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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-23677
NEWMARK HOMES CORP.
(Exact name of registrant as specified in its charter)
Nevada 76-0460831
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1200 Soldiers Field Drive Sugar Land, TX 77479
(Address of principal executive offices) (Zip Code)
281-243-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, par value $.01
NASDAQ National Market
(name of each exchange on which registered)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of February 29, 2000 Registrant had outstanding 11,500,000 shares of common
stock. Of the total shares outstanding, 2,269,500 shares of common stock were
held by non-affiliates of the Registrant, having an aggregate market value on
that date of $13,191,469 (based on the closing sales price on the NASDAQ
National Market).
Documents incorporated by reference:
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Related Section Documents
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III Definitive Proxy Statement to be filed pursuant to Regulation 14A on or before April 29, 2000.
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PART I
ITEM 1. BUSINESS
GENERAL
Newmark Homes Corp. (the "Company"), a Nevada corporation, is the
holding company whose subsidiaries operate in the home building industry under
the names Newmark Home Corporation ("Newmark"), Westbrooke Communities, Inc. and
affiliated entities (collectively, "Westbrooke") and The Adler Companies, Inc.
("Adler"). The Company also owns a lot development company, Pacific United
Development Corp. Through its operating subsidiaries, the Company designs,
builds and sells single-family detached homes in ten major markets within the
Southwest and Southeast United States, including Houston, Austin, Dallas/Fort
Worth and San Antonio, Texas; Ft. Lauderdale, Palm Beach and Miami, Florida
("South Florida"); Nashville, Tennessee; and Charlotte and Greensboro/
Winston-Salem, North Carolina. Each of these markets has experienced population
and job growth above the national average over the last several years. The
Company operated in 77 subdivisions in these metropolitan areas and had 1,038
homes under construction at December 31, 1999. In addition, the Company is
actively engaged in residential land acquisition and lot development and as of
December 31, 1999, owned or had under option contracts 3,929 lots available for
future growth.
In Texas, Tennessee and North Carolina, Newmark offers high-quality
homes, designed principally for the "move-up" and relocation market segments,
under the Newmark(R) trademark. Typically, Newmark(R) homes range in size from
1700 square feet to over 4500 square feet and range in price from $140,000 to
$400,000, with an average sales price of $240,000 for homes closed during 1999.
Newmark also offers custom homes under the Fedrick, Harris Estate Homes name
that range in size from 3500 square feet to over 7000 square feet and range in
price from $300,000 to over $1.0 million, with an average sales price of
$419,000 for homes closed during 1999. Revenues generated from sales of Fedrick,
Harris Estate Homes were 16%, 14% and 17% of total homebuilding revenues of the
Company for 1999, 1998 and 1997, respectively. On January 12, 2000, Newmark
announced that it had established a new division - Marksman Homes ("Marksman")
to maximize home sales in its more mature markets. Marksman's first models are
being constructed in Houston and are designed to appeal to first-time buyers and
married couples without children living at home ("empty nesters"). The units are
priced from $130,000 to $160,000.
In the South Florida market, Westbrooke and Adler offer high-quality
homes designed primarily to appeal to homebuyers desiring to buy more expensive
residences ("move-up" homebuyers). These homes range in size from approximately
1300 square feet to over 3500 square feet and are priced from $121,000 to
$341,000, with an average sales price of $186,000 for homes closed in 1999.
The Company's homebuilding operation is positioned to compete with
other high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. Homebuyers are given 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 the Company from many of its
competitors.
The Company's predecessor was founded in Houston, Texas in 1983, and
was acquired by Pacific Realty Group, Inc. ("Pacific) in October 1993. Pacific's
interest in the predecessor was transferred to the Company in December 1994 when
the Company was formed. Westbrooke was acquired by the Company in January 1998
and has operated in the Miami, Florida area since 1976. Westbrooke's operations
were consolidated in 1998 with Adler, a company founded in Miami, Florida in
1990 and acquired by the Company in March 1995.
The Company's initial public offering of its common stock was completed
in March 1998. On December 15, 1999, Technical Olympic USA, Inc. ("TOUSA")
purchased 9,200,000 shares of the Company's common stock from Pacific, such
stock representing 80% of the outstanding common stock of the Company. TOUSA, a
Delaware
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corporation, is a wholly-owned subsidiary of Technical Olympic (UK) PLC, an
English company, which is a wholly-owned subsidiary of Technical Olympic S.A., a
Greek company.
Newmark and Westbrooke have achieved consistent profitability due to
both innovative and disciplined approaches to home construction, land
acquisition and development as well as lot purchases. The Company believes that
the tenure and experience of its officers and key employees and its disciplined
approach to business have been key factors to the Company's success. There has
been virtually no turnover among officers and key employees since the inception
of both Newmark and Westbrooke.
The Company's corporate offices are located in Houston. The Company's
divisions in Houston, Austin, Dallas/Ft. Worth, San Antonio, Nashville,
Charlotte and Greensboro/Winston-Salem are managed from the Houston location.
The Company's South Florida operations are primarily the responsibility of
Westbrooke management with support from, and oversight of, the Company's
corporate office.
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 that 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 significant growth opportunities remain
in most of 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 as exemplified by the Company's acquisition of Westbrooke.
Entry into new markets is preceded by extensive due diligence and research
conducted by both management and third-party resources.
SOPHISTICATED MARKETING. The Company employs sophisticated and
comprehensive marketing programs to attract potential homebuyers. This marketing
program includes extensive telemarketing, an Internet web site, a virtual
reality CD-ROM home tour, and an interactive software program. 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 Company's web site, featuring a database of
available inventory, allows a prospective homebuyer to locate a home and view
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 process. The homebuyer can also download a virtual
reality tour to a personal computer and "tour" completely furnished homes. The
South Florida operation also utilizes an interactive software program known as
"Design Wizard" which enables a homebuyer to customize a home that meets their
needs and lifestyles. While sitting at a computer monitor located in a sales
center, the buyer responds to a series of general lifestyle and financial
questions. Based on the buyer's responses, the interactive software program then
shows the buyer variations of a basic floor plan as well as the cost of the
proposed changes.
MARKET FOCUS. In markets with a significant number of relocation
buyers, such as Texas, Tennessee and North Carolina, the Company aggressively
competes with resales of existing homes, primarily by making available to
potential buyers completed or nearly completed homes. In these relocation
markets, 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 previously owned homes and (iii) allowing
homebuyers to avoid the significant time and monetary costs typically associated
with updating previously owned homes. Since 1993, 80% of the Company's homes
were sold prior to completion of the
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home. In the South Florida market, the Company primarily focuses on "move-up"
homebuyers, and to a lesser extent, first-time homebuyers. In this market,
substantially all homes are sold prior to commencing construction.
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 that 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.
With the exception of the South Florida operation, the Company's corporate
office retains responsibility for purchasing, accounting/consolidation, and
certain other management and administrative matters, including ultimate approval
of all lot contracts, final product selection, securing all financing and
marketing plan approval. With respect to the South Florida operation, management
of Westbrooke makes the majority of the decisions related to the
responsibilities described above with support from, and oversight of, the
Company's corporate office.
CENTRALIZED PURCHASING. The Company utilizes centralized purchasing to
leverage its purchasing power into volume discounts, a practice that 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, Kwikset 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 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 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.
STRATEGY TO LIMIT REAL ESTATE EXPOSURE. The Company seeks to maximize
its return on invested 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
that 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.
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The Company seeks to limit its exposure to real estate inventory risks
by closely monitoring (i) its unsold inventory of new homes and the stage of
completion of homes under construction on an ongoing basis, (ii) the volume of
starts of new homes and (iii) 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 ten markets within four
states, including Houston, Austin, Dallas/Fort Worth and San Antonio, Texas; Ft.
Lauderdale, Palm Beach and Miami, Florida; Nashville, Tennessee; and Charlotte
and Greensboro/Winston-Salem, North Carolina. The Company's operations in each
of its markets differ based on a number of market specific factors.
The following table presents selected lot inventory and homebuilding
data for the Company's current markets:
<TABLE>
<CAPTION>
HOMEBUILDING REVENUES/
LOT INVENTORY HOMES CLOSED
---------------------------------------------------------------------------
DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
MARKET COMMENCED 1999 1998 1997 1999 1998 1997
- ------ --------- ---- ---- ---- ---- ---- ----
(Dollars in thousands/units)
<S> <C> <C> <C> <C> <C> <C> <C>
Houston ...................... 1983 800 632 632 $171,066 $126,138 $ 85,690
631 482 361
Austin ....................... 1984 571 697 363 $115,724 $82,970 $ 66,405
511 386 317
Dallas/Fort Worth ............ 1995 208 292 396 $45,794 $38,078 $ 30,119
171 159 138
San Antonio .................. 1998 145 141 -- -- -- --
Ft. Lauderdale, Palm ......... 1976 1,864 760 368 $108,100 $144,780 $ 30,863
Beach, Miami ............ 581 814 156
Nashville .................... 1997 264 276 261 33,444 12,116 --
86 33 --
Charlotte .................... 1998 42 16 -- 940 -- --
3 -- --
Greensboro/ Winston Salem .... 1998 35 34 -- 2,038 -- --
6 -- --
------- ------ ----- -------- -------- --------
Total Lots/Revenue ........... 3,929(1) 2,848(1) 2,020(1) $477,106(2) $404,082(2) $213,077(2)
======= ====== ===== ======== ======== ========
Total Units Closed ........... 1,989 1,874 972
======== ======== ========
</TABLE>
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(1) Includes 2,559, 1,880 and 1,267 lots under option contracts as of
December 31, 1999, 1998 and 1997, respectively.
(2) Does not include revenues from land sales of $14.6 million, $2.3
million and $2.3 million in 1999, 1998 and 1997, respectively.
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Based on the results of market research and analysis performed by and
for the Company, Newmark plans to focus its development activity based primarily
on the following factors: regional economic conditions, projected 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 has been compiled from a number of
public sources.
HOUSTON, TEXAS. According to American Metro Study Corporation, Houston
posted record numbers in the new home market with 23,978 starts in 1999(3), 6.2%
higher than in 1998. Although Houston experienced some hardship in the energy
industry due to sluggish oil prices, Houston has enjoyed a 3.1%(1) rate of
annual employment growth, or an average of 56,700(1) newly created jobs per year
since 1993. Since the 1980's, Houston has diversified its employment base
between energy-dependent and non-energy-dependent industries, which has promoted
more stable job growth and a strong relocation market. Houston's population has
grown by an average of 88,000(2) persons per year since 1990. The area's
affordable home market, low cost of living (98% of the US average(1) and strong
population growth (2 million people from 1970 to 1999(5) continue to favorably
impact the demand for single-family homes. The mean household income for Houston
rose to an estimated $83,854(5) in 1999 from $57,529(5) in 1990, reflective of
the strong job market in the metro area.
AUSTIN, TEXAS. Austin's new home market had a record setting year in
1999. Austin started 11,095 homes and closed approximately 10,252 in 1999(3).
This translated to 15.1% more homes started and 17.5% more homes closed than in
1998(3). The metro area has experienced strong population growth in the past six
years adding an annual average of 34,800 people in a city of 1.1 million people.
According to the RFA Precis Metro Edition for November of 1999(1), Austin's
employment has averaged 28,400 new jobs in the past six years, posting a strong
5.5% employment growth. Due to Austin's extremely low unemployment rate of 2.0%,
new jobs in the region will have to be filled with outside labor that results in
an immediate need for housing for the new residents.
DALLAS/FORT WORTH, TEXAS. The combined Dallas/Fort Worth metropolitan
area exceeded 4.9 million in total population in 1999(1). With an employment
base of more than 2.6 million jobs, the metro area has added approximately
96,300 jobs annually from 1994 to 1999 (a 4.3% annual growth rate)(1). Strong
population growth has accompanied these gains in employment. November's RFA
Precis Metro Edition reports an estimated growth rate of 2.6% in 1998 and 2.2%
in 1999. According to American Metro Study, 1999 was a year of continued growth
for the Dallas and Ft. Worth housing markets. Dallas started 21,754 homes, an
8.5% increase over 1998 and 25.8% more than 1997 and closed 20,395 homes, an
8.7% increase over 1998 and a 22.0% increase over 1997. Ft. Worth experienced
even stronger year over year housing activity in 1999 with 10,379 starts (18.4%
more than 1998) and 9,628 closings (19.3% more than in 1998). The regional
economy remains vibrant, with affordability, as well as a viable high-tech core,
attracting corporate relocations. The Company believes that longer-term, such
advantages as a strategic location, low business costs (90% of national
average(1), a large high-tech presence, available capital, and efficient
transportation facilities will enable Dallas/Ft. Worth to continue to outperform
the state and nation.
SAN ANTONIO, TEXAS. According to American Metro Study, the housing
market in San Antonio continued to expand in 1999, keeping pace with 1998. San
Antonio started 7,702 homes and closed approximately 7,692 homes in 1999(3).
Homebuilders started approximately the same amount of homes and closed 7.6% more
homes than in 1998(3). In the past six years, the Alamo City created an average
of 22,000 jobs per year, an annual growth rate of almost 3.5%1. For the past
eight years, the metro area has experienced an annual average population growth
of 1.9%1 adding an average of 28,000 people per year in a city of 1.5 million
people. According to the RFA Precis Metro Edition for November 1999(1), San
Antonio's economy has remained solid in 1999. The city's low cost of doing
business (87% of the national average), bilingual labor force, and strategic
location as a gateway to Mexico are advantages for attracting business
relocations.
The Company began start-up operations in the San Antonio market in
1998. Construction of homes began in July 1999. The first closings should occur
in the first quarter of 2000.
Sources: 1-RFA, 2-Urban Land Institute, 3-American Metro Study, 4-Market
Graphics, 5-Woods & Poole Economics
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FT. LAUDERDALE, PALM BEACH AND MIAMI, FLORIDA. The Company's operations
in South Florida are concentrated in Ft. Lauderdale (Broward County), West Palm
Beach (Palm Beach County) and in Miami (Dade County). Broward County experienced
an average annual population growth of 31,400 residents from 1993 to 1999,
representing a compounded annual growth rate of 2.2%(1). The RFA Precis Metro
Edition, November 1999, projects that Broward County's population will increase
at a rate of 1.9% annually between 1996 and 2002. Most newcomers to the market
are expected to be working-age families, a majority relocating from the South
Dade/Miami area. The service and trade sectors dominate the overall employment
in Broward with 34.9% and 28.1% respectively(1). The service sector job growth
rate of 4.7% between October 1998 and October 1999 is reflected in the 16,800
new jobs created during that period(1).
The Palm Beach County economy also is expanding very rapidly. With an
employment growth rate of 5.9%, Palm Beach is currently the fastest growing of
the three major south Florida markets. By the year 2003, the employment base in
Palm Beach County is anticipated to total over 547,000 jobs; a significant
increase over 1998's estimated total of nearly 473,000 jobs(1). Another
significant long-term advantage is Palm Beach's affluence. The metro area boasts
one of the highest per capita incomes in the nation at $38,772, 35% higher than
the national average of $25,288(1). According to the RFA Precis Metro Edition,
November 1999, Palm Beach County's population is projected to increase annually
by 20,000 people to a total population of 1.1 million people by 2002.
Fueled by growth in the service and trade industries, Dade County
gained approximately 18,300 new jobs per year from 1998 to 1999, an annual
growth rate of approximately 1.9%(1). According to the RFA Precis Metro Edition,
November 1999, the Dade County population is projected to increase annually by
20,000 people to a total population of 2.2 million people by 2000.
The Company entered the South Florida market in 1995 with the
acquisition of Adler. Then, in January 1998, the Company acquired Westbrooke,
thus expanding the Company's operations in Broward County and providing an entry
into the Palm Beach County market.
NASHVILLE, TENNESSEE. From 1991 to 1999, Nashville's population grew by
almost 15%, almost double the national growth rate of 7.5%(1). With more than
159,000 jobs created from 1992 to 1999, the area's employment growth rate of 31%
was 60% better than the national rate of 18.3% for that period(1). Nashville's
labor market remains very tight and unemployment is at a 30-year low of 1.2%(1).
Long-term, Nashville has several advantages that are expected to support
positive employment growth. As Tennessee's state capital and local headquarters
for many regional companies, Nashville should remain significant in Tennessee's
economy. Nashville, also known as the "Music City", remains a popular tourist
destination and a primary relocation center for corporate headquarters. Market
Graphics reported another strong year in the Nashville new home market with
8,553 starts and 8,366 sales in 1999, netting 0.8% more starts and 3.2% more
sales than in 1998(4).
CHARLOTTE, NORTH CAROLINA. Charlotte's economy is continuing to
experience aggressive sustained growth. According to the RFA Precis Metro
Edition for November 1999(1), annual employment growth amounted to 3.5% from
1992 to 1999 outpacing both the South (3.0%) and U.S. (2.4%) growth rates. The
primary factors in the growth are financial services and retail trade
industries. Charlotte is the second largest financial center in the nation, just
behind New York, with two significant financial institutions, BankAmerica
(formerly NationsBank) and First Union. Charlotte experienced an average annual
population growth of 27,600 residents from 1992 to 1999, representing a
compounded annual growth rate of 2.1%(1). Market Opportunity Research
Enterprises reported record setting new home activity in 1999. The Charlotte
area closed 12,303 homes in 1999, 21.9% more than 1998 and 40.7% more than 1997.
Sources: 1-RFA, 2-Urban Land Institute, 3-American Metro Study, 4-Market
Graphics, 5-Woods & Poole Economics
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GREENSBORO/WINSTON-SALEM, NORTH CAROLINA. Known as the Triad Area,
Greensboro/Winston-Salem's primary growth factors are financial services and
durable goods manufacturing industries. According to the RFA Precis Metro
Edition for November 1999(1), annual employment growth amounted to 2.5% from
1992 to 1999, consistent with the national average. The structurally declining
non-durable goods manufacturing industry (mainly textile and apparel) is the
principal detractor from growth(1). The unemployment rate in this area was at
1.5%, substantially below the regional average for the South. Greensboro/
Winston-Salem experienced an average annual population growth of 14,500
residents from 1992 to 1999, representing a compounded annual growth rate of
1.3%(1). RFA ranked the Triad Area above average for long-term growth due to a
number of advantages. Greensboro/Winston-Salem is home to a growing financial
services industry and its low cost of doing business (94% of the national
average(1)) should continue to attract industrial relocations and spur local
expansions. Another upside opportunity for the Triad Area is the growing
concentration of high-tech firms that are expected to provide solid employment
growth in the future.
The Company entered the Charlotte and the Greensboro/Winston-Salem
markets through start-up operations in 1998. Construction of new homes commenced
in the fourth quarter of 1998. The first closings occur red in the fourth
quarter of 1999.
Sources: 1-RFA, 2-Urban Land Institute, 3-American Metro Study, 4-Market
Graphics, 5-Woods & Poole Economics
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BACKLOG
The following table sets forth the Company's sales backlog by market
for the periods indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------
SALES SALES SALES
HOMES VALUE HOMES VALUE HOMES VALUE
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Houston 121 $ 33,532 175 $ 44,915 97 $ 23,025
Austin 295 72,396 184 40,712 85 17,806
Dallas/Ft. Worth 32 9,865 57 14,952 42 9,167
San Antonio 1 250 -- -- -- --
Ft. Lauderdale, Palm
Beach, Miami 531 106,636 315 61,733 55 10,050
Nashville 12 5,770 22 8,090 -- --
Charlotte 1 295 -- -- -- --
Greensboro/Winston-Salem 5 1,650 -- -- -- --
------ --------- ----- --------- ------ ---------
Total 998 $ 230,394 753 $ 170,402 279 $ 60,048
====== ========= ===== ========= ====== =========
</TABLE>
Backlog represents home purchase contracts which have been executed and
for which earnest money deposits have been received, but for which the sale has
not yet closed. Home sales are not recorded as revenues until the closings
occur. Sales value is calculated as 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, 100% and 97% of the homes in
backlog at December 31, 1998 and 1997, respectively, were closed in the
subsequent fiscal year. Based upon unit volume, contract cancellations were
approximately 15%, 12.5% and 14% of the home sales contracts signed during the
years ended December 31, 1999, 1998 and 1997, respectively. 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 has developed
a 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
9
<PAGE> 10
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 reveals 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 produces single-family statistical data; profiling
market (identify sub markets, 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 sub markets; 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 sub markets 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 main
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 sub market 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 sub market.
LAND POLICIES AND POSITION
The Company provides lot positions for its homebuilding operations by
both 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. Historically, the
Company has been able to option substantially all of its lot positions in the
Houston market due to the brand awareness of the Newmark(R) and Fedrick, Harris
Estate Homes names among both consumers and developers, in addition to the
willingness of developers in those markets to option available lots. The Company
also acquires lot options in the Austin, Dallas/Fort Worth, San Antonio,
Nashville, Charlotte and Greensboro/Winston-Salem markets. With the continuing
strength in the housing sector, the Company has been required to acquire some of
its developed lots under specific performance purchase contracts. The Company
has developed residential lots in the South Florida, Dallas/Fort Worth,
Nashville and Austin markets and intends to continue to do so in the future.
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. Using its design department and Design Wizard, the
Company 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.
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
10
<PAGE> 11
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. 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 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, 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. Depending on the specific
market, the Company targets the "move-up" and relocation market segments and
employs sophisticated marketing techniques to attract potential homebuyers
through numerous avenues including its Internet web site, extensive
telemarketing, interactive software programs and other marketing programs. Home
sales are typically conducted from sales offices located in furnished model
homes used in each subdivision. At December 31, 1999, the Company owned 80 model
homes. 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 most
subdivisions 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. 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.
