assume the defense of such
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Proceeding, the indemnifying party will not, as long
as it diligently conducts such defense, be liable to
the indemnified party under this Section 11 for any
fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each
case subsequently incurred by the indemnified party
in connection with the defense of such Proceeding,
other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a
Proceeding, (i) no compromise or settlement of such
claims may be effected by the indemnifying party
without the indemnified party's consent (which shall
not be unreasonably withheld) unless (A) there is no
finding or admission of any violation of Legal
Requirements or any violation of the rights of any
Person and no effect on any other claims that may be
made against the indemnified party, and (B) the sole
relief, if any, provided is monetary damages that are
paid in full by the indemnifying party. If notice is
given to an indemnifying party of the commencement of
any Proceeding and the indemnifying party does not,
within ten (10) days after the indemnified party's
notice is given, give notice to the indemnified party
of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by
any determination made in such Proceeding or any
compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a
reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a
result of monetary Damages for which it would be
entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the
indemnifying party will not be bound by any
determination of a Proceeding so defended or any
compromise or settlement effected without its consent
(which may not be unreasonably withheld).
11.10 Procedure for Indemnification -- Other Claims
A claim for indemnification for any matter not involving a
third-party claim may be asserted by notice to the party from
whom indemnification is sought.
11.11 Consideration
Seller acknowledges and agrees that all indemnities made by
the Seller in favor of Buyer contained herein are made in
consideration of the specific sum of ONE
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THOUSAND DOLLARS ($1,000.00) and other good and valuable
consideration, all of which is included in the Purchase Price,
the sufficiency of which Seller hereby acknowledges.
Buyer acknowledges and agrees that all indemnities made by
Buyer in favor of Seller and contained herein are made in
consideration of good and valuable consideration, the
sufficiency of which Buyer hereby acknowledges.
12. GENERAL PROVISIONS
12.1 Expenses
Except as otherwise expressly provided in this Agreement, each
Party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and
performance of this Agreement and the Contemplated
Transactions, including all reasonable fees and expenses of
agents and Representatives. Seller will cause the Partnership
and the Acquired Companies not to incur any out-of- pocket
legal fees or expenses in connection with this Agreement or
the Contemplated Transactions, except as provided in Section
2.2(b)(3)(iii). In the event of termination of this
Agreement, the obligation of each Party to pay its own
expenses will be subject to any rights of such party arising
from a Breach by another party. Should Buyer, Seller or any
other party hereto employ an attorney or attorneys to enforce
any of the provisions hereof, the party prevailing shall be
entitled to payment by the non-prevailing party(ies) of all
reasonable costs, charges and expenses, expended or incurred
by the prevailing party, including reasonable attorneys' fees
in negotiations, arbitration and through all levels of
arbitration, trial or appellate (subject to the provisions of
the Arbitration Covenant) Proceedings, whether suit be brought
or not.
12.2 Public Announcements
Any public announcement or similar publicity with respect to
this Agreement or the Contemplated Transactions will be
issued, if at all, at such time and in such manner as Buyer
determines. Unless consented to by Buyer in advance or
required by Legal Requirements, prior to the Closing Seller
shall, and shall cause the Partnership and the Acquired
Companies to, keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person,
except to the extent of information that has become public
otherwise than by disclosure by Seller in contravention of any
duty of confidentiality to Buyer. Seller and Buyer will
consult with each other concerning the means by which the
Partnership and the Acquired Companies' employees, customers,
and
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suppliers and others having dealings with the Partnership and
the Acquired Companies will be informed of the Contemplated
Transactions, and Buyer will have the right to be present for
any such communication.
12.3 Confidentiality
Between the date of this Agreement and the Closing Date, Buyer
and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer
and the Partnership and the Acquired Companies and their
respective Related Persons to maintain in confidence, and not
use to the detriment of another party or an Acquired Company
any written information stamped "confidential" when originally
furnished by another party or an Acquired Company in
connection with this Agreement or the Contemplated
Transactions, unless (a) such information is already known to
such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no
fault of such party, (b) the use of such information is
necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of
such information is required by or necessary or appropriate in
connection with legal proceedings.