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 that requires a down payment of $1,000 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 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.
11
<PAGE> 12
TITLE SERVICES
In 1997, the Company acquired a 49% interest in Pacific Title, L.C.,
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 Guaranty Company, one of the oldest title
companies in Texas. Stewart Title Company owns the balance of the interests of
Pacific Title.
CUSTOMER FINANCING
In 1997, the Company acquired a 49.99% limited partnership interest in
NHC Mortgage Group, L.P., a mortgage origination company owned jointly with CTX
Mortgage Ventures Corporation, one of the nation's largest mortgage companies.
NHC Mortgage 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.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's operating divisions are responsible for both 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.
After a sale, all warranty requests are processed through 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. 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 includes post-closing interviews. In most markets, 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 up to a two-year limited warranty (one-year in the
case of its South Florida operations) of workmanship and materials with each of
its homes. 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. In all markets except South Florida, the Company provides an
additional eight-year limited homeowners' warranty covering major structural
defects through a single national agreement with the Residential Warranty
Corporation. An appropriate warranty reserve is established to cover anticipated
warranty expenses not borne by the Company's subcontractors. The Company's
historical experience is such that 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 litigation 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 the appropriate subcontractor takes prompt and
appropriate corrective action.
12
<PAGE> 13
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.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Homes and residential communities built by the Company must comply with
federal, state and local regulations relating to, among other things, zoning,
treatment of waste, construction materials that must be used, density
requirements, certain aspects of building design and minimum elevation of
properties and other local ordinances. These include laws requiring use of
construction materials that reduce the need for energy-consuming heating and
cooling systems. These laws and regulations are subject to frequent change and
often increase construction costs. In some cases, there are laws that require
that commitments to provide roads and other offsite infrastructure be in place
prior to the commencement of new construction. The provisions of these laws are
usually administered by individual counties and municipalities and may result in
additional fees and assessments or building moratoriums. In addition, certain
new development projects, particularly in Southern Florida, are subject to
assessments for schools, parks, streets and highways and other public
improvements, the costs of which can be substantial.
The residential homebuilding industry also is subject to a variety of
local, state and federal statutes, ordinances, rules and regulations concerning
the protection of health and the environment. Environmental laws and conditions
may result in delays, may cause the Company to incur substantial compliance and
other costs, and can prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas. Additionally, the climate
and geology of some parts of Florida and Texas present risks of natural
disasters that could adversely affect the homebuilding industry in those areas
in general, and the Company's business in particular.
The Company's title insurance affiliate must comply with applicable
insurance laws and regulations. The Company's mortgage origination affiliate
must comply with applicable real estate lending laws and regulations.
EMPLOYEES
At December 31, 1999, the Company employed 520 persons, of whom 134
were sales and marketing personnel, 142 were executive, administrative and
clerical personnel, and 244 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.
ITEM 2. 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 26,375 square feet in
Dallas, Austin, San Antonio, Nashville, Charlotte/Greensboro and Miami for its
division operations. The Company believes its existing facilities are adequate
for the Company's current and planned levels of operations.
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Lonnie M. Fedrick 55 President, Chief Executive
Officer and Director
James M. Carr 49 Executive Vice President and
Director
J. Eric Rome 40 Executive Vice President --
Homebuilding
Terry C. White 50 Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary
J. Michael Beckett 40 Executive Vice
President-Purchasing/Product
Development (Newmark Home
Corporation)
</TABLE>
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 32 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 an 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 the former 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 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.
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
14
<PAGE> 15
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.
J. Mike Beckett became Executive Vice President-Purchasing/Product
Development for Newmark on January 1, 2000. Mr. Beckett was Senior Vice
President- Purchasing for Newmark from January 1, 1998 to December 31, 1999 and
was the Vice President of Purchasing from 1995 to 1998. Mr. Beckett graduated
from Bowling Green State University in 1982.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the NASDAQ National
Market System on March 12, 1998 under the trading symbol "NHCH". The range of
high and low closing sales prices per share by quarter for calendar year 1998,
1999 and 2000, as reported by the NASDAQ National Market, appear in the
following table.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1998
-------------------------------------------------------------------------
QUARTER HIGH LOW
-------------------------------------------------------------------------
<S> <C> <C>
First (commencing March $11.38 $10.50
12, 1998)
Second 11.75 9.06
Third 10.63 6.00
Fourth 9.00 6.13
-------------------------------------------------------------------------
1999
-------------------------------------------------------------------------
First $ 8.50 $ 6.25
-------------------------------------------------------------------------
Second 6.75 5.00
-------------------------------------------------------------------------
Third 8.13 5.25
-------------------------------------------------------------------------
Fourth 7.50 5.00
-------------------------------------------------------------------------
2000
-------------------------------------------------------------------------
First (through March
16, 2000) $ 6.50 $ 5.50
-------------------------------------------------------------------------
</TABLE>
As of March 1, 2000, there were 40 shareholders of record. The Company
believes there are approximately 1,000 beneficial owners of its common stock.
The Company did not declare any cash dividends on its common stock in
fiscal year 1999. The Company's credit agreements generally contain covenants
that limit the amount of dividends or distributions it can pay on its common
stock and the amount of stock the Company can repurchase.
ITEM 6. SELECTED FINANCIAL DATA
The statement of operations data and statement of financial condition
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, 1995, 1996 and 1997, have been audited by KPMG LLP,
independent certified public accountants. The Company's consolidated financial
statements for the years ended December 31, 1998 and 1999 have been audited by
BDO Siedman, LLP, independent certified public accountants. 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 Form 10-K and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
15
<PAGE> 16
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1999(1) 1998(2) 1997 1996 1995(3)
------------ ------------ ------------ ------------ ------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................... $ 491,714 $ 406,353 $ 215,360 $ 190,855 $ 125,427
Cost of sales .............................. 411,011 339,094 175,300 156,264 102,591
------------ ------------ ------------ ------------ ------------
Gross profit ............................... 80,703 67,259 40,060 34,591 22,836
Equity in earnings from unconsolidated
subsidiaries ............................ 725 812 465 792 1,978
Selling, general and administrative
expenses ................................ (49,565) (43,614) (26,512) (22,976) (16,572)
Depreciation and amortization .............. (3,996) (3,287) (1,669) (1,524) (1,271)
------------ ------------ ------------ ------------ ------------
Operating income ........................... 27,867 21,170 12,344 10,883 6,971
Interest expense ........................... (1,845) (1,939) (1,987) (1,238) (1,332)
Other income, net .......................... 1,064 1,201 570 851 607
------------ ------------ ------------ ------------ ------------
Income before income taxes ................. 27,086 20,432 10,927 10,496 6,246
Income taxes ............................... 9,701 7,637 4,272 4,164 2,477
------------ ------------ ------------ ------------ ------------
Net income ................................. $ 17,385 $ 12,795 $ 6,655 $ 6,332 $ 3,769
============ ============ ============ ============ ============
Net income per common share ................ $ 1.51 $ 1.16 $ 0.72 $ 0.69 $ 0.41
============ ============ ============ ============ ============
Weighted averages shares outstanding ........ 11,500,000 11,035,000 9,200,000 9,200,000 9,200,000
Operating data:
Units:
New sales contracts, net of
cancellations ........................... 2,234 2,036 984 998 720
Closings ................................ 1,989 1,874 972 902 641
Backlog at end of period ................ 998 753 279 267 171
Average sales price per closing ........... $ 240 $ 216 $ 219 $ 200 $ 188
Sales value of backlog at end of
period .................................. $ 230,394 $ 170,402 $ 60,048 $ 50,657 $ 32,280
Gross profit as a percentage of
revenues ................................ 16.4% 16.6% 18.6% 18.1% 18.2%
Selling, general and administrative
expenses as a percentage of
revenues ................................ 10.1% 10.7% 12.3% 12.0% 13.2%
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1999(1) 1998(2) 1997 1996 1995(3)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Inventories ...................................... $255,576 $185,247 $102,547 $ 83,659 $ 59,689
Total assets ..................................... 328,892 245,338 139,213 121,177 104,545
Total construction debt .......................... 149,380 106,839 66,100 60,768 47,428
Stockholders' equity ............................. 109,618 90,112 55,691 43,929 45,813
</TABLE>
- --------------------------------------------------------------------------------
(1) Reflects the operations of the Company on a full-year basis.
(2) Reflects the operating data of Westbrooke subsequent to the Company's
acquisition of the homebuilding assets of Westbrooke Communities, Inc. on
January 1, 1998.
(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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
As a cautionary note, except for the historical information contained
herein, certain matters discussed in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 7A
"Quantitative and Qualitative Disclosures About Market Risk", are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such matters involve risks and uncertainties,
including the Company's exposure to certain market risks, changes in economic
conditions, tax and interest rates, increases in raw material and labor costs,
weather conditions, and general competitive factors, that may cause actual
results to differ materially.
GENERAL
Since inception, the Company has sought to achieve profitability and
revenue growth by providing quality homes in markets that 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.
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 Charlotte,
Greensboro/Winston-Salem, Nashville, Dallas/Fort Worth and San Antonio, as well
as in Houston. The Company believes its introduction of the Marksman Homes line
of products to the Houston market, provides significant opportunities for
achieving greater market share in this market. The Company entered the Ft.
Lauderdale/Miami market through its acquisition of Adler on March 1, 1995, and
then significantly expanded its market share in the South Florida market,
including Palm Beach, by acquiring Westbrooke on January 1, 1998. The Company
also achieved synergies in its South Florida operation by consolidating the
operations of Adler with Westbrooke's operations in 1998.
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,
17
<PAGE> 18
including interest and maintenance, and charges those capitalized costs to cost
of sales as the related inventories are sold. Interest on completed inventory is
expensed as incurred. Accordingly, as the Company's completed 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 1997 related to the Company's acquisitions of Newmark
and Adler and approximately $1.4 million in each of 1998 and 1999 which also
included goodwill related to the Westbrooke acquisition.
Equity in earnings from unconsolidated subsidiaries includes earnings
from Pacific Title, 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 origination company, in which the Company owns a 49.99% interest,
each of which was formed in 1997. The Company expects these ancillary sources of
revenues to grow at a rate consistent with the growth of its core homebuilding
business. Additionally, equity in earnings from unconsolidated subsidiaries
includes 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 South Florida operations are conducted through wholly-owned
subsidiaries and are included in the Company's revenues rather than in equity in
earnings of unconsolidated subsidiaries.
RESULTS OF OPERATIONS
The following table sets forth the homebuilding revenue and number of
home closings by market for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999(2) 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Houston:
Revenues .................................. $ 171,066 $ 126,138 $ 85,690
Home closings ............................. 631 482 361
Austin:
Revenues .................................. $ 115,724 $ 82,970 $ 66,405
Home closings ............................. 511 386 317
Dallas/Fort Worth:
Revenues .................................. $ 45,794 $ 38,078 $ 30,119
Home closings ............................. 171 159 138
Ft. Lauderdale/Palm Beach/Miami:
Revenues .................................. $ 108,100 $ 144,780 $ 30,863
Home closings ............................. 581 814 156
Nashville:
Revenues .................................. $ 33,444 $ 12,116 --
Home closings ............................. 86 33 --
Charlotte:
Revenues .................................. $ 940 -- --
Home closings ............................. 3 -- --
Greensboro/Winston-Salem:
Revenues .................................. $ 2,038 -- --
Home closings.............................. 6 -- --
---------- ---------- ----------
Total homebuilding revenues (1) .... $ 477,106 $ 404,082 $ 213,077
========== ========== ==========
Total home closings ................ 1,989 1,874 972
========== ========== ==========
Average sales price per home closed ......... $ 240 $ 216 $ 219
========== ========== ==========
</TABLE>
- ----------------
(1) Does not include revenues from land sales of $14.6 million, $2.3
million and $2.3 million in 1999, 1998 and 1997, respectively.
(2) Reflects the revenue and units closed on a full-year basis.
18
<PAGE> 19
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>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cost of sales.................................... 83.6% 83.4% 81.4%
Gross profit..................................... 16.4 16.6 18.6
Selling, general and administrative expenses..... 10.1 10.7 12.3
Income before income taxes....................... 5.5 5.0 5.1
Income taxes (1)................................. 35.8 37.4 39.1
Net income....................................... 3.5 3.1 3.1
</TABLE>
- --------------------
(1) As a percent of income before income taxes.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
As further explained in the information regarding the "Change in
Control of Ownership", certain adjustments have been made to the Company's
goodwill, acquisition notes payable and stockholders' equity accounts to reflect
the change of control transaction. As a result of these adjustments, the
consolidated amounts of the Company after December 15, 1999 are presented on a
new basis of accounting different from the financial statements of the Company
prior to December 15, 1999 and, therefore, are not comparable in the
aforementioned regards. However, the full year is discussed for these
comparative purposes.
Revenues increased by 21.0% to $491.7 million in 1999 from $406.4
million in 1998 primarily due to an increase in the average selling prices from
an increased level of closings in the Company's higher priced markets. The
number of homes closed by the Company increased by 6.1% to 1,989 homes in 1999
from 1,874 homes in 1998. The Company's average selling price of homes closed in
1999 was $240,000, an increase of 11.1% from the $216,000 average selling price
in 1998. The average selling price of a Newmark(R) home closed in 1999 was
$239,000, an increase of 8.1% from the $221,000 average selling price in 1998.
The Fedrick, Harris Estate Homes average selling price of homes closed in 1999
was $419,000, an increase of 3.5% from the $405,000 average selling price in
1998. In the South Florida market, Westbrooke and Adler's selling price of homes
closed in 1999 was $186,000, an increase of 4.5% from the $178,000 average
selling price in 1998. Also, revenues generated from sales of custom homes under
Fedrick, Harris Estate Homes increased from $56 million in 1998 to $76 million
in 1999, due primarily to increased unit sales in Houston, Austin and Nashville.
In addition, revenue from land sales in 1999 increased to $14.6 million from
$2.3 million in 1998.
Cost of sales increased by 21.2% to $411.0 million in 1999 from $339.1
million in 1998 primarily due to increased revenues from home closings as
described above. Cost of land sales for 1999 increased to $12.1 million from
$1.5 million in 1998. As a percentage of revenues, cost of sales for 1999
increased slightly to 83.6% from 83.5 % in 1998
Equity in earnings from unconsolidated subsidiaries decreased slightly
to $725,000 in 1999 from $812,000 in 1998. The earnings are attributed totally
to Pacific Title and NHC Mortgage.
Selling, general and administrative (SG&A) expense increased by 13.8%
to $49.6 million in 1999 from $43.6 million in 1998. This increase was caused by
the expansion into the new markets of Nashville, Tennessee and Charlotte and
Greensboro, North Carolina as well as the expansion in the Company's Texas and
Florida markets as indicated by the 21% increase in the Company's revenues and
the 32.5% increase in the Company's backlog in 1999 from 1998. As a percentage
of revenues, SG&A expense decreased slightly to 10.1% in 1999 from 10.7% in
1998.
Interest expense, net of interest capitalized, totaled $1.8 million in
1999 compared to $1.9 million in the previous year. The Company follows a policy
of capitalizing interest only on inventory under construction or development.
During the years ended December 31, 1999 and 1998, the Company expensed a
portion of interest incurred and other financing costs on those completed homes
held in inventory. This expense decreased due to the
19
<PAGE> 20
decrease in the average number of completed homes held in inventory for the year
ending December 31, 1999 compared to 1998. Capitalized interest and other
financing costs are included in cost of sales at the time of home closings.
The Company's provision for income taxes decreased as a percentage of
earnings before taxes to 35.8% for the year ended December 31, 1999, compared to
37.4% for fiscal 1998. The decrease was attributable to a state income tax
benefit for Adler. The Company was included in the consolidated federal income
tax return of Pacific USA Holdings Corp. ("PUSA"), the parent company of
Pacific, through December 15, 1999. Under the former tax allocation agreement
with PUSA, (the "PUSA Tax Allocation Agreement") the Company was required to
both calculate its federal corporate income tax liability as if it filed a
separate federal income tax return for each period and to pay PUSA the sum of
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 amounting to $9.7 million for the year ended December
31, 1999 compared to $7.6 million for fiscal 1998.
Effective December 16, 1999, the Company will be included in the
consolidated federal income tax return of TOUSA pursuant to a tax allocation
agreement with TOUSA.
Net income increased by 35.9% to $17.4 million for the year ended
December 31, 1999 from $12.8 million for the corresponding period in 1998. The
increase was primarily attributable to the strong gains in revenues in the
Company's most profitable markets.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues increased by 89% to $406.4 million in 1998 from $215.4 million
in 1997. The number of homes closed increased by 93% to 1,874 homes in 1998 from
972 in 1997. The increase in revenues was largely attributable to the
acquisition of Westbrooke. In 1998, Westbrooke accounted for 29% of the revenue
and 36% of the homes closed. Without Westbrooke, revenues increased by 35% and
homes closed increased by 24%. The increase, excluding Westbrooke's
contribution, was attributable to the addition of the Nashville market as well
as increases in the existing markets. Revenues increased 47% in Houston, 25% in
Austin and 26% in Dallas. The average sales price of homes decreased from
$219,000 in 1997 to $216,000 in 1998 due to the fact that Westbrooke's average
sales price was less than Newmark's. The average sales price, excluding
Westbrooke, increased from $219,000 in 1997 to $239,000 in 1998. Also, revenues
generated from sales of custom homes under Fedrick, Harris Estate Homes
increased from $36 million in 1997 to $56 million in 1998, due primarily to
increased unit sales in Houston, Austin and Nashville. Revenues from land sales
were $2.3 million in both 1998 and 1997.
Cost of sales increased by 93.4%, to $339.1 million in the year ended
December 31, 1998, from $175.3 million in 1997. The increase was attributable to
the increase in the number of homes closed as described above. As a percentage
of revenues, cost of sales increased to 83.4% in 1998 from 81.4% in 1997. The
increase in cost of sales as a percentage of revenues was due primarily to the
acquisition of Westbrooke. Generally, the margins on the homes sold in South
Florida earned lower margins due to the impact of higher land cost relative to
sales price. Excluding Westbrooke, as a percentage of revenues, cost of sales
increased slightly to 81.7% in 1998 from 81.4% in 1997.
Equity earnings from unconsolidated subsidiaries increased $347,000 to
$812,000 for 1998 compared to $465,000 for 1997. This increase was attributed to
the increased earnings of Pacific Title and NHC Mortgage.
Selling, general and administrative (SG&A) expense increased by 64.5%
to $43.6 million in 1998, from $26.5 million in 1997. As a percentage of
revenues, SG&A expense decreased slightly to 10.7% in 1998, from 12.3% in 1997.
Excluding Westbrooke, SG&A expense increased by 39% to $36.8 million. This
increase was caused by the expansion into Nashville, Tennessee as well as the
growth in the Company's Texas markets as reflected in the 34.9% increase in
revenues in 1998 and the 112% increase in the backlog at the end of December
1998 as compared to December 1997.
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<PAGE> 21
Interest expense, net of amount capitalized, amounted to $1.9 million
in 1998 compared to $2.0 million in the previous year. The Company follows a
policy of capitalizing interest only on inventory under construction or
development. During the year ended December 31, 1998 and 1997, the Company
expensed a portion of incurred interest and other financing costs on those
completed homes held in inventory. This expense decreased due to the decrease in
the average number of completed homes held in inventory for the year ending
December 31, 1998 compared to 1997. Capitalized interest and other financing
costs are included in cost of sales at the time of home closings.
The Company's provision for income taxes decreased as a percentage of
earnings before taxes to 37.4% for the year ended December 31, 1998, compared to
39.1% for 1997. Under the PUSA 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 PUSA the sum of
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 PUSA Tax Allocation Agreement amounting to
$7.6 million for the year ended December 31, 1998 compared to $4.0 million for
1997.
Net income increased by 91.0% to $12.8 million for the year ended
December 31, 1998 from $6.7 million for the corresponding period in 1997.
Westbrooke comprised 30.8% of the net income for the year ending December 31,
1998. Excluding Westbrooke, net income increased by 33.1% to $8.9 million in
1998 from $6.7 million.
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 Estate 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. Likewise, Westbrooke has experienced seasonality in its
revenues, generally completing more sales in the spring and summer months and
more closings in the fourth quarter.
The following table presents selected quarterly operating data of the
Company for each of the eight quarters through the period ended December 31,
1999. 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.
21
<PAGE> 22
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. JUNE 30, MARCH 31,
1999 1999 1999 1999 1998 30, 1998 1998 1998
---------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues ..................... $141,757 $126,745 $130,380 $92,832 $121,194 $112,907 $103,057 $69,195
Gross profit ................. 23,264 22,794 20,152 14,493 20,121 19,007 16,676 11,455
Selling, general
and administrative ......... 12,804 13,574 12,863 10,324 12,414 12,055 11,007 8,138
Operating income ............. 9,453 8,405 6,557 3,452 7,302 6,051 5,116 2,701
MARGIN ANALYSIS:
Gross margin ................. 16.4% 18.0% 15.5% 15.6% 16.6% 16.8% 16.2% 16.6%
Selling, general
and administrative ......... 9.0% 10.7% 9.9% 11.1% 10.2% 10.7% 10.7% 11.8%
Operating income ............. 6.7% 6.6% 5.0% 3.7% 6.0% 5.4% 5.0% 3.9%
OPERATING DATA:
Homes closed (units) ......... 583 501 491 414 552 508 483 331
Average sales price of
homes closed ............... $ 239 $ 247 $ 248 $ 224 $ 220 $ 222 $ 213 $ 209
</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 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 ended
December 31, 1999, 1998 and 1997, the Company used cash in operations of $34.4
million, $19.3 million and $10.5 million, respectively. The significant use of
cash in 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, prior to the
Company's initial public offering on March 12, 1998, capital contributions and
borrowings from Pacific, primarily for residential land development
acquisitions.