If this Agreement is terminated or the Contemplated
Transactions are not consummated, each party will return or
destroy as much of such written information as the other party
may reasonably request.
12.4 Notices; Wire Transfers
(a) All notices, consents, waivers, and other
communications under this Agreement must be in writing and
will be deemed to have been duly given when (a) delivered by
hand (with written confirmation of receipt), (b) sent by
telecopier (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service or the U.S.
Postal Service express mail (receipt tracked or otherwise
acknowledged), in each case to the respective addresses and
telecopier numbers set forth below (or to such other addresses
and telecopier numbers as the respective party may designate
by notice to the other parties):
Seller: James M. Carr
94 South Hibiscus Drive
Miami Beach, Florida 33139
Facsimile No.: (305) 531-3699
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Copy to: Michael Kosnitzky, Esq.
Zack Kosnitzky, P.A.
One International Place
100 SE 2nd Street
Suite 2800
Miami, Florida 33131
Facsimile No.: (305) 539-1307
If to Leonard R. Chernys: 641 Sabal Palm Road
Miami, Florida 33137
Facsimile No.: (305) 576-3235
If to Harold L. Eisenacher: 13120 S.W. 66 Avenue
Miami, Florida 33156
Facsimile No.: (305) 595-2676
If to Diana Ibarria: 5765 S.W. 146th Court
Miami, Florida 33183
Facsimile No.: (305) 385-4983
Copy to: David M. Glassberg, Esq.
Glassberg & Glassberg, P.a.
1450 Madruga Avenue, Suite 302
Miami, Florida 33146
Facsimile No.: (305) 669-0804
Buyer: c/o Mike McCraw
Pacific USA Holdings Corp.
5999 Summerside Drive, Suite 112
Dallas, Texas 75252
Facsimile No.: (972) 732-0167
Copy to: Cathryn L. Porter, Esq.
Pacific USA Holdings Corp.
3200 Southwest Freeway
Suite 1220
Houston, Texas 77027
Facsimile No.: (713) 871-0155
and Erica L. English, Esq.
Katz, Barron, Squitero, Faust & Berman, P.A.
2699 South Bayshore Drive, 7th Floor
Miami, Florida 33131
Facsimile No.: (305) 285-9227
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(b) All bank wire transfers of funds due Seller or the Key
Employees hereunder shall be deemed received (provided that the same is
actually received on the next business day) when sent in accordance with the
following federal bank wire instructions (or in accordance with such other
federal bank wire instructions as Seller or a Key Employee respectively may
designate by notice to Buyer in accordance with this Section 12.4;
If to Seller: (to be designated)
If to Leonard R. Chernys: (to be designated)
If to Harold L. Eisenacher: (to be designated)
If to Diana Ibarria: (to be designated)
12.5 Intentionally Omitted
12.6 Further Assurances
The parties agree (a) to furnish upon request to each other
such further information, (b) to execute and deliver to each
other such other documents, and (c) to do such other acts and
things, all as any other party hereto may reasonably request
for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
12.7 Waiver
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power, or
privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver or renunciation of
such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or
privilege. To the maximum extent
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permitted by applicable law, (a) no claim or right arising out
of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part,
by a waiver or renunciation of the claim or right unless in
writing signed by the other party purportedly waiving or
renouncing that claim or right; (b) no waiver that may be
given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand
on one party will be deemed to be a waiver or renunciation of
any obligation of such party or of the right of the party
giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
12.8 Entire Agreement and Modification
This Agreement supersedes all prior agreements between the
parties with respect to its subject matter (including the
Letter of Intent between Buyer and Seller dated November 25,
1997) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the
terms of the agreement between the parties with respect to the
subject matter thereof. This Agreement may not be amended
except by a written agreement executed by the party to be
charged with the amendment.
12.9 Disclosure Letter
(a) The disclosures in the Disclosure Letter, and those
in any supplement thereto, must relate only to the
representations and warranties in the Section of the
Agreement to which they expressly relate and not to
any other representation or warranty in this
Agreement; except that the disclosures in the Master
Disclosure List of the Disclosure Letter shall be
deemed to relate to any and all representations and
warranties in this Agreement, the Disclosure Letter
and any supplement.
(b) In the event of any inconsistency between the
statements in the body of this Agreement and those in
the Disclosure Letter or in any supplement thereto
(other than an exception expressly set forth as such
in the Disclosure Letter or in any supplement thereto
with respect to a specifically identified
representation or warranty), the statements in the
body of this Agreement will control.
12.10 Assignments, Successors, and No Third-Party Rights
No party may assign any of its rights or obligations under
this Agreement without the prior consent of the other parties,
and any assignment in
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contravention hereof shall be void and ineffective, except
that Buyer may assign any of its rights under this Agreement
to any Subsidiary of Buyer. Subject to the preceding sentence,
this Agreement will apply to, be binding in all respects upon,
and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in
this Agreement will be construed to give any Person other than
the parties to this Agreement, and the assigns permitted
pursuant to the provisions of the first sentence of Section
12.10, any legal or equitable right, remedy, or claim under or
with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the
parties to this Agreement, their successors and such assigns.
12.11 Severability
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the
other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
12.12 Section Headings; Construction
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does
not limit the preceding words or terms.
12.13 Time of Essence
With regard to all dates and time periods set forth or
referred to in this Agreement, time is of the essence.
12.14 Governing Law
This Agreement will be governed by the laws of the State of
Florida without regard to conflicts of laws principles.
12.15 Counterparts
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This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement.
12.16 Change and Assignment of Certain Names
Immediately following the Closing, Seller will not thereafter
use or permit any of their affiliates to use the names
"Westbrooke", "Westbrooke Communities", "Westbrooke Company",
Westbrooke Homebuilders", or any variant or derivative thereof
that includes the term "Westbrooke". In connection with
enabling Buyer, at or after the Closing, to use such names,
Seller, at or after the Closing, shall execute and deliver to
Buyer all Consents related to the use of such names as may be
reasonably requested by Buyer.
12.17 Arbitration.
The parties hereto mutually consent to the resolution by
arbitration of all claims or controversies ("claims") whether
or not arising out of this Agreement. This agreement to
arbitrate shall be called the "Arbitration Covenant".
(a) Claims Covered by this Arbitration Covenant.
The claims covered by this Arbitration Covenant include, but
are not limited to, claims for breach of any contract or
covenant (express or implied); tort claims; and claims for
violation of any federal, state, or other governmental law,
statute, regulation, or ordinance.
(b) Required Notice of All Claims, Statutes of
Limitations, and Procedural Prerequisites. The aggrieved
party must give written notice of any claim to other
party(ies) within the limitations periods normally applicable
to the laws or common law that are the basis for any claim
against the other party(ies); provided that the foregoing
shall not in any way extend the period of time during which
Buyer must notify Seller of a claim pursuant to the provisions
of Section 11.5 hereof. All statutes of limitation and
procedural prerequisites to suit that apply to court
litigation, apply to arbitration under this Arbitration
Covenant. Written notice to the other party(ies) shall be
sent in accordance with the provisions of Section 12.4. The
written notice by any party shall identify and describe the
nature of all claims asserted and the facts upon which such
claims are based.
(c) Representation. Any party may be represented
by an attorney or other representative selected by the party.
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(d) Discovery. Each party shall have the right
to take the deposition of witnesses designated by another
party. Each party also shall have the right to make requests
for production of documents to any party. The subpoena right
specified below shall be applicable to discovery pursuant to
this section. Additional discovery may be had only where the
Arbitrator selected pursuant to this Arbitration Covenant so
orders, upon a showing of substantial need.