The Company has financed in the past, and intends to continue to
finance, its operations with cash from operations and borrowings under
construction and lot development 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 December 31, 1999, the Company had $27 million of available credit
under its existing credit facilities. The Company plans to renew these
facilities as they mature.
With the exception of the South Florida operation, the Company utilizes
lot options as a method of controlling its investments in land. At December 31,
1999, the Company had 2,559 lots under option. At December 31, 1999, the Company
had no material capital commitments with respect to specific performance lot
purchase
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<PAGE> 23
contracts. In the Ft. Lauderdale, Palm Beach and Miami markets, 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.
At December 31, 1999 the Company had approximately $14.5 million
outstanding under promissory notes incurred in connection with the acquisition
of Westbrooke. The promissory notes are to be repaid in equal annual
installments from 2000 through 2003.
The Company believes 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. However, there can be no assurance that the amounts available from
such sources will be sufficient. The Company's combined consolidated outstanding
debt was approximately $164 million at December 31, 1999. Accordingly, the
Company expects to incur interest charges on a consolidated basis at higher
levels than it has in the past. In addition, 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. There can be no assurance that the amounts available from
such sources will be sufficient. The amount and types of indebtedness that the
Company may incur are limited by the terms of its existing financing agreements.
In addition, the incurrence of additional debt by the Company would increase its
debt service and interest obligations, which could have an adverse effect on the
Company's results of operations or financial condition. 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 business and results of operations.
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.
YEAR 2000 READINESS DISCLOSURE
The Company assessed its operating system, computer software
applications, computer equipment and other equipment with embedded electronic
circuits for Year 2000 Compliance prior to, on, and after December 31, 1999 and
did not experience any operational issues as a result of year 2000. In addition,
the Company did not experience any adverse impact as a result of year 2000
issues from any of its significant subcontractors, suppliers, financial
institutions or other service providers.
IMPACT OF NEW ACCOUNTING STANDARDS
Derivative and Hedging Activities - In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are attributable
to the hedge risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in income in the period of change. SFAS 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2001 to affect its
financial statements.
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<PAGE> 24
Start-up Activities - In June 1998, the Accounting Standards Executive
Committee of the AICPA issued SOP 98-5, Reporting on the Costs of Start-up
Activities. SOP 98-5 requires all start-up and organizational costs to be
expensed as incurred. It also requires all remaining historically capitalized
amounts of these costs existing at the date of adoption to be expensed and
reported as the cumulative effect of a change in accounting principles. SOP 98-5
is effective for all fiscal years beginning after December 31, 1998. The Company
adopted SOP 98-5 on January 1, 1999 and $259,000 of start up costs were expensed
during the year ended December 31, 1999.
FASB Amendments and Clarifications - In February 1999, the FASB issued
SFAS No. 135, Rescission of Financial Accounting Standards Board No. 75 ("SFAS
75") and Technical Corrections. SFAS 135 rescinds SFAS 75 and amends SFAS No.
35. SFAS 135 also amends other existing authoritative literature to make various
technical statements issued for fiscal years ending after February 15, 1999. The
Company believes that the adoption of SFAS 135 will not have a significant
effect on its financial statements.
CHANGE IN CONTROL OF OWNERSHIP
The acquisition by TOUSA of the common stock of the Company held by
Pacific represented 80% of the outstanding stock of the Company. This
acquisition was accounted for as a purchase, and the purchase price was recorded
on the Company's books. The excess of purchase price over the fair value of the
assets acquired and the liabilities assumed approximated $46 million of which
approximately $2.1 million was directly attributed to the change in control
transaction.
In connection with the acquisition by TOUSA of the common stock
previously owned by Pacific, the Company entered into a Services Agreement with
PUSA to continue to provide certain centralized support services to the Company,
including general advisory services, market expansion research services and
administrative support services. In addition, the 1998 Tandem Stock Option/Stock
Appreciation Rights Plan and the options granted therein were terminated. There
were no other incentive awards outstanding or exercisable in fiscal year 1999.
Pursuant to the stock purchase agreement entered into in connection
with the acquisition of Westbrooke in January 1998, certain additional
consideration, based on Westbrooke achieving specified income targets over a
five-year period, became due and payable to the prior majority owner and certain
key employees of Westbrooke upon a change of control. Westbrooke entered into an
Amendment to Stock Purchase Agreement ("Amendment") with the prior owner and
certain key employees of Westbrooke regarding the amount and timing of the
additional consideration as well as the acquisition of certain partnership
interests from the key employees. The amount of additional consideration
recorded in the transaction as a result of the change in control to the prior
majority owner was $4.6 million in the form of a promissory note. Additionally,
the Amendment adjusted the level of additional consideration payable to the key
employees from 6% to 7.5% of the net income before income taxes, all as defined
and described in the Amendment. The Company will record such payments as
compensation expense in the periods in which they are earned.
The PUSA Tax Allocation Agreement between PUSA and the Company was
partially terminated whereby the Company would pay PUSA an amount equal to the
federal income taxes that the Company would owe (or refund that it would
receive) had it prepared its federal income tax return on a stand-alone basis.
Certain terms remain in effect with respect to tax periods ending prior to the
change in control.
For tax purposes, the Company elected to treat the change in control as
a deemed taxable sale of assets resulting in a step-up in the tax basis of
assets in accordance with Internal Revenue Code ss.338(h)(10). By electing
ss.338(h)(10), the Company recognized taxable income of approximately $20
million, and $8 million of tax per the original tax sharing agreement, due to
the difference in the financial statement basis and the tax basis of the assets
immediately prior to the change in control. In terms of the purchase and sale
agreement between PUSA and TOUSA, the tax sharing agreement was modified to
exclude the gain and corresponding tax from this transaction from the
calculation of the tax payments by the Company to PUSA. Accordingly, the Company
recognized its income tax expense based on the taxable income generated from its
operations.
As a result of the change of control transaction described above,
certain adjustments were made to the Company's goodwill, acquisition notes
payable and stockholders' equity accounts. As a result, the consolidated amounts
of the Company after December 15, 1999 are presented on a new basis of
accounting different from the financial statements of the Company prior to
December 15.
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<PAGE> 25
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily related to potential
adverse changes in interest rates as discussed below. The Company does not
enter into, or intend to enter into, derivative financial instruments for
trading or speculative purposes. The Company's exposure to market risks is
changes to interest rates related to the Company's construction loans. The
interest rates relative to the Company's construction loans fluctuate with the
prime and Libor lending rates, both upwards and downwards. (See Note 7 -
"Construction Loans Payable" of the Notes to Consolidated Financial Statements.)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements are set forth in Item 14(a)(1) and (2), and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information called for by this Item is incorporated by reference to
the Company's Current Report on Form 8-K, dated February 9, 1999 that has been
included as Exhibit 20.1 to the Form 10-K for the fiscal year ended December 31,
1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about the Company's directors is incorporated by reference
to the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 29, 2000 (120 days after
the end of the Company's fiscal year). Information regarding the executive
officers of the Company is included in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 29, 2000 (120 days after
the end of the Company's fiscal year).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 29, 2000 (120 days after
the end of the Company's fiscal year).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference to
the Company's definitive proxy statement, which will be filed with the
Securities and Exchange Commission not later than April 29, 2000 (120 days after
the end of the Company's fiscal year).
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<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements:
Reports of independent certified public accountants.
Consolidated Statements of Financial Position as of December 31, 1999
and 1998.
Consolidated Statements of Operations for the Period from December 16,
1999 to December 31, 1999; for the Period from January 1, 1999
to December 15, 1999; and for the Years Ended December 31,
1998 and 1997.
Consolidated Statements of Stockholders' Equity for the Period from
December 16, 1999 to December 31, 1999; for the Period from
January 1, 1999 to December 15, 1999; and for the Years Ended
December 31, 1998 and 1997.
Consolidated Statements of Cash Flows for the Period from December 16,
1999 to December 31, 1999; for the Period from January 1, 1999
to December 15, 1999; and for the Years Ended December 31,
1998 and 1997.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
Schedule I - Condensed Financial Information of Registrant Parent
Company Only - Statements of Financial
Position as of December 31, 1999 and 1998.
Condensed Financial Information of Registrant Parent
Company Only - Statements of Operations for
the Period from December 16, 1999 to
December 31, 1999; for the Period from
January 1, 1999 to December 15, 1999; and
for the Years Ended December 31, 1998 and
1997.
Condensed Financial Information of Registrant Parent
Company Only - Statements of Cash Flows for
the Period from December 16, 1999 to
December 31, 1999; for the Period from
January 1, 1999 to December 15, 1999; and
for the Years Ended December 31, 1998 and
1997.
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 31, 1999, 1998, and 1997.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
26
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF EXHIBIT
- --------------------------------------------------------------------------------
<S> <C> <C>
2.1 (1) 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.
2.1(b) (1) Form of Addendum to Stock Purchase Agreement, effective
January 15, 1998.
2.1(c) (4) Amendment to Stock Purchase Agreement dated December 15,
1999 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 I. Eisenacher,
Leonard R. Chernys and Diana Ibarria, The Westbrooke
Partnership, Pacific USA Holdings Corp., Newmark Homes
Corp. and Westbrooke Acquisition Corp.
2.3 (2) Stock Purchase Agreement dated November 24, 1999 between
Pacific Realty Group, Inc., Pacific USA Holdings Corp.,
and Technical Olympic USA, Inc.
3.1 (1) Amended and Restated Articles of Incorporation.
3.2 (1) Bylaws.
10.1 (1) Form of Tax Allocation Agreement between Pacific USA and
various affiliates and subsidiaries, of Pacific USA,
including the Registrant, dated April 28. 1992.
10.2 (1) Form of Amendment to Tax Agreement.
10.3 (4) Tax Indemnity and Allocation Agreement dated December 15,
1999 among Pacific USA Holdings Corp., Pacific Realty
Group, Inc., Newmark Homes Corp. and Technical Olympic
USA, Inc.
10.4 (1) Employment Agreement between Newmark Homes Corp. and Terry
White dated January 1, 1998.
10.5 (1) Employment Agreement Between Newmark Homes Corp. and J.
Eric Rome dated January 1, 1998.
10.7(a) (4) Second Amended and Restated Employment Agreement Between
Westbrooke Communities, Inc. and James Carr dated December
15, 1999.
10.7(b) (4) Amended and Restated Non-Competition Agreement dated
December 15, 1999 among Westbrooke Communities, Inc.,
Westbrooke at West Lake, Inc., Westbrooke at Winston
Trails, Inc., Westbrooke at Pembroke Pines, Inc.,
Westbrooke at Oak Ridge, Inc., The Westbrooke Partnership,
Westbrooke Acquisition Corp. and James Carr.
10.8 (1) Employment Agreement between Newmark Homes Corp. and
Lonnie M. Fedrick dated January 1, 1998.
10.9 (4) Amended and Restated Employment Agreement between Newmark
Home Corporation and J. Michael Beckett dated March 1,
2000.
10.10 (4) Form of Tax Allocation Agreement between Technical Olympic
USA, Inc. and various affiliates and subsidiaries,
including Newmark Homes Corp. and its subsidiaries dated
March 15, 2000.
11.1 (4) Statement relating to computation of per share earnings.
12.1 (4) Statement relating to computation of ratios.
16.1 (3) Letter relating to change in certifying accountant is
incorporated by reference to Exhibit 16.1 of Registrant's
Current Report on Form 8-K dated February 9, 1999.
21.1 (4) List of subsidiaries.
27.1 (4) Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as part of the Company's Registration Statement on Form S-1,
Amendment Number 3, filed with the Securities and Exchange Commission
on March 5, 1998, File No. 333-42213 and incorporated herein by
reference.
(2) Filed as Exhibit 2.1 of Registrant's Current Report on Form 8K dated
December 22, 1999 and incorporated herein by reference.
27
<PAGE> 28
(3) Filed as Exhibit 16.1 of Registrant's Current Report on Form 8K dated
February 9, 1999 and incorporated herein by reference.
(4) Filed herewith.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated December 22,
1999 reporting the change of control that occurred on December 15, 1999 as a
result of the acquisition of 9,200,000 shares of common stock by TOUSA.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
NEWMARK HOMES CORP.
March 22, 2000 By: /s/ Lonnie M. Fedrick
Date ------------------------------------------------------
Name: Lonnie M. Fedrick
Title: Chief Executive Office (Principal Executive Officer)
March 22, 2000 By: /s/ Terry C. White
Date ------------------------------------------------------
Name: Terry C. White
Title: Senior Vice President, Chief Financial Officer, Treasurer
and Secretary (Principal Financial and Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
March 23, 2000 By: /s/ Constantine Stengos
Date ------------------------------------------------------
Name: Constantine Stengos
Title: Chairman of the Board of Directors And Director
March 23, 2000 By: /s/ Andreas Stengos
Date ------------------------------------------------------
Name: Andreas Stengos
Title: Director
March 23, 2000 By: /s/ George Stengos
Date ------------------------------------------------------
Name: George Stengos
Title: Director
March 23, 2000 By: /s/ Yannis Delikanakis
Date ------------------------------------------------------
Name: Yannis Delikanakis
Title: Director
March 23, 2000 By: /s/ William A. Hasler
Date ------------------------------------------------------
Name: William A. Hasler
Title: Director
March 23, 2000 By: /s/ Larry D. Horner
Date ------------------------------------------------------
Name: Larry D. Horner
Title: Director
March 22, 2000 By: /s/ Lonnie M. Fedrick
Date ------------------------------------------------------
Name: Lonnie M. Fedrick
Title: Director
March 23, 2000 By: /s/ James M. Carr
Date ------------------------------------------------------
Name: James M. Carr
Title: Director
</TABLE>
29
<PAGE> 30
NEWMARK HOMES CORP. AND SUBSIDIARIES
====================================
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE> 31
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONTENTS
================================================================================
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3-4
INDEPENDENT AUDITORS' REPORT OF KPMG LLP 5
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position 6-7
Consolidated Statements of Operations 8
Consolidated Statements of Stockholders' Equity 9
Consolidated Statements of Cash Flows 10-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12-33
</TABLE>
2
<PAGE> 32
[BDO SEIDMAN, LLP LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Newmark Homes Corp.:
We have audited the accompanying Consolidated Statement of Financial Position of
Newmark Homes Corp. and subsidiaries (the "Successor Company"), a subsidiary of
Technical Olympic USA, Inc., as of December 31, 1999, and the related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
the period from commencement of its operations on December 16, 1999 through
December 31, 1999. We have also audited the accompanying Consolidated Statement
of Financial Position of Newmark Homes Corp. and subsidiaries (the "Predecessor
Company" as described in Note 2 of the financial statements), a subsidiary of
Pacific USA Holdings Corp., as of December 31, 1998, and the related
Consolidated Statements of Operations, Stockholders' Equity, and Cash Flows for
the year ended December 31, 1998 and for the period from January 1, 1999 to
December 15, 1999. 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 did
not audit the financial statements of Westbrooke Acquisition Corp. (a
consolidated subsidiary) for the year ended December 31, 1998, which statements
reflect total assets and total revenues constituting 27% and 29%, respectively,
of the related consolidated totals for that year. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Westbrooke Acquisition Corp.,
for the year ended December 31, 1998 is based solely on the report of the other
auditors. The financial statements of Newmark Homes Corp. and subsidiaries for
the year ended December 31, 1997 were audited by other auditors whose report
dated January 23, 1998, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and the report of the other auditors provide a
reasonable basis for our opinion.
3
<PAGE> 33
In our opinion, the Successor Company's consolidated financial statements
referred to above, present fairly, in all material respects, the financial
position of the Company as of December 31, 1999 and the results of its
operations and cash flows for the period from commencement of its operations on
December 16, 1999 through December 31, 1999, in conformity with generally
accepted accounting principles. Further in our opinion, based on our audit and
the report of the other auditors, the Predecessor Company's consolidated
financial statements, referred to above, present fairly, in all material
respects, the financial position of the Predecessor Company as of December 31,
1998, and the results of its operations and cash flows for the year ended
December 31, 1998 and for the period from January 1, 1999 to December 15, 1999,
in conformity with generally accepted accounting principles.
As discussed in Note 2 of the financial statements, Technical Olympic USA, Inc.
acquired an 80% interest in the Predecessor Company on December 15, 1999, in a
business combination accounted for as a purchase. As a result, the consolidated
financial statements of the Successor Company are presented on a new basis of
accounting different from the financial statements of the Predecessor Company
and, therefore, are not comparable.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
February 11, 2000
4
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Newmark Homes Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Newmark Homes Corp. and subsidiaries for
the year ended December 31, 1997. In connection with our audit of the
consolidated financial statements, we also have audited the financial statement
schedules for the year ended December 31, 1997, as listed in the accompanying
index at Item 14. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Newmark Homes Corp. and subsidiaries for the year ended December 31, 1997, in
conformity with generally accepted accounting principles. Also in our opinion,
the related 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.
KPMG LLP
Dallas, Texas
January 23, 1998
5
<PAGE> 35
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
December 31, 1999 1998
----------- -------------
(SUCCESSOR) (Predecessor)
<S> <C> <C>
ASSETS
CASH $ 8,080 $ 5,794
RECEIVABLES
Title companies 1,100 2,293
Other 8,106 4,674
-------- --------
Total receivables 9,206 6,967
INVENTORIES (Note 5 and 7)
Single family residences 191,883 137,317
Lots and land held for development 63,693 47,930
-------- --------
Total inventories 255,576 185,247
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES (Note 6) 640 490
PROPERTY, PREMISES AND EQUIPMENT, net of accumulated
depreciation of $3,503 and $2,278 in 1999 and 1998,
respectively 5,946 5,381
DEFERRED TAX ASSET, net (Note 10) 155 723
OTHER ASSETS (Note 5) 3,637 3,092
GOODWILL, net of accumulated amortization of $6,608 and $5,173
in 1999 and 1998, respectively (Note 2, 4 and 10) 45,652 37,644
-------- --------
Total assets $328,892 $245,338
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 36
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
1999 1998
----------- -------------
(SUCCESSOR) (Predecessor)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CONSTRUCTION LOANS PAYABLE (Note 7) $149,380 $106,839
ACQUISITION NOTES PAYABLE (Note 2 and 4) 14,473 12,341
PAYABLES TO AFFILIATES (Note 8 and 10) 362 2,442
INCOME TAX PAYABLE 1,383 --
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Note 3) 36,639 22,935
OTHER LIABILITIES (Note 11) 17,037 10,669
-------- --------
Total liabilities 219,274 155,226
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 4, 7 and 11)
STOCKHOLDERS' EQUITY (Note 7)
Common stock - $.01 par value; 30,000,000 shares authorized
and 11,500,000 shares issued and outstanding 115 115
Additional paid-in capital 106,855 73,768
Retained earnings 2,648 16,229
-------- --------
Total stockholders' equity 109,618 90,112
-------- --------
Total liabilities and stockholders' equity $328,892 $245,338
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 37
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 16, JANUARY 1,
1999 1999
TO TO Year Ended Year Ended
DECEMBER 31, DECEMBER 15, December 31, December 31,
1999 1999 1998 1997
------------ ------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
REVENUES $ 44,252 $ 447,462 $ 406,353 $ 215,360
COST OF SALES (Note 5) 37,047 373,964 339,094 175,300
------------ ------------ ------------ -----------
GROSS PROFIT 7,205 73,498 67,259 40,060
Equity in earnings from unconsolidated
subsidiaries (Note 6) 39 686 812 465
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (2,721) (46,844) (43,614) (26,512)
DEPRECIATION AND AMORTIZATION (277) (3,719) (3,287) (1,669)
------------ ------------ ------------ -----------
OPERATING INCOME 4,246 23,621 21,170 12,344
OTHER INCOME (EXPENSE):
Interest expense (Note 5 and 8) (124) (1,721) (1,939) (1,987)
Other income, net (Note 9) 25 1,039 1,201 570
------------ ------------ ------------ -----------
INCOME BEFORE INCOME TAXES 4,147 22,939 20,432 10,927
INCOME TAXES (Note 10) 1,499 8,202 7,637 4,272
------------ ------------ ------------ -----------
NET INCOME $ 2,648 $ 14,737 $ 12,795 $ 6,655
============ ============ ============ ===========
EARNINGS PER COMMON SHARE:
Basic $ .23 $ 1.28 $ 1.16 $ .72
============ ============ ============ ===========
Diluted $ .23 $ 1.28 $ 1.16 $ .72
============ ============ ============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK EQUIVALENTS OUTSTANDING:
Basic 11,500,000 11,500,000 11,035,342 9,200,000
============ ============ ============ ===========
Diluted 11,500,000 11,500,000 11,035,342 9,200,000
============ ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 38
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ ---------- -------- ---------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE, December 31, 1996 $ 92 $ 42,415 $ 1,422 $ 43,929
Capital contribution (Note 8) -- 9,917 -- 9,917
Dividends paid -- (167 (4,643 (4,810
Net income -- -- 6,655 6,655
---- --------- -------- ---------
BALANCE, December 31, 1997 92 52,165 3,434 55,691
Initial public offering of common stock, net of
issuance costs of $2,554,000 20 18,426 -- 18,446
Issuance of common stock due to the exercise of
underwriters over-allotment option, net of issuance
costs of $271,000 3 2,876 -- 2,879
Capital contribution -- 301 -- 301
Net income -- -- 12,795 12,795
---- --------- -------- ---------
BALANCE, December 31, 1998 115 73,768 16,229 90,112
Net income for period January 1 to December 15,
1999 -- -- 14,737 14,737
---- --------- -------- ---------
BALANCE, December 15, 1999 115 73,768 30,966 104,849
==== ========= ======== =========
SUCCESSOR COMPANY
BALANCE, December 15, 1999 115 73,768 30,966 104,849
Convert retained earnings to additional paid-in capital
(Note 2) -- 30,966 (30,966 --
New goodwill directly resulting from change in
control (Note 2) -- 2,121 -- 2,121
Net income for period December 16 to December 31,
1999 -- -- 2,648 2,648
---- --------- -------- ---------
BALANCE, December 31, 1999 $115 $ 106,855 $ 2,648 $ 109,618
==== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 39
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 16, JANUARY 1,
1999 1999
TO TO Year Ended Year Ended
DECEMBER 31, DECEMBER 15, December 31, December 31,
1999 1999 1998 1997
------------ ------------ ------------- -------------
(SUCCESSOR) (PREDECESSOR) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,648 $ 14,737 $ 12,795 $ 6,655
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 277 3,719 3,287 1,669
Net (gain) loss on sale of property, premises and
equipment -- (36) 27 44
Equity in earnings from unconsolidated
subsidiaries (39) (686) (812) (465)
Deferred tax (benefit) expense 22 (362) 134 109
Compensation costs paid by parent -- -- -- 313
Changes in operating assets and liabilities net of effects
from purchase of Westbrooke Communities, Inc.:
Inventory and land held for development, net (2,908) (66,901) (41,998) (19,026)
Receivables - title companies 50 1,139 (1,451) 522
Receivables - affiliates and other (143) (3,289) (2,247) 5
Other assets (84) (1,920) 1,417 (1,252)
Payable to affiliates -- (2,442) 667 (287)
Accounts payable and accrued liabilities 571 13,134 2,930 801
Other liabilities 265 6,102 5,985 428
Federal income tax payable 1,383 362 -- --
------- -------- -------- --------
Net cash provided by (used in) operating activities 2,042 (36,443) (19,266) (10,484)
------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of certificate of deposit -- -- -- 1,000
Purchases of property, premises and equipment -- (2,286) (2,134) (1,812)
Proceeds from sales of property, premises and
equipment -- 139 44 33
Purchase of Westbrooke, net of cash acquired -- -- 2,280 --
Other -- -- -- (32)
Investment in unconsolidated subsidiaries -- (345) (255) (105)
Distributions from unconsolidated subsidiaries -- 920 903 1,691
------- -------- -------- --------
Net cash provided by (used in) investing activities -- (1,572) 838 775
------- -------- -------- --------
</TABLE>
10
<PAGE> 40
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
DECEMBER 16, JANUARY 1,
1999 1999
TO TO Year Ended Year Ended
DECEMBER 31, DECEMBER 15, December 31, December 31,
1999 1999 1998 1997
----------- ------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering of
common stock $ -- $ -- $ 18,446 $ --
Net proceeds from underwriters over-allotment
option -- -- 2,879 --
Capital contributions received -- -- 301 181
Dividends paid -- -- -- (4,810)
Proceeds from advances on construction loans
payable 12,860 337,506 279,694 140,101
Principal payments on construction loans payable (12,902) (296,737) (261,263) (130,463)
Principal payments on acquisition notes payable -- (2,468) (16,581) --
Proceeds from advances on notes payable to affiliate -- -- -- 8,373
Principal payments on notes payable to affiliate -- -- -- (3,569)
-------- --------- --------- ---------
Net cash provided by (used in) financing activities (42) 38,301 23,476 9,813
-------- --------- --------- ---------
INCREASE IN CASH 2,000 286 5,048 104
CASH, beginning of period 6,080 5,794 746 642
-------- --------- --------- ---------
CASH, end of period $ 8,080 $ 6,080 $ 5,794 $ 746
======== ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 541 $ 12,436 $ 9,501 $ 5,939
======== ========= ========= =========
Income taxes $ -- $ 10,723 $ 7,456 $ 4,182
======== ========= ========= =========
</TABLE>
See accompanying Notes 2, 3, 4 and 8 for supplemental disclosure
of noncash investing and financing activities.
See accompanying notes to consolidated financial statements.
11
<PAGE> 41
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION Newmark Homes Corp. (NHC or the Company) is an 80%
owned subsidiary of Technical Olympic USA, Inc.
(TOUSA) as of December 15, 1999. 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 Single-family residential homebuilding in
(Newmark) Texas, Tennessee and North
Carolina-formed in 1983.
Westbrooke Communities, Inc. Single-family residential homebuilding and
(Westbrooke) residential lot developer in
Florida-formed in 1976.
The Adler Companies, Inc. Single-family residential homebuilding in
(Adler) Florida-formed in 1990.
Pacific United Development Residential lot developer in Texas and
Corporation (PUDC) Tennessee-formed in 1993.
============================= ==============================================
</TABLE>
2. CHANGE IN CONTROL On December 15, 1999, TOUSA purchased 9,200,000
shares of the Company's common stock for $86 million
in cash. The shares sold in this transaction
represent 80% of the Company's outstanding common
stock. TOUSA purchased the shares from Pacific Realty
Group, Inc. (PRG), a Nevada corporation, which is a
wholly-owned subsidiary of Pacific USA Holdings Corp.
(PUSA), a Texas corporation and an indirect
subsidiary of Pacific Electric Wire & Cable, Ltd.
TOUSA, a Delaware corporation, is a wholly-owned
subsidiary of Technical Olympic (UK) PLC, an English
company, which is a wholly-owned subsidiary of
Technical Olympic S.A., a Greek company.
12
<PAGE> 42
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. CHANGE IN CONTROL This acquisition by TOUSA is accounted for as a
(CONTINUED) purchase, and the purchase price is recorded on the
Company's books. The excess of purchase price over
the fair value of the assets acquired and the
liabilities assumed approximates $46 million of which
approximately $2.1 million is directly attributed to
the transaction of change in control.
In connection with the acquisition by TOUSA of the
Common Stock, the Company entered into a Services
Agreement with PUSA to provide certain centralized
support services to the Company, including general
advisory services, market expansion research services
and administrative support services.
The 1998 Tandem Stock Option/Stock Appreciation
Rights Plan was terminated, as follows: The Company
exercised its right to terminate the options upon a
change of control and to pay the spread between the
exercise price and the closing price of the Common
Stock on the date of the change of control, December
15, 1999. There was no spread, and the options
expired and terminated on December 15, 1999. There
were no other incentive awards outstanding or
exercisable in fiscal year 1999 (see Note 13).
Pursuant to the stock purchase agreement entered into
in connection with the acquisition of Westbrooke (see
Note 4), certain additional consideration based on
Westbrooke achieving specified income targets over a
five year period became due and payable to the prior
majority owner and key employees of Westbrooke upon a
change of control. Westbrooke entered into an
Amendment to Stock Purchase Agreement (Amendment)
with the prior owner and key employees of Westbrooke
regarding the amount and timing of the additional
consideration as well as the acquisition of certain
partnership interests from the key employees. The
amount of additional consideration recorded in the
transaction as a result of the change in control to
the prior majority owner was $4.6 million in the form
of a promissory note. Additionally, the Amendment
adjusted the level of additional consideration
payable to the key employees from 6% to 7.5% of the
net income before income taxes, all as defined in the
Amendment. The Company will record such payments as
compensation expense in the periods in which they are
earned.
13
<PAGE> 43
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. CHANGE IN CONTROL The Tax Allocation Agreement (the tax sharing
(CONTINUED) agreement) between PUSA and the Company was partially
terminated whereby the Company would pay PUSA an
amount equal to the federal income taxes that the
Company would owe (or refund that it would receive)
had it prepared its federal income tax return on a
stand-alone basis (see Note 10).
For tax purposes, the Company elected to treat the
change in control as a deemed taxable sale of assets
resulting in a step-up in the tax basis of assets in
accordance with Internal Revenue Code ss.338(h)(10).
By electing ss.338(h)(10), the Company recognized
taxable income of approximately $20 million, and $8
million of tax per the original tax sharing
agreement, due to the difference in the financial
statement basis and the tax basis of the assets
immediately prior to the change in control. In terms
of the purchase and sale agreement between PUSA and
TOUSA, the tax sharing agreement was modified to
exclude the gain and corresponding tax from this
transaction from the calculation of the tax payments
by the Company to PUSA. Accordingly, the Company
recognized its income tax expense based on the
taxable income generated from its operations.
As a result, the consolidated amounts of the
Successor Company are presented on a new basis of
accounting different from the financial statements of
the Predecessor Company and, therefore, are not
comparable.
14
<PAGE> 44
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. CHANGE IN CONTROL The following table represents the operating results
(CONTINUED) of the Company on a full year basis in 1999 (in
thousands, except per share information):
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
Revenues $ 491,714
Cost of sales 411,011
---------
Gross profit 80,703
Equity in earnings from unconsolidated subsidiaries 725
Selling, general and administrative expenses (49,565)
Depreciation and amortization (3,996)
---------
Operating income 27,867
Other income (expense):
Interest expense (1,845)
Other income, net 1,064
---------
Income before income taxes 27,086
Income taxes 9,701
---------
Net income $ 17,385
=========
Net income per common share $ 1.51
=========
</TABLE>
3. SUMMARY OF The accounting and reporting policies of the Company
SIGNIFICANT conform to generally accepted accounting principles
ACCOUNTING and general practices within the homebuilding
POLICIES industry. The following summarizes the more
significant of these policies.
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.
USE OF ESTIMATES
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.
15
<PAGE> 45
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. SUMMARY OF ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
SIGNIFICANT
ACCOUNTING Statement of Financial Accounting Standards (SFAS)
POLICIES No. 121 addresses the accounting for the impairment
(CONTINUED) 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 undiscounted future cash flows.
CONCENTRATION OF CREDIT RISK
The Company conducts business primarily in Texas,
Florida, Tennessee, and North Carolina. Accordingly,
the market value of the Company's inventory is
susceptible to changes in market conditions that may
occur in Texas, Florida, Tennessee, and North
Carolina.
The Company has accounts with various financial
institutions, which are insured by the FDIC. Amounts
exceeding the FDIC insured amounts are $9.4 million
at December 31, 1999.
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 disbursements to
third parties.
16
<PAGE> 46
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. SUMMARY OF INVENTORY
SIGNIFICANT
ACCOUNTING Single family residences and lots and land held for
POLICIES development are recorded at the lower of cost or
(CONTINUED) 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 home in the various
subdivisions based upon the total number of homes to
be constructed in each subdivision community.
Interest cost and overhead related to construction
activities, primarily salaries and benefits of
supervisors and supporting staff, are capitalized as
construction costs during the construction period and
charged to cost of sales as the related inventories
are sold. Selling, general and administrative costs
are expensed at the time they are incurred.
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.
17
<PAGE> 47
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. SUMMARY OF PURCHASE OPTIONS
SIGNIFICANT
ACCOUNTING The Company enters into lot option contracts and
POLICIES contracts to purchase land for lot development. When
(CONTINUED) the Company does not exercise an option, its
liability is limited to the forfeiture of the related
deposit (Note 5). 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.
GOODWILL
At December 16, 1999, goodwill of approximately $46
million represents the combination of the goodwill
resulting from the transaction of change in control
and the goodwill attributed to the 20% minority
interest immediately prior to the transaction of
change in control. Starting from December 16, 1999,
goodwill is amortized on a straight-line basis over
thirty years. Periodically, the Company evaluates
goodwill for impairment by determining whether the
amortization of the balance over its remaining life
can be recovered through future undiscounted cash
flows of the Company.
REVENUE RECOGNITION
Revenue is recognized at the time of the closing of
the sale, when title to and possession of the
property transfers to the buyer.
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, 1999, 1998 and 1997 was
approximately $7.6 million, $6.7 million and $3.5
million, respectively.
18
<PAGE> 48
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. SUMMARY OF REPORTING ON THE COSTS OF START-UP ACTIVITIES
SIGNIFICANT
ACCOUNTING Statement of Position 98-5, "Reporting on the Costs
POLICIES of Start-Up Activities" (SOP 98-5), issued by the
(CONTINUED) American Institute of Certified Accountants, is
effective for years after December 15, 1998. Early
adoption is permitted. SOP 98-5 requires that costs
of start-up activities be expense as incurred. The
Company adopted SOP 98-5 on January 1, 1999 and
$259,000 of start-up costs were expensed during the
period from January 1 to December 15, 1999.
INCOME TAXES
The Company was included in the consolidated federal
income tax return of PUSA through December 15, 1999.
Under the former tax sharing agreement with PUSA, the
Company was required to calculate its federal income
tax on a separate company basis and pay to PUSA the
amount of the liability. When applicable, the Company
was entitled to receive payments from PUSA. Such
payment was only applicable to the extent the
benefits calculated could be utilized to offset prior
separate company income through carryback or, if
carried forward, at the time such benefits were
utilized to offset separate company income.
Effective December 16, 1999, the Company will be
included in the consolidated federal income tax
return with TOUSA.
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.
19
<PAGE> 49
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. SUMMARY OF EARNINGS PER SHARE
SIGNIFICANT
ACCOUNTING The Company presents earnings per share data in
POLICIES accordance with the Provisions of Statement of
(CONTINUED) Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). Basic EPS is computed by
dividing income available to common stockholders by
the weighted-average number of common shares
outstanding for the period.
Diluted earnings per share is computed based on the
weighted average number of shares of common stock and
dilutive securities outstanding during the period.
Dilutive securities are options that are freely
exercisable into common stock at less than market
exercise prices. Dilutive securities are not included
in the weighted average number of shares when
inclusion would increase the earnings per share or
decrease the loss per share.
The following tables reconcile the computation of
basic and diluted EPS for the years ended December
31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER PERIOD FROM
16, JANUARY 1,
1999 1999
TO TO Years Ended December 31,
DECEMBER DECEMBER -------------------------
31, 1999 15, 1999 1998 1997
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
INCOME AVAILABLE TO
COMMON SHAREHOLDERS
(Numerator) $ 2,648,000 $ 14,737,000 $ 12,795,000 $ 6,655,000
============= ============= ============ ===========
WEIGHTED AVERAGE OF
SHARES OUTSTANDING
(Denominator) 11,500,000 11,500,000 11,035,342 9,200,000
============= ============= ============ ===========
BASIC AND DILUTED EPS $ .23 $ 1.28 $ 1.16 $ .72
EFFECT OF DILUTIVE
SECURITIES
1998 Tandem Stock
Option Plan -- -- -- --
------------- ------------- ------------ -----------
DILUTED EPS $ .23 $ 1.28 $ 1.16 $ .72
============= ============= ============ ===========
</TABLE>
20
<PAGE> 50
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. SUMMARY OF FAIR VALUE OF FINANCIAL INSTRUMENTS
SIGNIFICANT
ACCOUNTING Statement of Financial Accounting Standards No. 107,
POLICIES "Disclosures about Fair Value of Financial
(CONTINUED) Instruments", requires companies to disclose the
estimated fair value of their financial instrument
assets and 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 and notes payable approximates its
fair value as substantially all of the debt has a
fluctuating interest rate based upon a current market
index. The carrying amount of the acquisition notes
payable approximate their fair value.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133
(SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities," issued by the Financial
Accounting Standards Board is effective for all
fiscal quarters of fiscal years beginning after June
15, 2000. This statement establishes accounting and
reporting standards for derivative instruments,
including certain derivative instruments embedded in
other contracts, and for hedging activities. The
Company does not expect adoption to have any effect
on its financial position, results of operations and
cash flows.
RECLASSIFICATIONS
Certain reclassifications have been made to conform
the prior years' amounts to the current year's
presentation.
21
<PAGE> 51
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. ACQUISITIONS WESTBROOKE ACQUISITION
Effective January 1, 1998, the Company, through its
wholly-owned subsidiary Westbrooke Acquisition Corp.,
acquired all of the outstanding stock of Westbrooke
Communities, Inc. and its affiliated entities, a
single-family home builder in South Florida. The
initial purchase price for Westbrooke was $18.9
million in the form of three promissory notes. A note
of $6.6 million bearing an interest rate of 9%, was
paid in full in December 1998. The notes are payable
in annual installments of $2.4 million beginning in
January 1999. The Company made its first installment
of $2.4 million in 1999. The remaining notes totaling
$9.9 million bear interest at 6.45% payable annually.
As indicated in Note 2, the additional consideration
earn-out resulted in an additional $4.6 million
promissory note. The total acquisition notes payable
outstanding to Westbrooke's prior majority owner at
December 31, 1999 was $14.5 million (Note 2).
In January 1998, the Company agreed to continue to
pay additional consideration to the prior owners of
Westbrooke equal to 7.5% of net income before income
taxes, as defined in the amendment to the Stock
Purchase Agreement. (As discussed in Note 2, the
Company modified the 6% additional consideration
amount to 7.5%.) Such payments will be recorded as
compensation expense in the periods in which they are
earned.
The 1998 acquisition was accounted for using the
purchase method and, accordingly, the operating
results of Westbrooke were included in the Company's
consolidated operating results since the effective
date of the acquisition.
22
<PAGE> 52
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
4. ACQUISITIONS As of January 1, 1998, the fair values of assets
(CONTINUED) acquired and liabilities assumed, exclusive of cash
acquired of $3,618,000 were as follows (in
thousands):
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Inventory $ 40,759
Receivables 1,540
Property and equipment 1,980
Other assets 2,216
Goodwill 10,159
Construction loans payable (22,308)
Acquisition notes payable (28,922)
Other liabilities (9,042)
--------
$ (3,618)
========
</TABLE>
Additional acquisition costs of $1.3 million were
incurred by the Company and recorded as goodwill.
The following unaudited pro forma financial
information for the year ended December 31, 1997 is
presented as if the acquisition of Westbrooke had
occurred on January 1, 1997 (dollars in thousands
except per share information). This unaudited pro
forma financial information does not necessarily
reflect the results of operations as if they had
occurred or the results that may occur in the future.
<TABLE>
<CAPTION>
Year ended December 31, 1997
------------
<S> <C>
Revenues $ 318,781
Cost of sales 263,676
------------
Gross profit 55,105
Net income $ 10,089
============
Earnings per common share:
Basic $ .90
============
Weighted average number of shares of common
stock equivalents outstanding:
Basic 11,200,000
============
</TABLE>
23
<PAGE> 53
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
5. INVENTORY The inventory of single family residences as of
December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
Number of Homes Carrying value
--------------- --------------------
December 31, December 31,
--------------- --------------------
1999 1998 1999 1998
----- ----- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Completed 137 118 $ 29,145 $ 23,224
Under construction 1,038 829 142,975 98,692
Models 80 74 19,763 15,401
----- ----- --------- ---------
1,255 1,021 $ 191,883 $ 137,317
===== ===== ========= =========
</TABLE>
A summary of interest capitalized in inventory is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Interest capitalized, beginning of period $ 5,516 $ 2,572 $ 1,494
Capitalized interest acquired in purchase
of Westbrooke -- 2,597 --
Interest incurred 12,859 11,163 6,518
Less interest included in:
Cost of sales 10,264 8,877 3,453
Interest expense 1,845 1,939 1,987
-------- -------- -------
Interest capitalized, end of period $ 6,266 $ 5,516 $ 2,572
======== ======== =======
</TABLE>
In the ordinary course of business, the Company
enters into contracts to purchase lots and land for
lot development. At December 31, 1999 and 1998, the
Company had nonrefundable deposits aggregating $1.5
million and $1.3 million included in other assets in
the accompanying consolidated balance sheets, for
lots and land with a related purchase price of
approximately and $56.6 million and $64.4 million,
respectively. The Company's liability for
nonperformance under such contracts is limited to
forfeiture of the related deposits.
24
<PAGE> 54
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. INVESTMENT IN Included in the investments in unconsolidated
UNCONSOLIDATED subsidiaries, the Company, during 1997, acquired a
SUBSIDIARIES 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. During 1998,
the Company acquired a 25% interest in Spicewood at
Bull Creek, a land development company, for $250,000.
In 1999, the Company acquired a 37.5% interest in
Scofield Farms, a land development company, for
$300,000. The Company does not have control of these
entities and therefore has accounted for its
interests using the equity method. The operations are
immaterial to the consolidated financial statements.
7. CONSTRUCTION LOANS Construction loans payable consist of the following
PAYABLE at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<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 to prime plus 1.5% (8.50%
to 10% at December 31, 1999), maturing
upon completion and sale of the homes as
defined in the loan
agreement $ 114,215 $ 94,526
Development and land acquisition loans with
financial institutions, collateralized by
deeds of trust on property, with maturing
dates ranging from July 2000 through
November 2003, bearing interest at prime
to prime plus 1.5%, (8.50% to 10% at
December 31, 1999) 34,476 11,564
Promissory note with a bank, collateralized by
property, bearing interest at 7.45%, payable
monthly, maturing in March, 2008 689 749
--------- ---------
$ 149,380 $ 106,839
========= =========
</TABLE>
25
<PAGE> 55
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. CONSTRUCTION LOANS Maturities on construction loans payable at December
PAYABLE (CONTINUED) 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, Amount
---------
<S> <C> <C>
2000 $ 148,756
2001 70
2002 75
2003 81
2004 87
Thereafter 311
---------
Total $ 149,380
=========
</TABLE>
Construction and lot loans are generally repaid as
sales of individual homes are closed and therefore
are considered current at December 31, 1999. At
December 31, 1999, the Company had unused lines of
credit for construction loans totaling approximately
$255 million of which $26.9 million was available to
draw down.
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, 1999, the Company was in
compliance with such requirements. 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, 1999.
8. PAYABLE TO Payable to affiliates consists of amounts owed by the
AFFILIATES Company to PUSA. At December 31, 1997, PUSA forgave
the balance of outstanding notes payable due from the
Company of $9.9 million. Accordingly, the Company
recorded this transaction as a capital contribution.
Total interest paid to PUSA, relating to these notes
payable, during the year ended December 31, 1997 was
approximately $557,000.
26
<PAGE> 56
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. RELATED PARTY As a subsidiary of PUSA, the Company purchased
TRANSACTIONS insurance policies from an affiliated insurance
broker. The affiliated entity earned commissions of
$155,000 $152,000 and $93,000 in 1999, 1998 and 1997,
respectively, with respect to such policies. Also, as
a subsidiary of PUSA, the Company purchased
demographic and economic research information through
an affiliate for $10,000 per year (See Note 2).
The Company provides various managerial services to a
related company for which it receives a fee. For the
years ended December 31, 1999, 1998 and 1997,
management fees included in other income were $0, $0
and $246,000, respectively.
10. INCOME TAXES Components of income tax expense (benefit) consist of
(in thousands):
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 9,984 $ 7,183 $ 4,038
State 57 320 125
-------- ------- -------
10,041 7,503 4,163
-------- ------- -------
Deferred:
Federal (340) 134 (1)
State -- -- 110
-------- ------- -------
(340) 134 109
-------- ------- -------
$ 9,701 $ 7,637 $ 4,272
======== ======= =======
</TABLE>
27
<PAGE> 57
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. INCOME TAXES The difference between total reported income taxes
(CONTINUED) and expected income tax expense computed using the
federal statutory income tax rate of 35% for 1999,
1998 and 1997 is reconciled as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense $ 9,481 $ 7,151 $ 3,825
Non-deductible goodwill
amortization 208 216 211
State taxes, net of federal benefit 38 208 153
Other (26) 62 83
------- ------- -------
$ 9,701 $ 7,637 $ 4,272
======= ======= =======
</TABLE>
Significant temporary differences that give rise to
the deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Warranty/advertising reserve $ -- $ 441
Property, premises and equipment,
principally due to differences in
depreciation -- 1
Capitalized interest -- 172
Accrued bonuses -- 551
Partnership investment -- (15)
Amortizable intangibles 155 --
Other -- 111
------ ------
Total gross deferred tax assets 155 1,261
------ ------
Deferred tax liabilities:
Amortizable intangibles -- (522)
Other -- (16)
------ ------
Total gross deferred tax liabilities -- (538)
------ ------
Net deferred tax asset $ 155 $ 723
====== ======
</TABLE>
28
<PAGE> 58
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. INCOME TAXES Management of the Company believes that it is more
(CONTINUED) 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,
1999 and 1998.
Included in the payable to affiliates is
approximately $362,000 as of December 31, 1999 and
$2.4 million as of December 31, 1998 payable to PUSA
under terms of the tax sharing agreement. Payments of
$10.7 million, $7.4 million, and $3.9 million,
respectively, were made to PUSA for federal income
taxes during 1999, 1998 and 1997, under the
aforementioned agreement.
The Internal Revenue Code ss.338(h)(10) election
discussed in Note 2 resulted in the creation of
amortizable goodwill for tax purposes in excess of
amortizable goodwill for financial statement
purposes. Accordingly, the Company recognized a new
deferred tax asset of approximately $177,000 at
December 16, 1999. From December 16, 1999, the
financial statement goodwill of approximately $46
million will be amortized on a straight-line basis
over a period of thirty years whereas the tax
goodwill of approximately $46.5 million will be
amortized on a straight-line basis over a period of
fifteen years.
11. COMMITMENTS AND The Company leases office premises and equipment
CONTINGENCIES under noncancellable operating leases. Future minimum
payments under these noncancellable operating leases
for the fiscal years ending on December 31 are as
follows:
<TABLE>
<CAPTION>
December 31, Amount
------------
<S> <C>
2000 $ 486,000
2001 393,000
2002 134,000
2003 40,000
2004 20,000
------------
$ 1,073,000
============
</TABLE>
29
<PAGE> 59
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
11. COMMITMENTS AND Rental expense for the year ended December 31, 1999,
CONTINGENCIES 1998 and 1997 aggregated, $425,000, $327,000 and
(CONTINUED) $332,000, 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 limited
warranty of workmanship and materials from the date
of sale for up to two years. 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 with a third party. This
warranty generally covers major structural defects.
Estimated warranty costs are recorded at the time of
sale. Total warranty expense for the year ended
December 31, 1999, 1998 and 1997 was $3.2 million,
$2.1 million and $1.6 million, respectively. As of
December 31, 1999 and 1998, the liability for
warranty costs was $1.2 million and $1.1 million
respectively, and was included in other liabilities.
The Company has an 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, 1999 letters of credit aggregating $2.8 million
were outstanding under this facility. No additional
amounts are available under this facility.
12. EMPLOYEE BENEFIT The Company has a 401 (k) Profit Sharing Plan (the
PLAN Plan). Under the terms of the Plan, the Company
matches 50% of employee's voluntary contributions up
to a maximum of 6% of each participant's earnings.
The Company's matching contributions to the Plan for
the year ended December 31, 1999, 1998 and 1997 were
$299,000, $446,000 and $256,880, respectively.
Effective December 16, 1999, this plan is being
sponsored by TOUSA.
30
<PAGE> 60
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. STOCK OPTIONS Effective December 15, 1999, as part of the change in
control, all Tandem Stock Option/Stock Appreciation
Rights were terminated. As of December 31, 1999, the
Company has not granted any additional options (See
Note 2).
During the year ended December 31, 1998, Tandem Stock
Option / Stock Appreciation Rights to acquire 682,000
shares at an exercise price of $10.50 with market
prices ranging from $7.00 to $11.13 in the year, were
granted to certain officers and employees of the
Company under the Company's stock option plan. During
this same period, no options were exercised. During
the period from January 1, 1999 to December 15, 1999,
no options were exercised.
The Company accounts for its stock option plan in
accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related
interpretations. As such, compensation expense would
be recorded on the date of grant only if the current
market price of the underlying stock exceeded the
exercise price.
FASB Statement 123, "Accounting for Stock-Based
Compensation," requires the Company to provide pro
forma information regarding net income and earnings
per share as if compensation cost for the Company's
stock option plans had been determined in accordance
with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value
of each stock option, using the Black Scholes method,
at the weighted-average assumption used for grants in
fiscal 1998 dividend yield of zero percent; expected
volatility of 21.5%; risk free interest rate of 6%;
and expected life of 10 years.
31
<PAGE> 61
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS Under the accounting provisions of FASB Statement
(CONTINUED) 123, the Company's net income and net income per
share for the year ended December 31, 1999 and 1998
would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
-------------- --------------
<S> <C> <C>
Net income:
As reported $ 17,385,000 $ 12,795,000
Pro forma -- $ 9,228,000
Basic net income per share:
As reported $ 1.51 $ 1.16
Pro forma -- $ .84
Diluted net income per share:
As reported $ 1.51 $ 1.16
Pro forma -- $ .84
============== ==============
</TABLE>
There were no stock options outstanding in 1997.
32
<PAGE> 62
NEWMARK HOMES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY RESULTS Quarterly results for the years ended December 31,
(UNAUDITED) 1999 and 1998 are reflected below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1999 FOURTH THIRD SECOND FIRST
------ ----- ------ -----
<S> <C> <C> <C> <C>
Revenues $141,757 $126,745 $130,380 $ 92,832
Operating income $ 9,453 $ 8,405 $ 6,557 $ 3,452
Net income $ 5,869 $ 5,330 $ 4,191 $ 1,995
Basic earnings per share $ .51 $ .46 $ .36 $ .17
Diluted earnings per share $ .51 $ .46 $ .36 $ .17
1998
Revenues $121,194 $112,907 $103,057 $ 69,195
Operating income $ 7,302 $ 6,051 $ 5,116 $ 2,701
Net income $ 4,500 $ 3,841 $ 3,178 $ 1,276
Basic earnings per share $ .39 $ .33 $ .28 $ .13
Diluted earnings per share $ .39 $ .33 $ .28 $ .13
</TABLE>
Quarterly and year-to-date computations of per share
amounts are made independently. Therefore, the sum of
per share amounts for the quarters may not agree with
the per share amounts for the year.
33
<PAGE> 63
SCHEDULE I
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
Cash and short-term investments ................................. $ 1,096 $ 359
Investments in and equity in net assets of subsidiaries ......... 71,429 90,471
Goodwill ........................................................ 45,652 0
Other assets .................................................... 150 12
------------ ------------
Total assets .......................................... $ 118,327 $ 90,842
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Acquisition notes payable ....................................... $ 7,600 $ 0
Other liabilities ............................................... 1,109 730
------------ ------------
Total liabilities ..................................... 8,709 730
------------ ------------
Stockholders' Equity:
Common stock ............................................. 115 115
Additional paid in capital ............................... 106,855 73,768
Retained earnings ........................................ 2,648 16,229
------------ ------------
Total Stockholders' Equity ............................ 109,618 90,112
------------ ------------
Total Liabilities and Stockholders' Equity ............ $ 118,327 $ 90,842
============ ============
</TABLE>
PARENT COMPANY ONLY STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM DECEMBER FROM JANUARY YEAR YEAR
16, 1999 TO 1, 1999 TO ENDED ENDED
DECEMBER 31, DECEMBER 15, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity in earnings of subsidiaries
(net of taxes) ................................................... $ 2,730 $ 15,183 $ 13,091 $ 6,655
Other expenses ....................................................... 82 446 296 0
------------ ------------ ------------ ------------
Net income ........................................................... $ 2,648 $ 14,737 $ 12,795 $ 6,655
============ ============ ============ ============
</TABLE>
<PAGE> 64
NEWMARK HOMES CORP. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM DECEMBER FROM JANUARY YEAR YEAR
16, 1999 TO 1, 1999 TO ENDED ENDED
DECEMBER 31, DECEMBER 15, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 2,648 $ 14,737 $ 12,795 $ 6,655
Adjustments to reconcile net income to cash from operating
activities:
Change in other assets ........................................ (6) (132) 1,781 (446)
Change in other liabilities ................................... 16 363 (1,073) 456
Equity in undistributed earnings of subsidiaries .............. (2,730) (15,183) (13,091) (6,655)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities .................. (72) (215) 412 10
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from subsidiaries ....................................... -- 2,880 -- 4,810
Capital contributions to subsidiaries ............................. -- (2,000) (21,690) (181)
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities .................. -- 880 (21,690) 4,629
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering of common stock ......... -- -- 18,446 --
Net proceeds from underwriters over-allotment option .............. -- -- 2,879 --
Capital contributions from parent ................................. -- -- 301 181
Dividends paid to parent .......................................... -- -- -- (4,810)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities .................. -- -- 21,626 (4,629)
Net change in cash and short-term investments ........................ 72 665 348 10
Cash at the beginning of the period .................................. 1,024 359 11 1
------------ ------------ ------------ ------------
Cash at the end of the period ........................................ $ 1,096 $ 1,024 $ 359 $ 11
============ ============ ============ ============
</TABLE>
<PAGE> 65
SCHEDULE II
NEWMARK HOMES CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS (WARRANTY RESERVES)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
====================================================================================================================
ADDITIONS
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT
BEGINNING OF CHARGED TO COSTS CHARGED TO DEDUCTIONS -- BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES OTHER ACCOUNTS PAYMENT OF PERIOD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999 $ 1,149 $ 2,827 --- $ (2,754) $ 1,222
====================================================================================================================
December 31, 1998 $ 881 $ 2,138 --- $ (1,870) $ 1,149
====================================================================================================================
December 31, 1997 $ 569 $ 1,643 --- $ (1,331) $ 881
====================================================================================================================
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER REF EXHIBIT
- --------------------------------------------------------------------------------
<S> <C> <C>
2.1 (1) 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.
2.1(b) (1) Form of Addendum to Stock Purchase Agreement, effective
January 15, 1998.
2.1(c) (4) Amendment to Stock Purchase Agreement dated December 15,
1999 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 I. Eisenacher,
Leonard R. Chernys and Diana Ibarria, The Westbrooke
Partnership, Pacific USA Holdings Corp., Newmark Homes
Corp. and Westbrooke Acquisition Corp.
2.3 (2) Stock Purchase Agreement dated November 24, 1999 between
Pacific Realty Group, Inc., Pacific USA Holdings Corp.,
and Technical Olympic USA, Inc.
3.1 (1) Amended and Restated Articles of Incorporation.
3.2 (1) Bylaws.
10.1 (1) Form of Tax Allocation Agreement between Pacific USA and
various affiliates and subsidiaries, of Pacific USA,
including the Registrant, dated April 28. 1992.
10.2 (1) Form of Amendment to Tax Agreement.
10.3 (4) Tax Indemnity and Allocation Agreement dated December 15,
1999 among Pacific USA Holdings Corp., Pacific Realty
Group, Inc., Newmark Homes Corp. and Technical Olympic
USA, Inc.
10.4 (1) Employment Agreement between Newmark Homes Corp. and Terry
White dated January 1, 1998.
10.5 (1) Employment Agreement Between Newmark Homes Corp. and J.
Eric Rome dated January 1, 1998.
10.7(a) (4) Second Amended and Restated Employment Agreement Between
Westbrooke Communities, Inc. and James Carr dated December
15, 1999.
10.7(b) (4) Amended and Restated Non-Competition Agreement dated
December 15, 1999 among Westbrooke Communities, Inc.,
Westbrooke at West Lake, Inc., Westbrooke at Winston
Trails, Inc., Westbrooke at Pembroke Pines, Inc.,
Westbrooke at Oak Ridge, Inc., The Westbrooke Partnership,
Westbrooke Acquisition Corp. and James Carr.
10.8 (1) Employment Agreement between Newmark Homes Corp. and
Lonnie M. Fedrick dated January 1, 1998.
10.9 (4) Amended and Restated Employment Agreement between Newmark
Home Corporation and J. Michael Beckett dated March 1,
2000.
10.10 (4) Form of Tax Allocation Agreement between Technical Olympic
USA, Inc. and various affiliates and subsidiaries,
including Newmark Homes Corp. and its subsidiaries dated
March 15, 2000.
11.1 (4) Statement relating to computation of per share earnings.
12.1 (4) Statement relating to computation of ratios.
16.1 (3) Letter relating to change in certifying accountant is
incorporated by reference to Exhibit 16.1 of Registrant's
Current Report on Form 8-K dated February 9, 1999.
21.1 (4) List of subsidiaries.
27.1 (4) Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as part of the Company's Registration Statement on Form S-1,
Amendment Number 3, filed with the Securities and Exchange Commission
on March 5, 1998, File No. 333-42213 and incorporated herein by
reference.
(2) Filed as Exhibit 2.1 of Registrant's Current Report on Form 8K dated
December 22, 1999 and incorporated herein by reference.
<PAGE> 67
(3) Filed as Exhibit 16.1 of Registrant's Current Report on Form 8K dated
February 9, 1999 and incorporated herein by reference.
(4) Filed herewith.
<PAGE> 1
EXHIBIT 2.1 (c)
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement ("Agreement"), is made as of
December 15, 1999 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
WHEREAS, the parties hereto entered into that certain Stock Purchase
Agreement and Addendum thereto ("Stock Purchase Agreement"), both dated as of
January 15, 1998 (capitalized terms used herein unless otherwise defined shall
have the meaning provided in the Stock Purchase Agreement);
WHEREAS, Pacific USA is engaged in confidential discussions with
Technical Olympic S.A. ("Olympic") to sell Olympic all of its interest in
Newmark (such sale the, "Olympic Transaction");
WHEREAS, as a result of the pending consummation of the Olympic
Transaction certain issues have arisen between the Seller and Buyer and Newmark
with respect to the amount, and the timing of the payment, of certain payments
due to Seller under the Stock Purchase Agreement;
WHEREAS, Seller, Buyer and Newmark desire to resolve the issues
pertaining to the amount and the timing of the payments due to the Seller;
WHEREAS, each of the Key Employees owns a KE Partnership Interest which
each Key Employee has the option to cause Buyer to acquire, but each Key
Employee is not obligated to sell his or her KE Partnership Interest to Buyer;
WHEREAS, Buyer and Newmark desire to acquire from each Key Employee the
KE Partnership Interest owned by such Key Employee, and each Key Employee
desires to sell his or her KE Partnership Interest to Buyer and Newmark, subject
to the terms and conditions hereof;
WHEREAS, in connection with the Olympic Transaction, Buyer and Newmark
desire that Seller and Key Employees enter into amendments to their respective
employment
<PAGE> 2
agreements and noncompetition agreements and in consideration for the premises
set forth herein Seller and Key Employees have agreed to enter into such
amendments; and
WHEREAS, Seller and Buyer desire to modify the survival period set
forth in Section 11.5 of the Stock Purchase Agreement.
WHEREAS, the parties desire to amend the Stock Purchase Agreement.
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficient of which are hereby
acknowledged, the parties agree as follows:
1. Sale and Transfer of KE Partnership Interests; Closing.
1.1 Cancellation of Option. The Option provided in Section
10.1 of the Stock Purchase Agreement is canceled. Notwithstanding the foregoing,
the provisions of Section 10.3 (b) and (c) and Sections 10.4, 10.5 and 10.6
shall continue to apply to the sale and transfer of the KE Partnership Interests
described in this Section 1.
1.2 KE Partnership Interests. At Closing, each of the Key
Employees will sell and transfer his or her KE Partnership Interest to Buyer and
Buyer will purchase from each Key Employee his or her KE Partnership Interest.
1.3 Purchase Price. The purchase price for each of the KE
Partnership Interests ("KE Purchase Price") shall be $354,586 and the KE
Additional Consideration, as hereinafter defined. The KE Purchase Price other
than the KE Additional Consideration shall be paid on February 15, 2000.
1.4 KE Additional Consideration. In addition to the
consideration paid at the Closing, Buyer and Newmark jointly and severally
agree, subject to the contingencies set forth below, to pay to each Key Employee
additional consideration (herein called the "KE Additional Consideration") as
set forth below. Each Key Employee's right to receive KE 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"). KE Additional Consideration shall be calculated and payable as follows:
(a) For the Calculation Year commencing January 1, 1999 and
ending December 31, 1999:
(i) the amount equal to 1.98% of the Net Income for
such Calculation Year; plus
(ii) $250,000 if Cumulative Net Income has been
achieved for such Calculation Year or if the last sentence in Section
2.2 (b)(1) of the Stock Purchase Agreement applies to such Calculation
Year;
2
<PAGE> 3
(iii) this amount shall be paid on or before 10 days
following completion of the audit for the Calculation Year, but in no
event later than April 30, 2000.
(b) For the Calculation Year commencing January 1, 2000 and
ending December 31, 2000:
(i) the amount equal to 2.50% of the Net Income
for such Calculation Year; plus
(ii) $250,000 if Cumulative Net Income has been
achieved for such Calculation Year or if the
last sentence in Section 2.2(b)(1) applies
to such Calculation Year.
(iii) this amount shall be paid on or before 10
days following completion of the audit for
the Calculation Year, but in no event later
than April 30, 2001.
(c) For the Calculation Year commencing January 1, 2001 and
ending December 31, 2001:
(i) the amount equal to 2.50% of the Net Income
for such Calculation Year; plus
(ii) $250,000 if Cumulative Net Income has been
achieved for such Calculation Year or if the
last sentence in Section 2.2(b)(1) applies
to such Calculation Year.
(iii) this amount shall be paid on or before 10
days following completion of the audit for
the Calculation Year, but in no event later
than April 30, 2002.
(d) For the Calculation Year commencing January 1, 2002 and
ending December 31, 2002:
(i) the amount equal to 2.50% of the Net Income
for such Calculation Year.
(ii) this amount shall be paid on or before 10
days following completion of the audit for
the Calculation Year, but in no event later
than April 30, 2003.
1.5 Escrow. At such time (whether at the end of a fiscal year
or during a fiscal year), but in no event prior to January 1, 2002, as the
Cumulative Net Income of the Subject Entities equals or exceeds $15,040,000,
Buyer shall escrow with a third party acceptable to the Key Employees the
estimated amount payable under Section 1.4(d)(i). Such escrow shall be
established pursuant to the KE Escrow Agreement in the form attached hereto as
Exhibit 1.5.
3
<PAGE> 4
2. Seller's Additional Consideration.
2.1 Cancellation of Section 2.2(b). Section 2.2(b) is hereby
deleted in its entirety as it applies to rights and obligations between the
Seller and Buyer, Newmark and Pacific USA. To the extent that Section 2.2(b) is
required for purposes of such Calculation Year or other provisions of the
Agreement or this Amendment it shall remain in effect.
2.2 Payment of Additional Consideration by Newmark and Buyer.
Buyer and Newmark shall pay Seller $4,600,000. This amount shall be paid by the
delivery by Newmark of a promissory note in the form attached hereto as Exhibit
2.2.
3. Seller Replacement Note. The Replacement Note required to be
delivered pursuant to Section 6.B.2 of the Stock Purchase Agreement in the form
attached hereto as Exhibit 3 shall be delivered at the Closing. Carr shall
return the original Non-Negotiable Promissory Note to Buyer at the Closing.
4. Definition of Net Income. Section 2.2(b)(3) shall be deleted in its
entirety and the following shall be substituted in place thereof:
(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, specifically excluding
the Seller Negotiable Promissory Note, 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;
(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 or the Subject Entities by Olympic or
any other entity;
(iii) any expenses, including interest, documentary
stamp taxes, lender's attorneys' fees and origination
fees, incurred in connection with (x) the financing
of the acquisition of the Acquired Companies by
Buyer, Olympic or any other entity, including,
without limitation, the Take-Out Loan, the Take-Out
LOC, and the Promissory Notes, the Adjustment Note,
if any, the Seller Replacement Note and the
Substitute LOC (subject to the provisions of Section
3.11(f) and Subsection (z) hereof), (y) any loans
4
<PAGE> 5
provided to the Subject Entities by Newmark, Buyer,
Olympic or any affiliate of Newmark, Buyer or
Olympic, 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 and
the Olympic Transaction.
(iv) any gain, loss, income or expense resulting from
a change in the Subject Entities' accounting methods,
principles or practices after the Closing or the
closing of the Olympic Transaction;
(v) any expenses directly or indirectly incurred in
connection with the acquisition of the Acquired
Companies by the Buyer, Olympic or any other entity;
(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, Olympic, any of their affiliates or any
other entity which acquires control of Newmark other
than the reimbursement of any out-of-pocket expenses
incurred by Pacific USA, Olympic, any affiliate of
Pacific USA, Olympic or any other entity which
acquires control of Newmark 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, Olympic or any
other entity that acquires Newmark.
(ix) in the event dividends or other distributions
(other than for debt service payments on account of
indebtedness to Buyer or a Related party of Buyer)
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 any party), Net Income shall include
deemed interest income on such funds equivalent to 9%
per annum.
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.
5
<PAGE> 6
5. Section 11.5 shall be deleted in its entirety and the following
shall be substituted in place thereof:
11.5 Time Limitations
Seller and Key Employees 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 in or prior to the Closing Date,
unless on or before the earlier of (a) two (2) years following
the Closing Date or (b) the date of consummation of the
Olympic Transaction (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. 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 the earlier of (a) two
(2) years following the Closing Date or (b) the date of
consummation of the Olympic Transaction Seller notifies Buyer
of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Seller.
6. Closing; Closing Obligations.
6.1 Closing. The closing (the "Closing") of the transactions
provided for in this Agreement will take place through an escrow closing
pursuant to the terms of the Closing Escrow Agreement ("Closing Escrow
Agreement").
6.2 Closing Obligations. At the Closing:
(a) Seller will deliver or cause to be delivered to
White & Case LLP which shall act as the escrow agent ("Escrow Agent") under the
Closing Escrow Agreement:
(i) an amended and restated employment
agreement in the form of Exhibit
6.2(a)(i), executed by Seller (the
"Seller Employment Agreement") to
be delivered to Westbrooke
Communities, Inc.;
(ii) an amended and restated
noncompetition agreement in the
form of Exhibit 6.2(a)(ii),
executed by Seller (the "Seller
Noncompetition Agreement") to be
delivered to Westbrooke
Communities, Inc.; and
(iii) the Non-Negotiable Promissory Note.
(b) Each of the Key Employees will deliver to the
Escrow Agent:
(i) an amended and restated employment
agreement in the form of Exhibit
6.2(b)(i), executed by each Key
Employee
6
<PAGE> 7
(collectively, the "KE Employment
Agreements") to be delivered to
Westbrooke Communities, Inc.;
(ii) amended and restated noncompetition
agreements in the form of Exhibit
6.2(b)(ii), executed by the Key
Employees (collectively, the "KE
Competition Agreements") to be
delivered to Westbrooke
Communities, Inc.;
(iii) an Assignment of Partnership
Interest in the form of Exhibit
6.2(b)(iii); and
(iv) The KE Escrow Agreement (KE
Additional Consideration) executed
by each of the key Employees.
(c) Buyer and Newmark, as the case may be, will
deliver or cause to be delivered to the Escrow Agent:
(i) negotiable promissory note made by
Newmark payable to Seller in the
principal amount of $4,550,000 in
the form of Exhibit 2.2 (the
"Seller Negotiable Promissory
Note") to be delivered to Seller;
(ii) negotiable promissory note made by
Newmark payable to Seller in the
principal amount of $3,000,000 in
the form of Exhibit 3 (the "Seller
Replacement Note") to be delivered
to Seller;
(iii) the Seller Employment Agreement and
the KE Employment Agreements,
executed by Westbrooke Communities,
Inc., to be delivered to Seller and
the respective Key Employees;
(iv) 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;
(v) evidence of corporate existence and
authority of Buyer, Pacific USA and
Newmark to be delivered to Seller
and the Key Employees; and
(vi) the KE Escrow Agreement (Additional
Consideration) executed by Buyer
and Newmark.
7. Incorporation. Except as otherwise provided herein, the terms and
provisions of the Stock Purchase Agreement shall remain in effect.
7
<PAGE> 8
/s/ James Carr
-----------------------------------------
JAMES CARR
WESTBROOKE COMMUNITIES, INC.,
a Florida corporation
By: /s/ James Carr
-------------------------------------
Name: James Carr
Title: President
WESTBROOKE AT WESTLAKE, INC.,
a Florida corporation
By: /s/ James Carr
-------------------------------------
Name: James Carr
Title: President
WESTBROOKE AT WINSTON TRAILS, INC.,
a Florida corporation
By: /s/ James Carr
-------------------------------------
Name: James Carr
Title: President
WESTBROOKE AT PEMBROKE PINES, INC.,
a Florida corporation
By: /s/ James Carr
-------------------------------------
Name: James Carr
Title: President
8
<PAGE> 9
WESTBROOKE AT OAKRIDGE, INC.,
a Florida corporation
By: /s/ James Carr
-------------------------------------
Name: James Carr
Title: President
/s/ Harold Eisenacher
-----------------------------------------
HAROLD L. EISENACHER
/s/ Leonard R. Chernys
-----------------------------------------
LEONARD R. CHERNYS
/s/ Diana Ibarria
-----------------------------------------
DIANA IBARRIA
THE WESTBROOKE PARTNERSHIP,
a Florida general partnership
By: /s/ James Carr
-------------------------------------
Name: James Carr
Title: Authorized Signer
PACIFIC USA HOLDINGS CORP.,
a Texas corporation
By: /s/ Michael K. McCraw
-------------------------------------
Name: Michael K. McCraw
Title: Chief Financial Advisor
9
<PAGE> 10
NEWMARK HOMES CORP.,
a Nevada corporation
By: /s/ Michael K. McCraw
-------------------------------------
Name: Michael K. McCraw
Title: Chairman
WESTBROOKE ACQUISITION CORP.,
a Florida corporation
By: /s/ Michael K. McCraw
-------------------------------------
Name: Michael K. McCraw
Title: President
10
<PAGE> 11
Exhibits will be provided upon request made to:
Newmark Homes Corp.
1200 Soldiers Field Drive
Sugar Land, Texas 77479
<PAGE> 1
EXHIBIT 10.3
TAX INDEMNITY AND ALLOCATION AGREEMENT
TAX INDEMNITY AND ALLOCATION AGREEMENT ("AGREEMENT") dated as of
December 15, 1999, by and among Pacific USA Holdings Corp., a Texas corporation
("PACIFIC USA"), Pacific Realty Group, Inc., a Nevada corporation
("STOCKHOLDER"), Newmark Homes Corp., a Nevada corporation ("COMPANY") and
Technical Olympic USA, Inc., a Delaware corporation ("PARENT").
RECITALS
A. Pacific USA owns all of the issued and outstanding stock of the
Stockholder; Stockholder owns stock of the Company representing 80% or more of
the issued and outstanding Shares ("STOCKHOLDER SHARES") of the Company; and the
Company owns various Subsidiaries ("COMPANY SUBSIDIARIES") included in the
Affiliated Group filing a consolidated Federal income tax return with the
Stockholders and the Company.
B. Under a Stock Purchase Agreement (including the exhibits, schedules
and Company Disclosure Letter attached thereto or referenced therein) dated as
of November 24, 1999 by and among the parties to this Agreement ("ACQUISITION
AGREEMENT"), 9,200,000 of the Stockholder Shares ("PURCHASED SHARES") will be
acquired by the Parent ("ACQUISITION").
C. The execution and delivery of this Agreement by the parties hereto
is a condition to the obligation of the parties to the Agreement to consummate
the Acquisition.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used and not otherwise defined in this Agreement
shall have the meanings assigned to such terms in the Acquisition Agreement. As
used in this Agreement, the following terms shall have the following respective
meanings:
"ACQUISITION" is defined in Recital C. above.
"ACQUISITION AGREEMENT" is defined in Recital C. above.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code 1504(a).
"AFTER-TAX BASIS" shall mean the amount sufficient to hold the
recipient and any member of its Affiliated Group harmless from (i) all Taxes
payable or deemed payable with respect to such payment and (ii) any other Taxes
actually required to be paid with respect to the receipt or accrual of such
payment, in each case after taking into account any deductions
<PAGE> 2
to which the recipient and any member of its Affiliated Group is entitled as a
result of the payment of such Taxes.
"AGREEMENT" is defined in the introductory paragraph of this
Agreement.
"CLAIMANT" is defined in Section 4.4(a) below.
"CODE" means the Internal Revenue Code of 1986, as amended (or
any successor thereto).
"COMPANIES" means the Company and each Company Subsidiary.
"COMPANY" is defined in the introductory paragraph to this
Agreement.
"COMPANY SUBSIDIARIES" is defined in Recital A. above and a
"COMPANY SUBSIDIARY" means one of the Company Subsidiaries.
"FINAL DETERMINATION" with respect to an Indemnity Amount
shall mean (a) a final decision with respect to the proposed adjustment by an
IRS appeals officer, as evidenced by the issuance of a 90-day letter, IRS Form
870-AD or like notice, unless judicial proceedings are initiated, (b) a final
non-appealable decision with respect to the proposed adjustment by a court of
competent jurisdiction, or (c) the settlement of the proposed adjustment with
the consent of the Indemnifying Party and the Claimant.
"INDEMNIFYING PARTY" is defined in Section 4.4(a) below.
"INDEMNITY AMOUNT" means an amount equal to one hundred
percent (100%) of a claim for indemnification under this Agreement computed on
an After-Tax Basis.
"INDEPENDENT PUBLIC ACCOUNTANTS" means a firm of independent
nationally recognized accountants mutually selected by Parent and Pacific USA.
"IRS" means the Internal Revenue Service and any successor
federal agency.
"PACIFIC USA" is defined in the introductory paragraph to this
Agreement.
"PACIFIC USA GROUP" means the Affiliated Group which includes
the Stockholders and the Companies.
"PARENT" is defined in the introductory paragraph to this
Agreement.
"PRE-ACQUISITION TAXABLE PERIOD" means all or a portion of (i)
any taxable period up to and including the Closing Date, or (ii) any taxable
period with respect to which the Tax is computed by reference to Tax Items,
assets, capital or operations of any of the Companies arising on or before the
Closing Date.
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"POST-ACQUISITION TAXABLE PERIOD" means all or a portion of
(i) any taxable period after the Closing Date or (ii) any taxable period with
respect to which the Tax is computed by reference to Tax Items, assets, capital
or operations of the Company or a Subsidiary arising after the Closing Date.
"PROCEEDING" is defined in Section 4.3(b) below.
"PURCHASED SHARES" is defined in Recital C. above.
"RULING" means a formal ruling, a determination letter, a
change in method of accounting letter or any similar announcement issued by the
IRS.
"SHARES" means all of the issued and outstanding stock of the
Company.
"STOCKHOLDER" is defined in the introductory paragraph to this
Agreement.
"STOCKHOLDERS" means the Stockholder and Pacific USA.
"STOCKHOLDER SHARES" is defined in Recital A. above.
"SUBSIDIARY" OR "SUBSIDIARIES" means, with respect to any
other corporation, any corporation of which such corporation (either alone or
through or together with any other entity), owns, directly or indirectly,
sufficient stock to cause the corporations to be in the same Affiliated Group.
"TAX" OR "TAXES" means any Tax or Taxes as defined in the
Acquisition Agreement other than Property Taxes.
"TAX ALLOCATION AGREEMENT" means the Tax Allocation Agreement
dated April 28, 1992, by and among Pacific USA, Pacific American Homes, Inc.,
Lifescape Development Corporation, Pacific Southwest Bank, F.S.B. and others as
amended by Amendment No. 1 dated January 27, 1998.
"TAX DISCLOSURE LETTER" means the disclosure letter delivered
by or on behalf of Pacific USA or Stockholder to the Parent at or prior to
execution of this Agreement.
"TAX ITEMS" is defined in Section 3.2(a) below.
"TAX LIABILITY ISSUE" is defined in Section 4.3(a) below.
"TAX RETURN" OR "TAX RETURNS" means any Federal or state
income tax return, (including any schedule or attachment thereto) and any
amendment thereof required to be filed with IRS in connection with any Tax.
"TREASURY REGULATION" OR "TREASURY REGULATIONS" means any
regulation promulgated under the Code including any amendments or any substitute
or successor provisions thereto.
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ARTICLE II
COVENANTS
2.1 PREPARATION AND FILING OF TAX RETURNS: PAYMENT OF TAXES.
Stockholders (with respect to the Companies) and the Companies shall prepare and
file on or before the due date therefor (taking into account properly and timely
granted extensions), all Tax Returns required to be filed by the Stockholders
(with respect to the Companies) and the Companies (except for any Tax Return for
which an extension has been properly and timely granted) on or before the
Closing Date, and shall pay, or cause the Companies to pay, all Taxes (including
estimated Taxes) due at such time on such Tax Returns (or due with respect to
Tax Returns for which an extension has been properly and timely granted) or
which are otherwise required to be paid prior to or during such period. As to
all Tax Returns prepared and filed pursuant to this Section 2.1, the Parent
shall cause the Companies to execute such Tax Returns if filed after the Closing
Date.
2.2. NOTIFICATION OF TAX PROCEEDINGS. Between the date hereof and the
Closing Date, to the extent the Stockholders or the Companies have actual
knowledge of the commencement or scheduling of any Tax audit, the assessment of
any Tax, the issuance of any notice of Tax due or any bill for collection of any
Tax due for Taxes, or the commencement or scheduling of any other administrative
or judicial proceeding with respect to the determination, assessment or
collection of any Tax of the Stockholders (with respect to the Companies) or of
any of the Companies, the Stockholders shall provide prompt notice to the Parent
of such matter, setting forth information (to the extent known) describing any
asserted Tax liability in reasonable detail and including copies of any notice
or other documentation received from the applicable Tax Authority with respect
to such matter.
2.3. TAX ELECTIONS, WAIVERS AND SETTLEMENTS. The Stockholders (with
respect to the Companies) and the Companies shall not take any of the following
actions after the date hereof without the prior written consent of Parent, which
shall not be unreasonably withheld or delayed:
(a) make, revoke or amend any Tax election which materially
affects the Tax obligation of the Companies other than as necessary to
prepare and file a Tax Return;
(b) execute any waiver of restrictions on assessment or
collection of any material Tax (other than waivers relating to
extensions); or
(c) enter into or amend any agreement or settlement with the
IRS or any state Tax Authority responsible for the administration of
any Tax which materially affects the Tax obligation of the Companies.
2.4. TERMINATION OF EXISTING TAX SHARING AGREEMENTS. All tax sharing
agreements or similar arrangements with respect to or involving the Companies
(including, for example, the Tax Allocation Agreement) shall be terminated with
respect to the Companies after the Closing Date and, after the Closing Date,
neither the Stockholders and their Affiliates, on the one hand, nor the
Companies, on the other hand, shall be bound thereby or have any liability
thereunder to the other party for amounts due in respect of periods after the
Closing Date. Notwithstanding the foregoing,
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however, the Companies shall remain subject to the Tax Allocation Agreement for
the taxable period in which the Closing Date occurs such that the Companies
remain obligated and will promptly pay to the Stockholders when calculated an
amount equal to the excess of 35% of their taxable income (excluding the taxable
income resulting from the Section 338(h)(10) Elections) included in the Federal
consolidated income Tax Return with the Stockholders for such period over the
amounts paid to the Stockholders with respect to such period by the Companies
prior to the Closing Date.
ARTICLE III
TAX ELECTIONS AND RETURNS
3.1 SECTION 338(H)(10) ELECTIONS. Pacific USA as the common parent of
the affiliated group of corporations filing a consolidated federal income Tax
Return which includes the Company and the Subsidiaries (the "SELLER GROUP") and
Parent agree that they will join together in making a timely, irrevocable and
effective election under section 338(h)(10) of the Code and a similar election
under any applicable state income tax law (collectively, the "SECTION 338(H)(10)
ELECTIONS") with respect to Parent's purchase of the Shares. To facilitate such
election, within 180 days after the Closing Date, Parent shall prepare and
deliver to Pacific USA for its review and approval (which approval shall not be
unreasonably withheld) an Internal Revenue Service Form 8023 and any similar
forms under applicable state income tax law (the "FORMS") with respect to
Parent's purchase of the Shares. Parent and Pacific USA shall then cooperate to
cause the Forms to be completed and executed by authorized persons for Parent
and Pacific USA. Parent shall duly and timely file the Forms as prescribed by
Treasury Regulation 1.338(h)(10)-1 or the corresponding provisions of applicable
state income Tax law and shall provide a copy of the executed Forms and any
accompanying schedules to Pacific USA when filed.
3.2 PREPARATION AND FILING OF TAX RETURNS.
(a) With respect to each Tax Return covering a taxable period
ending on or before the Closing Date that is required to be filed after
the Closing Date for, by or with respect to any of the Companies (other
than the Tax Returns described in paragraph (c) of this Section 3.2),
Stockholders shall cause such Tax Return to be prepared, shall cause to
be included in such Tax Return all items of income, gain, loss,
deduction and credit or other items (collectively "TAX ITEMS") required
to be included therein, and shall deliver the original of such Tax
Return to Parent at least 30 days prior to the due date (including
extensions) of such Tax Return. Stockholders shall pay to Parent the
amount of Tax shown on each such Tax Return (to the extent it has not
been previously paid or accrued in the financial statements contained
in the most recently filed Company Reports) not less than 5 days prior
to the due date of such Tax Return. Parent shall cause such Tax Return
to be filed timely with the appropriate Taxing Authority and to pay the
amount of Taxes shown to be due on such Tax Return. Parent shall cause
to be prepared and timely filed all Tax Returns for any taxable period
beginning after the Closing Date and shall pay all Taxes required to be
shown thereon.
(b) With respect to each Tax Return covering a taxable period
beginning on or before the Closing Date and ending after the Closing
Date by or with respect to any of the Companies (other than the Tax
Returns described in paragraph (c) of this Section 3.2), Parent
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shall cause such Tax Return to be prepared and shall cause to be
included in such Tax Return all Tax Items required to be included
therein. Parent shall determine in good faith (by an interim closing of
the books as of the Closing Date except for ad valorem Taxes and
franchise Taxes based on capital which shall be prorated on a daily
basis) the portion, if any, of the Tax due with respect to the period
covered by such Tax Return which is attributable to any of the
Companies for a Pre-Acquisition Taxable Period. At least 30 days prior
to the due date (including extensions) of such Tax Return, Parent shall
deliver to Stockholders for their review and approval (which shall not
be unreasonably withheld) a copy of such Tax Return and of its
determinations. Upon approval, Stockholders shall pay to Parent the
portion of the Taxes attributable to the Pre-Acquisition Taxable Period
(which has not been previously paid or accrued in the financial
statements contained in the most recently filed Company Reports) not
less than 5 days prior to the due date of such Tax Return. Parent shall
cause the Tax Return to be filed timely with the appropriate Taxing
Authority and to pay timely the amount of Taxes shown to be due on such
Tax Return.
(c) Stockholders shall cause to be included in the
consolidated federal income Tax Returns (and the state income Tax
Returns of any state that permits consolidated, combined or unitary
income Tax Returns, if any) of the Pacific USA Group for all periods
ending on or before or which include the Closing Date, all Tax Items of
the Companies which are required to be included therein, shall file
timely all such Tax Returns with the appropriate taxing authorities and
shall pay timely all Taxes due with respect to the periods covered by
such Tax Returns.
(d) Any Tax Return to be prepared pursuant to the provisions
of this Section 3.2 shall be prepared in a manner consistent with
practices followed in prior years with respect to similar Tax Returns,
except for changes required by changes in law.
3.3 REFUNDS OF TAXES, AMENDED RETURNS, AND CARRYOVERS.
(a) If the Parent or the Companies receive a Tax refund with
respect to Taxes attributable to a Pre-Acquisition Taxable Period, Parent and/or
the Companies, as applicable, will pay, within the fifteen (15) days following
the receipt of such Tax refund, the amount of such Tax refund to Pacific USA. If
the Stockholders or their Affiliates receive a Tax refund of Taxes attributable
to any Post-Acquisition Taxable Period, within fifteen (15) days following the
receipt of such Tax refund, the Stockholders and/or their Affiliates, as
applicable, will pay the amount of such Tax refund to the Parent.
(b) Any amended Tax Return or claim for Tax refund for any
taxable period ending on or before the Closing Date shall be filed, or caused to
be filed, only by the Stockholders, which shall not be obligated to make (or
cause to be made) such filing. Any amended Tax Return or claim for Tax refund
for any taxable period that begins after the Closing Date shall be filed, or
caused to be filed, only by the Parent, which shall not be obligated to make (or
cause to be made) such filing. Any amended Tax Return or claim for Tax refund
for any taxable period that begins before and ends after the Closing Date shall
be filed, or caused to be filed, only with the mutual consent of the Parent and
Pacific USA.
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ARTICLE IV
STOCKHOLDERS' TAX INDEMNIFICATION; TAX CONTESTS
4.1. INDEMNIFICATION BY STOCKHOLDERS. From and after the Closing Date,
each of the Stockholders on a joint and several basis shall protect, defend,
indemnify and hold harmless Parent, its Affiliates and the Companies from any
and all Taxes (including, without limitation, any obligation to contribute to
the payment of any Taxes determined on a consolidated basis with respect to a
group of entities that includes or included any of the Companies, the
Stockholders and/or other Affiliates of the Stockholders) and all costs and
expenses (including, without limitation, litigation costs and reasonable
attorneys' and accountants' fees and disbursements) incurred as a result of: (i)
any Taxes of the Companies attributable to any Pre-Acquisition Taxable Period
(other than Taxes which have been previously paid or accrued in the financial
statements contained in the most recently filed Company Reports); (ii) any Taxes
of any corporation (other than the Companies) that is or was a member of any
affiliated group of corporations of which any of the Companies was a member at
any time on or prior to the Closing Date; (iii) any Taxes resulting from the
Section 338(h)(10) Elections; and (iv) a breach of the representations relating
to Taxes contained in Section 4.9 of the Acquisition Agreement, which
representations shall survive Closing until the expiration of the applicable
statute of limitations period.
4.2. INDEMNIFICATION BY PARENT. From and after the Closing Date, Parent
shall protect, defend, and indemnify and hold harmless Stockholders and their
Affiliates for any Taxes and all costs and expenses (including, without
limitation, litigation costs and reasonable attorneys' and accountants' fees and
disbursements) incurred as a result of a claim, notice of deficiency, or
assessment by, or any obligation owing to, any Tax Authority for any Taxes of
the Companies attributable to any Post-Acquisition Taxable Period.
4.3. CONTEST PROVISIONS.
(a) Parent, on the one hand, and the Stockholders, on the
other hand, will (A) promptly inform the other of any investigations, audit or
other proceedings and use reasonable efforts to keep the other advised as to the
status of Tax audits and litigation involving any Taxes that could give rise to
a liability under this Agreement or increase the Tax obligation of the other
party (a "TAX LIABILITY ISSUE"), (B) promptly furnish to the others copies of
any inquiries or requests for information from any Tax Authority concerning any
Tax Liability Issue, (C) timely notify the others regarding any proposed written
communication (i.e., communications not relating to inquiries or requests for
information) to a Tax Authority with respect to such Tax Liability Issue, (D)
promptly furnish to the other upon receipt a copy of information or document
requests, a notice of proposed adjustment, revenue agent's report or similar
report or notice of deficiency together with all relevant documents, Tax Returns
and memos related to the foregoing documents, notices or reports, relating to
any Tax Liability Issue, (E) give the other and its or their accountants and
counsel the reasonable opportunity to review and comment in advance (if
reasonably possible) on all written submissions, filings and any other
information relevant to any Tax Liability Issue, and (F) consider in good faith
any suggestions made by the other and its or their accountants and counsel to
submit documentation or attend those portions of any meetings and proceedings
that relate to such proposed adjustment; provided, however, that the failure of
one party to so notify the other party of any such audit or Tax
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controversy shall not affect the other party's obligations under this Agreement
except to the extent such Party can demonstrate that it has been prejudiced or
adversely affected thereby. Notwithstanding the foregoing, Parent, on the one
hand, and the Stockholders, on the other hand, may make appropriate redactions
in the submissions, filings and any other information provided to the other to
preserve the confidentiality of such information as to issues that are not Tax
Liability Issues.
(b) Parent will have full responsibility for and discretion in
handling, at Parent's expense, any Tax controversy, including, without
limitation, an audit, a protest to the Appeals Division of the IRS, and
litigation in Tax Court or any other court of competent jurisdiction involving
the Companies (a "PROCEEDING") as to Taxes of the Companies attributable to Post
Acquisition Taxable Periods. The Stockholders will have full responsibility and
discretion in handling, at Stockholders' expense, any Proceeding as to any Taxes
of the Companies attributable to Pre-Acquisition Taxable Periods. The
Stockholders will not settle any such Proceeding in a manner which would
adversely affect the Parent or the Companies after the Closing Date without the
prior written consent of Parent, which shall not be unreasonably withheld. The
Parent and Affiliates will not settle any such Proceeding in a manner which
would adversely affect either of the Stockholders or their Affiliates without
the prior written consent of the Stockholders, which shall not be unreasonably
withheld.
4.4. CLAIMS FOR, AND PAYMENT OF, INDEMNITY AMOUNT.
(a) Whenever any claim is made for indemnification or another
obligation under this Agreement, (including obligations pursuant to the Tax
Allocation Agreement) the party claiming such indemnification ("CLAIMANT") shall
notify the party against whom indemnification is sought ("INDEMNIFYING PARTY")
promptly after the Claimant has knowledge of any event which might give rise to
a claim for indemnification under this Agreement.
(b) The failure by the Claimant to give notice of a claim as
required in Section 4.4(a) above or a delay in giving such notice shall not
affect the validity or amount of such claim and the indemnification obligations
of the Indemnifying Party shall remain in effect as to such claim, except to the
extent that the Indemnifying Party can demonstrate that it has been prejudiced
or adversely affected thereby.
(c) Within five days of any Final Determination of any claim
for indemnification under this Agreement, the Claimant shall provide a detailed
written notice to the Indemnifying Party explaining and substantiating the
calculation of the Indemnity Amount. The Indemnifying Party shall pay the
Indemnity Amount to the Claimant on the last to occur of (i) fifteen (15) days
after receipt of such notice, (ii) thirty (30) days after any Final
Determination or (iii) fifteen (15) days after the final determination of the
calculation of the Indemnity Amount owed by the Indemnifying Party to the
Claimant under Section 4.4(d) below; provided, such amount is not in dispute and
subject to arbitration as provided herein.
(d) If the Indemnifying Party shall disagree with the
Claimant's calculation of the Indemnity Amount and within ten (10) days after
receipt of such calculation requests in writing verification of such amount,
such amount shall be verified by a firm of Independent Public Accountants.
Within 15 days after the Indemnifying Party's request, the Independent Public
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Accountants either (i) shall confirm the accuracy of the Claimant's computation
or (ii) notify the Claimant that such computation is inaccurate. In the case of
(ii) above, the Independent Public Accountants shall recompute the Indemnity
Amount in such a manner as shall enable the Independent Public Accountants to
confirm its accuracy. The costs of such verification shall be borne by the
Indemnifying Party unless such verification shall result in an adjustment in the
Indemnifying Party's favor of the Indemnity Amount computed by the Claimant, in
which case such costs shall be borne by the Claimant. The Claimant agrees to
cooperate with such Independent Public Accountants and, subject to a
confidentiality agreement reasonably satisfactory to the Claimant, to supply
them with all information reasonably necessary to permit them to accomplish such
review and determination. Such information shall be for the confidential use of
the Independent Public Accountants and shall not be disclosed to the
Indemnifying Party or to any other person. The Indemnifying Party and Claimant
agree that the sole responsibility of the Independent Public Accountants shall
be to verify the amount of the Indemnity Amount pursuant to this Section 4.4(d)
and the matters of interpretation of this Agreement are not within the scope of
the Independent Public Accountant's responsibility. If the Claimant and
Indemnifying Party still do not agree as to liability (including the amount of
liability), the dispute shall be resolved by arbitration pursuant to Section
6.14 if any party requests.
4.5. SURVIVAL. The representations, warranties, covenants and
indemnification obligations arising under this Agreement and in any other
certificates or documents delivered in connection with this Agreement shall
survive the Closing and Closing Dates and shall continue in full force and
effect and shall not terminate until, and no indemnification claims and
obligations arising thereto shall survive beyond, ninety (90) days after all
applicable statute of limitations (including any waivers or extensions) have
expired for such claims not brought prior to such date.
4.6. OFFSET. If any party for any reason fails or refuses to perform
fully its obligations or indemnifications under this Agreement, the Claimant
shall have the right of offset with respect to any payments which are due or
shall become due under this Agreement, the Acquisition Agreement or any other
agreement between or among such party or the Claimant. The foregoing provisions
of this Section 4.6 are permissive, and a failure by a Claimant to exercise its
rights under this Section 4.6 shall not affect its right to indemnification
under this Agreement.
4.7. EXPENSES. Except as otherwise specifically provided in this
Agreement, each party shall bear its own expenses incurred in connection with a
Tax Liability Issue for which such party and its Affiliates are liable under
this Agreement.
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ARTICLE V
COOPERATION, ACCESS TO TAX INFORMATION,
CONFIDENTIALITY AND FURTHER ACTION
5.1. ACCESS TO INFORMATION. After the Closing Date, each party shall,
upon the request of the other party, in connection with the preparation by the
parties of Tax Returns, Tax contests or for other Tax purposes as the other
party shall reasonably request, (a) provide to the officers and other authorized
representatives of the requesting party access, during normal business hours
upon reasonable advance notice, to any premises, properties, files, books,
records, documents and other information of the Stockholders (with respect to
the Companies) or any of the Companies, (b) cause its officers to furnish to the
requesting party and its authorized representatives any and all relevant
financial, technical and operating data and other information pertaining to the
Stockholders (with respect to the Companies) or any of the Companies that is
regularly maintained by such party, (c) make available to the requesting party
and its authorized representatives personnel to consult with such persons, and
(d) make available for inspection and copying by the requesting party at the
requesting party's expense true and complete copies of any documents relating to
the foregoing; provided, however, that the requesting party and its
representatives shall not interfere with the other party's normal business
operations. All such written information and records shall be provided in a
reasonably timely manner following the receipt of a written request therefor
from the requesting party.
5.2. RECORD RETENTION. The Stockholders, on the one hand, and the
Parent, on the other hand, shall retain, until the applicable statutes of
limitations (including any waivers or extensions) have expired, copies of all
Tax Returns, supporting work schedules and other records or information which
may be relevant to such Tax Returns for all taxable periods or portions thereof
ending after 1995 before or including the Closing Date and shall not destroy or
otherwise dispose of any such records prior to four years after filing the
applicable return without first providing the other party with a reasonable
opportunity to review and copy the same.
5.3. CONFIDENTIALITY. Each party shall hold, and shall use its best
efforts to cause its Affiliates to hold, in strict confidence from any person
(other than any such Affiliate), all documents and information concerning the
other party or any of its Affiliates furnished to it by the other party in
connection with this Agreement or the transactions contemplated hereby, unless
(a) required to disclose any such information by judicial or administrative
process or (b) disclosed in an action or proceeding brought by any party in
pursuit of its rights or in the exercise of its remedies under this Agreement.
Notwithstanding the foregoing, this Section 5.3 shall not apply to such
documents or information that were (i) in the public domain through no fault of
such receiving party, or (ii) later acquired by such receiving party from
another source if such receiving party is not aware that such source is under an
obligation to the other party to keep such documents and information
confidential.
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5.4. FURTHER ACTION.
(a) Upon the terms and subject to the conditions of this
Agreement, the parties shall use all reasonable efforts to take, or cause to be
taken, all reasonable actions, and to do, or cause to be done, all other things
reasonably necessary, proper or advisable to consummate and make effective as
promptly as reasonably practicable the matters contemplated by this Agreement
and otherwise to satisfy or cause to be satisfied in all material respects all
conditions precedent to their obligations under this Agreement.
(b) Upon request, each of the parties will use their
reasonable best efforts to obtain any certificate or other document from the
appropriate Tax Authority or any other person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the matters contemplated by this Agreement or the
transaction contemplated by the Acquisition Agreement).
(c) Upon request, each of the parties will provide the other
with all reasonable information that either party may be required to report
pursuant to Code 6043 and the underlying Treasury Regulations.
ARTICLE VI
MISCELLANEOUS
6.1 ENTIRE AGREEMENT; ASSIGNMENT
(a) This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of each other
party hereto in their sole and absolute discretion. Any such assignment without
the express written consent of the other parties shall be void ab initio. No
assignment of this Agreement shall relieve the assigning party of the
obligations hereunder.
6.2. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
6.3 NOTICES. All notices, requests, clause, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to the Company:
Newmark Homes Corp.
1200 Soldiers Field Drive
Sugar Land, TX 77479
Attention: Terry White
Facsimile Number: 281-243-0168
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with a copy to:
Brian Sokolik
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, TX 77002-6760
Facsimile Number: 713-615-5618
If to Parent:
Yannis Delikanakis
Technical Olympic USA, Inc.
c/o Technical Olympic S.A.
20 Solomou Street
Ana Kalamaki
Athens, Greece 17456
Facsimile Number: 011 301 9955586
with a copy to
Brian Sokolik
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, TX 77002-6760
Facsimile Number: 713-615-5618
If to Stockholder or Pacific USA:
Pacific USA Holding Corp.
2740 North Dallas Parkway, Suite 200
Dallas, TX 75093-4705
Attention: Bill C. Bradley, CEO
Facsimile Number: (972) 543-1501
with a copy to:
Pacific USA Holdings Corp.
3200 Southwest Freeway, Suite 1220
Houston, TX 77027
Attention: General Counsel
Facsimile Number: (713) 871-0155
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or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
6.4. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof,
except to the extent that the laws of another jurisdiction govern the internal
affairs of any entity that is a party to this Agreement.
6.5. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
6.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
6.7. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
6.8. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall have the right of
specified performance and injunctive relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
United States or state court having competent jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity and
all such rights and remedies shall be cumulative.
6.9. MODIFICATION OR AMENDMENT. The parties hereto may modify or amend
this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties. Notwithstanding anything in this
Agreement or any other agreement (including, for example, the Acquisition
Agreement) to the contrary, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and any other agreement, the
provisions of this Agreement shall control.
6.10. TERM. This Agreement shall commence on the date of execution
indicated below and shall continue in effect until otherwise agreed to in
writing by the parties or their successors.
6.11. SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
13
<PAGE> 14
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
6.12. NO WAIVER. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by both parties. The failure or delay of either party to require performance by
the other party of any provision of this Agreement shall not affect its right to
require performance of such provision unless and until such performance has been
waived by such party in writing in accordance with the terms hereof. No waiver
by either party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise afforded, shall be cumulative
and not alternative.
6.13. LATE PAYMENTS, INTEREST. Any late payment by any party hereto of
any of its obligations under this Agreement shall bear interest at the rate of
10% per annum; provided, such rate shall not exceed the maximum non usurious
rate permitted by applicable law.
6.14. ARBITRATION. If the parties are unable to resolve any dispute
relating to this Agreement, the matter must be taken to arbitration to resolve
the dispute if requested by any party. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and shall take place in Harris County, Texas.
[Signature pages follows]
14
<PAGE> 15
[Signature Page " Tax Indemnity And Allocation Agreement]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
"THE COMPANY"
Newmark Homes Corp.
By: /s/ Lonnie M. Fedrick
-------------------------------
Name: Lonnie M. Fedrick
-----------------------------
Title: President
----------------------------
"STOCKHOLDER"
Pacific Realty Group, Inc.
By: /s/ Michael K. McCraw
-------------------------------
Name: Michael K. McCraw
-----------------------------
Title: President
----------------------------
"PACIFIC USA"
Pacific USA Holdings Corp.
By: /s/ Michael K. McCraw
-------------------------------
Name: Michael K. McCraw
-----------------------------
Title: Chief Financial Officer
----------------------------
<PAGE> 16
[Signature Page Continued " Tax Indemnity and Allocation Agreement]
"PARENT"
Technical Olympic USA, Inc.
By: /s/ Constantine Stengos
------------------------------------
Name: Constantine Stengos
----------------------------------
Title: President and Managing Director
---------------------------------
<PAGE> 1
EXHIBIT 10.7 (a)
SECOND AMENDED AND
RESTATED EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is made as of the 15th day of December, 1999, 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 Amended and Restated
Employment Agreement between Company and Executive dated as of January 15, 1998
(the "1998 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
Fiduciary responsibilities of the Board of Directors (the "Board") which
include, without limitation, oversight by 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
responsibilities; and shall devote (except as provided herein) such of his time,
attention, ability and energy as is reasonably required for the performance of
his duties and responsibilities hereunder. Subject to
<PAGE> 2
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 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,
Winston Trails, Journey's End, Ironhorse, Mapleridge, Three Lakes and Corsica
Place. 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.
(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 adversely affect the performance of Executive's duties pursuant
to this Agreement.
(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 Miami-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 Miami-Dade or Broward
Counties, Florida, shall be made without Executive's prior written consent. The
Company acknowledges that the Executive may perform his duties hereunder from
remote locations from time to time.
2. Employment Term. The term of the Executive's employment hereunder
shall commence on the date hereof and shall end on December 31, 2002 (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 SEVENTY-FIVE
THOUSAND DOLLARS ($475,000.00), 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, 2000. 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
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<PAGE> 3
salaries provided by comparable businesses, the financial condition of the
Company and other similar matters.
(b) Bonuses. The Executive shall be entitled to a bonus for
each calendar year commencing January 1, 2000 in the amount equal to the greater
of (i) Executive's Base Salary for the applicable calendar year or (ii) $475,000
(such amount the "Bonus Amount"); provided, that if the Net Income (as hereafter
defined) of the Subject Entities is less than the Target Amount (as hereafter
defined) for such calendar year, the bonus for such calendar year shall be
determined by multiplying the Bonus Amount by a fraction, the numerator of which
is the actual Net Income of the Subject Entities for such calendar year and the
denominator of which is the Target of the Subject Entities for the calendar
year. "Net Income" shall have the meaning provided in that certain Stock
Purchase Agreement dated January 15, 1998 between Executive, the Company,
Westbrooke Acquisition Corp., a Florida corporation, 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., as amended (the "Stock Purchase Agreement"). Target Amount shall mean the
projected Net Income of the Subject Entities reasonably agreed to by the
Executive and Board prior to the commencement of each calendar year. If the
parties are unable to agree on the Target Amount for 2001 and 2002, the Target
Amount for such years shall be 110% of the actual Net Income of the Subject
Entities for the immediately preceding calendar year.
(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 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.
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<PAGE> 4
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
(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
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<PAGE> 5
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 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
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<PAGE> 6
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 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 duel and the Company shall
have no further obligations to Executive under this Agreement.
(d) Termination Without Cause by Company. In addition to any
termination right or event provided in Sections 4(a), 4(b) or 4(c), 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(d)(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 a "clean" 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
Executive, such acceptance not to be unreasonably withheld; and which letter of
credit W shall have an expiration date no earlier than thirty (30) days after
the last of such installments is due and payable, and (y) shall be formally
confirmed by the Federal Home Loan Bank of Dallas.
(e) 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":
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<PAGE> 7
(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 Westbrooke Acquisition Corp., Newmark Homes Corp. 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, as
amended, 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(d) 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
Amended 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 "Amended 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 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 f or 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.
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<PAGE> 8
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 Newmark Homes Corp.
Attn: Terry White
1200 Soldiers Field Drive
Sugar Land, Texas 77479
Facsimile: 281-243-0168
With a copy to: Brian Sokolik
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, TX 77002-6760
Facsimile No.: 713-615-5618
If to Executive: James M. Carr
----------------------------
----------------------------
With a copy to: K. Lawrence Gragg, Esq.
White & Case LLP
200 South Biscayne Boulevard
Suite 4900
Miami, Florida 33131
Facsimile: (305) 358-5744
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
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<PAGE> 9
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 merger, consolidation, acquisition or
reorganization of the Company and another entity; provided that, a Change of
Control (as hereafter defined) of Newmark Homes Corp. ("Newmark") 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 Change of Control, time being strictly
of the essence; failing which, the same shall be deemed a permitted assignment
hereunder; and further provided that in this event Executive shall not be
entitled to the severance payment provided for in subsection (i) of the second
sentence of Section 4(d) hereof. For purposes hereof a "Change of Control" shall
be deemed to have occurred if Technical Olympic S.A. ("Olympic") does not
Control (as hereafter defined) Newmark. For purposes hereof, Control of a person
shall mean the beneficial ownership (as defined in Rule 13d-3 under the
Securities and Exchange Act of 1934) of 50 percent or more of the voting
securities of such person. 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
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<PAGE> 10
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 codifying that it is
guaranteeing all payment and performance obligations of the Company hereunder;
which guarantee of payment obligations shall be a guaranty of payment, not
collection.
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
By: /s/ James Carr
--------------------------
Print Name: James Carr
------------------
Title: President
-----------------------
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<PAGE> 11
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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<PAGE> 12
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.
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
<PAGE> 13
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 10.7 (b)
AMENDED AND RESTATED NON-COMPETITION AGREEMENT
This AMENDED AND RESTATED NON-COMPETITION AGREEMENT (this "Agreement")
is made as of this 15th day of December, 1999, between WESTBROOKE COMMUNITIES,
INC., a Florida corporation ("Communities"), 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 (collectively with Communities, the "Acquired
Companies"), THE WESTBROOKE PARTNERSHIP, a Florida general partnership
("Partnership") , WESTBROOKE ACQUISITION CORP., a Florida corporation
("Acquisition"), and JAMES CARR, an individual resident of the State of Florida
("Carr").
RECITALS:
1. All of the parties" hereto (and other individuals and entities not a
party hereto) are parties to that certain Stock Purchase Agreement dated January
15, 1998 (the "Stock Purchase Agreement");
2. Communities and Carr are employer and employee respectively under
that certain Amended and Restated Employment Agreement of even date herewith
(the "Employment Agreement");
3. This Agreement amends and restates that certain Non-Competition
Agreement between the parties hereto dated as of January 15, 1998.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged the
parties hereto agree as follows, intending to be legally bound:
1. Recitals: The foregoing recitals are true and are incorporated
herein by this reference.
2. Definitions: All capitalized terms not defined herein shall have the
meaning set forth in the Stock Purchase Agreement.
3. Acknowledgements: Carr acknowledges that:
(a) Carr has occupied a position of trust and confidence with
the Acquired Companies and the Partnership prior to the date hereof and has
become familiar with the following, any and all of which constitute confidential
information of the Acquired Companies and the Partnership, (collectively the
"Confidential Information"):
<PAGE> 2
(i) any and all trade secrets concerning the business
and affairs of the Acquired Companies and the Partnership, including
without limitation 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 construction 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 processes., formulae, compositions,
improvements, devices, know-how, inventions, discoveries, concepts,
ideas, designs, methods and information, of the Acquired Companies and
the Partnership and any other information, however documented, of the
Acquired Companies and the Partnership that is proprietary information
or a trade secret under applicable law;
(ii) any and all information concerning the business
and affairs of the Acquired Companies and the Partnership (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
(iii) any and all notes, analyses, compilations,
studies, summaries, and other material prepared by or for the Acquired
Companies and the Partnership containing or based, in whole or in part,
on any information included in the foregoing;
(b) the Acquired Companies and the Partnership compete with
other businesses that are or could be located in Miami-Dade, Broward and Palm
Beach Counties, Florida, and may be expanded into other portions of the State of
Florida south of Hillsborough, Polk, Osceola and Brevard Counties, Florida (all
of such geographic areas being collectively referred to herein as "South
Florida");
(c) the provisions of this Agreement are reasonable and
necessary to protect and preserve the Acquired Companies, and the Partnership's
business. This Agreement is not made for the purpose of eliminating competition
per se and is reasonably related to a protectable, legitimate business interest
of Acquisition to wit: protection of Acquisition's goodwill;
(d) because of his varied skill and abilities, he does not
need to compete with the Acquired Companies or the Partnership and this
Agreement will not prevent him from earning a livelihood; and
(e) the Acquired Companies and the Partnership would be
irreparably damaged if Carr were to breach the covenants in this Agreement.
4. Confidential Information: Carr acknowledges and agrees that all
Confidential Information known or obtained by Carr, whether before or after the
date hereof, is the property of the Acquired Companies and the Partnership.
Accordingly, Carr agrees that he will not disclose any Confidential Information
to any person, firm, corporation, association or other entity for any
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<PAGE> 3
reason or purpose whatsoever or make use to his personal advantage or to the
advantage of any third party, of any Confidential Information, without the prior
written consent of the Board. Carr shall, upon termination or expiration of this
Agreement or at any other time specified by Acquisition, deliver to Acquisition
all documents which reflect Confidential Information (including copies thereof).
Notwithstanding anything heretofore stated in this Section 4, Carr's obligations
under this Section 4 shall not, after termination or expiration of this
Agreement, apply to:
(a) information which has become generally available to the
public without any action or omission of Carr (except that any Confidential
Information which is disclosed to any third party by an employee or
representative of the Acquired Companies or the Partnership who is not
authorized to make such disclosure shall be deemed to remain confidential and
protectable by Carr under this Section 4); or
(b) general know-how, ideas, current and planned construction
methods, processes and concepts, and Carr's general knowledge and experience
pertaining to the business of development and construction of residences, to the
extent the same were first known or obtained by Carr prior to the date hereof.
5. Non-Competition: As an inducement for Acquisition to enter into the
Stock Purchase Agreement and for Communities to enter into the Employment
Agreement between Carr and Communities of even date herewith and as additional
consideration for the consideration to be paid to Carr under the Stock Purchase
Agreement and Employment Agreement, Carr agrees that:
(a) For the Applicable Non-Compete Period (as hereinafter
defined):
(i) Carr will not, directly or indirectly, engage or
invest in, own, manage, operate, finance, control, or participate in
the ownership, management, operation, or control of, be employed by,
associated with, or in any manner connected with, lend his name or any
similar name to, lend his credit to, or render services or advice to,
any business whose products or activities compete in whole or in part
with the products or activities of the Acquired Companies or the
Partnership, including but not limited to, the purchase of land (or
options therefor) for development and the construction of residences
within South Florida; provided, however, that Carr may purchase or
otherwise acquire up to (but not more than) one percent 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; and further
provided however that the direct or indirect ownership and/or
participation in the management of Active Investments (as hereafter
defined) shall not be included in the foregoing prohibited activities.
Active Investments shall mean interests in closely held businesses of
all types specifically including businesses which are engaged in
residential and commercial real estate ownership and/or development in
South Florida; provided that (i) such businesses may not develop
residential units of product types that are competitive with product
types then being developed or planned to be developed by any of the
Acquired Companies, (ii) such
-3-
<PAGE> 4
residential development does not materially compete with the Acquired
Company's projects regardless of product type or (iii) such activities
do not materially interfere with Carr's performance of his duties
under the Employment Agreement. Carr agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope.
(ii) Carr will not, directly or indirectly, either
for himself or any other Person, (A) induce or attempt to induce any
employee of an Acquired Company or the Partnership to leave the employ
of such Acquired Company or the Partnership, (B) in any way interfere
with the relationship between an Acquired Company or the Partnership
and any employee of such Acquired Company or the Partnership, (C)
employ, or otherwise engage as an employee, independent contractor, or
otherwise, any employee of an Acquired Company or the Partnership, or
(D) induce or attempt to induce any customer, supplier, licensee, or
business relation of an Acquired Company or the Partnership to cease
doing business with such Acquired Company or the Partnership, or in any
way interfere with the relationship between any customer, supplier,
licensee, or business relation of an Acquired Company or the
Partnership.
(iii) Carr will not, directly or indirectly, either
for himself or any other Person, solicit the business of any Person
known to Carr to be a customer of an Acquired Company or the
Partnership, whether or not Carr had personal contact with such Person;
(b) The term "Applicable Non-Compete Period" shall mean:
(i) the period beginning on the date hereof and
ending on December 31, 2002;
(ii) if Carr's employment under the Employment
Agreement is terminated pursuant to Section 4(a) or 4(b) thereof, or
for any other reason other than as set forth in Section 5(b) (iii)
hereof, the period beginning on the date hereof and ending on December
31, 2002;
(iii) if Carr's employment under the Employment
Agreement is terminated pursuant to Section 4(d) or 4(e) thereof, the
period beginning on the date hereof and ending on the date of
termination of employment.
(c) In the event of a breach by Carr of any covenant set
forth in Section 5(a) hereof, the term of such covenant will be extended by the
period of the duration of such breach;
(d) (i) Carr will not, at any time during or after the
Applicable Non-Compete Period, disparage Acquisition, the Acquired Companies, or
the Partnership, or any of their shareholders, directors, officers, employees,
or agents;
(ii) The Acquired Companies and the Partnership
will not, nor will they permit their respective shareholders, directors,
officers, employees, or agents, at any time during or after the Applicable
Non-Compete Period to disparage Carr; and
-4-
<PAGE> 5
(e) Carr will, for the Applicable Non-Compete Period, within
ten days after accepting any employment, advise Acquisition of the identity of
any employer of Carr. Acquisition, any Acquired Company or the Partnership may
serve notice upon each such employer that Carr is bound by this Agreement and
furnish each such employer with a copy of this Agreement or relevant portions
thereof.
(f) The parties acknowledge and agree that the restrictions
provided under this Section 5 are reasonably necessary to protect the legitimate
business interests of Acquisition, the Acquired Companies, the Partnership and
Communities. Such legitimate business interests include the items referenced in
Section 3 (a) hereof.
6. Remedies: If Carr breaches any of the covenants set forth in this
Agreement, Acquisition, the Acquired Companies and the Partnership will be
entitled to the following remedies:
(a) To obtain injunctive or other equitable relief to
restrain any breach or threatened breach or otherwise to specifically enforce
the provisions of this Agreement, it being agreed that money damages alone would
be inadequate to compensate the Acquisition, the Acquired Companies and the
Partnership and would be an inadequate remedy for such breach.
(b) In addition to such equitable relief, to recover from Carr
any and all supplemental damages suffered as a result of such breach in order to
afford Acquisition, the Acquired Companies and the Partnership complete relief;
(c) Any and all other damages and remedies available at law
or in equity;
(d) The rights and remedies of the parties to this Agreement
are cumulative and not alternative.
7. GENERAL PROVISIONS
(a) Attorneys' Fees: Should any party 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 through all levels of proceedings, whether suit be
brought or not.
(b) 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 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 (receipt requested), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
-5-
<PAGE> 6
Carr:
---------------------------------
---------------------------------
Facsimile No.:
------------------
With a copy to: K. Lawrence Gragg
White & Case LLP
200 S. Biscayne Boulevard
Suite 4900
Miami, Florida 33131
Facsimile No.: (305) 358-5744
Acquisition, Acquired
Companies,
Partnership: c/o Newmark Homes Corp.
1200 Soldiers Field Drive
Sugar Land, Texas 77479
Attn: Terry White
Facsimile No.: 281-243-0168
Copy to: Brian Sokolik
Vinson & Elkins LLP
2300 First City Tower, 1001 Fannin St.
Houston, Texas 77002-6760
Facsimile No.: 713-615-5618
(c) 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 the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
(d) 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 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 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; (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 or the documents referred to in this Agreement.
(e) Entire Agreement and Modification: This Agreement
supersedes all prior agreements between the parties with respect to its subject
matter and constitutes (along with the
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<PAGE> 7
documents referred to in this Agreement) a complete and exclusive statement of
the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
(f) 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.
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) 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.
(h) Governing Law: This Agreement will be governed by the
laws of the State of Florida without regard to conflicts of laws principles.
(i) Arbitration; Jurisdiction and Venue.
(1) 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.
(2) 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.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed and delivered this
Non-Competition Agreement as of the date first written above.
/s/ James Carr
------------------------------
JAMES CARR
WESTBROOKE COMMUNITIES, INC.,
a Florida corporation
By: /s/ James Carr
---------------------------
Print Name: James Carr
-------------------
Title: /s/ James Carr
------------------------
WESTBROOKE AT WEST LAKE, INC.
a Florida corporation
By: /s/ James Carr
---------------------------
Print Name: /s/ James Carr
-------------------
Title: President
------------------------
WESTBROOKE AT WINSTON TRAILS,
INC. a Florida corporation
By: /s/ James Carr
---------------------------
Print Name: James Carr
-------------------
Title: President
------------------------
WESTBROOKE AT PEMBROKE PINES,
INC. a Florida corporation
By: /s/ James Carr
---------------------------
Print Name: James Carr
-------------------
Title: President
------------------------
WESTBROOKE AT OAK RIDGE, INC.
a Florida corporation
By: /s/ James Carr
---------------------------
Print Name: James Carr
-------------------
Title: President
------------------------
-8-
<PAGE> 9
THE WESTBROOKE PARTNERSHIP, a
Florida partnership
By: Westbrooke Communities,
Inc., a Florida
corporation, its
managing general partner
By: /s/ James Carr
---------------------------
Print Name: James Carr
-------------------
Title: President
------------------------
WESTBROOKE ACQUISITION CORP. a
Florida corporation
By: /s/ Michael K. McCraw
---------------------------
Print Name: Michael K. McCraw
-------------------
Title: President
------------------------
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<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is made as of
March 1, 2000, effective as of January 1, 2000 (the "Effective Date"), by and
between NEWMARK HOME CORPORATION, a Nevada corporation (the "Employer"), and
MIKE BECKETT, an individual residing in Missouri City, Texas (the "Employee").
RECITALS
The Employer, its divisions, subsidiaries, and other affiliated entities are
primarily engaged in the business of constructing single-family residences. The
Employer and the Employee entered into an Employment Agreement dated January 1,
1998 (the "Employment Agreement"), the intent and purpose being to specify the
terms and conditions of Employee's employment with the Employer. The Employer
and the Employee desire to amend the terms and conditions of the employment with
the Employer and hereby enter into this Agreement as of the Effective Date.
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"--the Employment Agreement, as amended from time to time,
including this Agreement.
"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
<PAGE> 2
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
(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 or, if applicable for the period prior to January 1, 2000,
the Effective Date set forth in the Employment 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.
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<PAGE> 3
"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.
2.2 TERM
The term of the Employee's employment with Employer pursuant to the
Employment Agreement commenced on January 1, 1998 and shall continue
pursuant to this Agreement on the Effective Date and end on December
31, 2003, 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 served as Senior Vice President of the Employer until
December 31, 1999 and will serve as Executive Vice President -
Purchasing/Product Development for the Employer as of January 1, 2000
and for the remaining 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-
<PAGE> 4
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 $155,000
1999 $170,000
2000 $210,000
2001 $240,000
2002 $270,000
2003 $300,000
</TABLE>
(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 an annual bonus
plan, 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 Plan").
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, 2003.
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
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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.
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. If the
Employer terminates this Agreement for cause, as defined in
Section 4.3(a) or 4.3(c), 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. If the Employer terminates this Agreement for
cause, as defined in Section 4.3(b), Employee shall be
entitled to receive a pro-rated portion of any payment under
any Bonus Plan in which Employee participated at the time of
termination, based on the actual days worked by the Employee
during the fiscal year on which the Bonus Plan is based.
Employee shall not be released from the covenants contained
in Section 5 hereof.
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(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 (i) his Base Salary through the remainder of the
calendar month during which such termination is effective and
(ii) a pro-rated portion of any payment under any Bonus Plan
in which Employee participated at the time of termination,
based on the actual days worked by the Employee during the
fiscal year on which the Bonus Plan is based.
(c) Termination upon Death. If this Agreement is terminated
because of the Employee's death, the Employee's estate will be
entitled to receive (i) his Base Salary through the end of the
calendar month in which his death occurs and (ii) a pro-rated
portion of any payment under any Bonus Plan in which Employee
participated at the time of termination, based on the actual
days worked by the Employee during the fiscal year on which
the Bonus Plan is based.
(d) Termination on December 31, 2003. If on December 31, 2003,
this Agreement terminates because the parties have not
extended the Term (as provided in Section 2.2 hereof), the
Employee shall be entitled to receive (i) any unpaid Base
Salary accrued through December 31, 2003, and (ii) a
pro-rated portion of any payment under any Bonus Plan in
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 Plan 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 year's 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.
(e) Termination after December 31, 2003. In the event Employer
and Employee agree to continue Employee's employment with
Employer after December 31, 2003, 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) month's Base Salary. Employee shall be
entitled to receive a pro-rated portion of any payment under
any Bonus Plan in 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 Plan 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 year's
Base Salary. Such
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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. If the Employer terminates this Agreement for cause,
as defined in Section 4.3(a) or 4.3(c), 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. If the Employer terminates this Agreement for cause,
as defined in Section 4.3(b), Employee shall be entitled to
receive a pro-rated portion of any payment under any Bonus
Plan in which Employee participated at the time of
termination, based on the actual days worked by the Employee
during the fiscal year on which the Bonus Plan is based.
(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.
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.
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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 has homebuilding activity
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 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; provided,
however, that nothing in this Section 5.2(c)(ii) shall
preclude Employee from soliciting or employing any person,
who was employed by Employer, after six (6)
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<PAGE> 9
months have lapsed from the last date of the former
employee's employment with 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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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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(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
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<PAGE> 12
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 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 Sections 5 and 6 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
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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.
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:
Holly A. Hubenak
Technical Olympic USA, Inc.
1200 Soldiers Field Drive
Sugar Land, TX 77479
Facsimile No.: 281/243-0116
If to the Employee:
Mike Beckett
4731 Diamond Spring
Missouri City, Texas 77459
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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 understandings, oral or written, between the
parties hereto with respect to the subject matter hereof, including,
but not limited to, the Employment Agreement dated November 1, 1996
between Employer and Employee. 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/Chief Executive Officer
"EMPLOYEE"
/s/ Mike Beckett
-------------------------------------------
MIKE BECKETT
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EXHIBIT 10.10
TAX ALLOCATION AGREEMENT
This Tax Allocation Agreement, made this 15th day of March, 2000, by
and between Technical Olympic USA, Inc., a Delaware corporation ("Parent"),
Newmark Homes Corp., a Nevada corporation and its wholly-owned subsidiaries and
affiliates, whether presently existing or hereafter acquired (individually as
"Subsidiary" and collectively as "Subsidiaries"), for the taxable years
commencing on and after December 15, 1999.
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 ("Code") desire to file a consolidated
Federal income tax return for the taxable period beginning December 16, 1999 and
ending December 31, 1999, and for any subsequent taxable period for which the
Group is required or permitted to file a consolidated tax 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 a smaller aggregate Federal income tax
liability for all parties, if a consolidated Federal income
tax return is filed which will include any subsidiary and
affiliate of the parties in accordance with the terms of the
Code and related Income Tax Regulations ("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.
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.
<PAGE> 2
II. Calculation of Individual Corporate Income Tax Liability
A. Beginning with the period beginning December 16, 1999 and
ending December 31, 1999 and for each tax year thereafter,
each member of the Group will calculate its Federal income tax
liability as if it were to file a separate Federal income tax
return for such period.
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 Regulations;
(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 the
calculation of separate company taxable income 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 Code
Sections 170(b)(2), 172(b)(2), 38(c), 53(c) and
similar limitations shall be applied on a
consolidated basis;
(5) The corporate alternative minimum tax ("AMT") imposed
in Code Section 55 and AMT limitations and
adjustments provided in Code Sections 56 through 59,
shall be determined on a consolidated basis;
(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 and/or subsequent year's separate company tax
liability as determined under Code Section 172(b).
2
<PAGE> 3
III. Liability for Tax Payments
A. Parent will pay the Federal income tax liabilities of the
Group for any period in which the Group is required to file a
consolidated Federal income tax return.
B. If any Subsidiary would be subject to Federal income tax if it
filed a separate Federal income 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
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 reduce 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' taxable
income, the excess will be carried forward 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
amount will be payable by Subsidiary to Parent 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 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.
F. Notwithstanding anything to the contrary stated herein, Parent
shall indemnify Subsidiaries on an after-tax basis (taking
into account, when realized, any tax detriment or tax benefit
to Subsidiaries of (i) a payment hereunder or (ii) the
liability to the Internal Revenue Service 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 is
included in the Parent's consolidated Federal income
tax return; provided that Subsidiary shall have made
payments to Parent as provided in this Agreement in
complete satisfaction of the Subsidiary's individual
corporate income tax liability for such taxable year;
3
<PAGE> 4
(2) Any liability for Federal income tax incurred by a
Subsidiary or any subsidiary of Subsidiary to the
extent attributable to any member of the Group (other
than Subsidiary or any subsidiary of Subsidiary) and
for which Subsidiary or such subsidiary is liable as
a result of being included in a consolidated Federal
income tax return of the Group; and
(3) Interest, penalties and additions to tax, and costs
and expenses in connection with any liabilities
described in subsections (1) or (2), above.
Parent shall pay to Subsidiary amounts due under subsections (1), (2),
or (3) 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.
IV. Method and Time of Payment
Payments by Parent of consolidated estimated Federal income 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,
such 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
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 predetermined after fully giving
effect to such adjustment as if such adjustment had been made as part of the
original computation.
VI. Earnings and Profits Adjustments
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.
4
<PAGE> 5
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.
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 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
Federal income tax 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 agreements, 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.
TECHNICAL OLYMPIC USA, INC.
By: /s/ Tommy L. McAden Date: March 20, 2000
Name: Tommy L. McAden
Title: Vice President and Chief Financial Officer
NEWMARK HOMES CORP.
By: /s/ Lonnie M. Fedrick Date: March 22, 2000
Name: Lonnie M. Fedrick
Title: President and Chief Executive Officer
6
<PAGE> 7
JOINDER IN TAX ALLOCATION AGREEMENT
The undersigned entity hereby joins in the Tax Allocation Agreement
dated ____________ by and among Technical Olympic USA, Inc. and Newmark Homes
Corp. and such of their affiliates, whether presently existing or hereafter
acquired, as are or shall be part of the Group for taxable years commencing on
or after December 15, 1999. A copy of the Tax Allocation Agreement is attached
hereto as Exhibit A.
Dated effective the ____________________.
SUBSIDIARY
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
7
<PAGE> 1
EXIHIBIT 11.1
NEWMARK HOMES CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM DECEMBER FROM JANUARY YEAR YEAR
16, 1999 TO 1, 1999 TO ENDED ENDED
DECEMBER 31, DECEMBER 15, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
Net income ........................................................... $ 2,648 $ 14,737 $ 12,795 $ 6,655
Effect of dilutive securities - 1998 Tandem Stock Option Plan ........ 0 0 0 0
------------