(e) Designation of Witnesses. At least 30 days
before the arbitration, the parties must exchange lists of
witnesses, including any experts, and copies of all exhibits
intended to be used at the arbitration.
(f) Subpoenas. Each party shall have the right
to subpoena witnesses and documents for the arbitration.
(g) Arbitration Procedures. Except as provided
in this Arbitration Covenant, any arbitration shall be in
accordance with the then current arbitration rules of the
American Arbitration Association ("AAA") before an arbitrator
who is licensed to practice law in the State of Florida (the
"Arbitrator"). The arbitration shall take place in Miami,
Florida.
The Arbitrator shall be selected as follows. The AAA
shall give each party a list of five (5) arbitrators drawn
from its panel of arbitrators. Each party may strike all
names on the list it deems unacceptable. If only one common
name remains on the lists of all parties, that individual
shall be designated as the Arbitrator. If more than one
common name remains on the lists of all parties, the parties
shall strike names alternately until only one remains. The
party who did not initiate the claim shall strike first. If
no common name remains on the lists of all parties, the AAA
shall furnish an additional list or lists until an Arbitrator
is selected.
The Arbitrator shall apply the substantive law (and
the law of remedies, if applicable) applicable to the claim(s)
asserted. The Federal Rules of Evidence shall apply. The
Arbitrator, and not any federal, state, or local court or
agency, shall have exclusive authority to resolve any dispute
relating to the interpretation, applicability, enforceability
or formation of this Arbitration Covenant, including but not
limited to any claim that all or any party of this Arbitration
Covenant is void or voidable. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THE AAA RULES FOR THE RESOLUTION OF DISPUTES, ANY
AWARD BY THE ARBITRATOR SHALL BE LIMITED TO ACTUAL DAMAGES,
AND THE ARBITRATOR SHALL HAVE NO AUTHORITY TO AWARD ANY OTHER
DAMAGES, INCLUDING BUT NOT LIMITED TO PUNITIVE, ADDITIONAL OR
EXEMPLARY
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DAMAGES. The arbitration shall be final and binding upon the
parties, except as provided in this Arbitration Covenant.
The Arbitrator shall have jurisdiction to hear and
rule on pre-hearing disputes and is authorized to hold
pre-hearing conferences by telephone or in person as the
Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for
summary judgment by any party and shall apply the standards
governing such motions under the Federal Rules of Civil
Procedure.
Any party, at its expense, may arrange for and pay
the cost of a court reporter to provide a stenographic record
of proceedings.
Any party, upon request at the close of hearing,
shall be given leave to file a post-hearing brief. The time
for filing such a brief shall be set by the Arbitrator.
Any party may bring an action in any court of
competent jurisdiction (as provided by Sub- Section (9)
hereof) to compel arbitration under this Arbitration Covenant
and to enforce an arbitration award. Except as otherwise
provided in this Arbitration Covenant, no party(ies) shall
initiate or prosecute any lawsuit or administrative action
(other than an administrative charge of discrimination) in any
way related to any claims covered by this Arbitration
Covenant.
(h) Arbitration Fees and Costs. The parties in
the dispute shall equally share the fees and costs of the
Arbitrator. Each such party will deposit funds or post other
appropriate security for its share of the Arbitrator's fee, in
an amount and manner determined by the Arbitrator, ten (10)
days before the first day of hearing. Each party shall pay
for its own costs and attorneys' fees and expenses, if any.
However, the prevailing party shall be awarded its attorneys'
fees and expenses by the Arbitrator.
(i) Judicial Review. Any party may bring an
action in any court of competent jurisdiction to compel
arbitration under this Arbitration Covenant and to enforce an
arbitration award. A party opposing enforcement of any award
may not do so in an enforcement proceeding, but must bring a
separate action in any court of competent jurisdiction to set
aside the award, where the standard of review will be the same
as that applied by an appellate court reviewing a decision of
a trial court.
(j) Requirements for Modification or Revocation.
This Arbitration Covenant shall survive Closing. It can only
be revoked or modified by a writing
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signed by the parties which specifically states an intent to
revoke or modify this Arbitration Covenant.
(k) Sole and Entire Agreement. This Arbitration
Covenant is the complete agreement of the parties on the
subject of arbitration of disputes (except for any arbitration
agreement in connection with any pension or benefit plan).
This Arbitration Covenant supersedes any prior or
contemporaneous oral or written understanding on the subject.
No party is relying on any representations, oral or written,
on the subject of the effect, enforceability or meaning of
this Arbitration Covenant, except as specifically set forth in
this Arbitration Covenant.
(l) Consideration. The promises by each of the
parties to arbitrate differences, rather than litigate them
before courts or other bodies, provide consideration for each
other.
(m) Jurisdiction; Venue. In the event the
Arbitration Covenant is found unenforceable or inapplicable to
any claim, whether sounding in contract, tort, or otherwise
arising out of, connected with, related to, or in connection
with this Agreement, any Proceeding alleging such claim shall
be brought exclusively in the courts of the State of Florida,
County of Dade, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of
Florida, and the parties to this Agreement consent to the
jurisdiction of such courts (and the appropriate appellate
courts) in any such Proceeding and waive any objection to
venue laid therein.
12.18 Survival
Subject to the provisions of Section 11.5, all of the terms,
provisions and conditions of this Agreement shall survive
Closing.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SELLER:
/s/ JAMES M. CARR
- ------------------------------
JAMES M. CARR
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WESTBROOKE COMMUNITIES, INC.,
a Florida corporation
By: /s/ JAMES CARR
-------------------------
Its: President
-------------------------
WESTBROOKE AT WEST LAKE, INC.
a Florida corporation
By: /s/ JAMES CARR
-------------------------
Its: President
-------------------------
WESTBROOKE AT WINSTON TRAILS, INC.
a Florida corporation
By: /s/ JAMES CARR
-------------------------
Its: President
-------------------------
WESTBROOKE AT PEMBROKE PINES, INC.
a Florida corporation
By: /s/ JAMES CARR
-------------------------
Its: President
-------------------------
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WESTBROOKE AT OAK RIDGE, INC.
a Florida corporation
By: /s/ JAMES CARR
-------------------------
Its: President
-------------------------
/s/ HAROLD L. EISENACHER
- ------------------------------
HAROLD L. EISENACHER
/s/ LEONARD R. CHERNYS
- ------------------------------
LEONARD R. CHERNYS
/s/ DIANA IBARRIA
- ------------------------------
DIANA IBARRIA
THE WESTBROOKE PARTNERSHIP,
a Florida partnership
By: Westbrooke Communities, Inc.,
a Florida corporation, as Managing
General Partner
By: /s/ JAMES CARR
-------------------------
Its: President
-------------------------
BUYER:
WESTBROOKE ACQUISITION CORP.,
a Florida corporation
By: /s/ MICHAEL K. MCCRAW
-------------------------
Its: President
-------------------------
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PACIFIC USA HOLDINGS CORP.,
a Texas corporation
By: /s/ MICHAEL K. MCCRAW
-------------------------
Its: Chief Financial Officer
-------------------------
NEWMARK HOMES CORP.,
a Nevada corporation
By: /s/ MICHAEL K. MCCRAW
-------------------------
Its: Chairman
-------------------------
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
AND REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
Newmark Homes Corp.:
The audits referred to in our report dated February 14, 1997, included the
related financial statement schedules as of December 31, 1996, and for each of
the years in the three-year period ended December 31, 1996, included in the
registration statement. Our responsibility is to express an opinion on these
financial statement schedules based on our audits. In our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" and "Selected Financial and Operating
Data" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
January 27, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 2, 1997 with respect to the combined
financial statements of Westbrooke Communities, Inc. and Affiliates included in
Amendment No. 1 to the Registration Statement (Form S-1 No. 333-42213) and
related Prospectus of Newmark Homes Corp. for the registration of 2,000,000
shares of its common stock.
Miami, Florida
January 27, 1998
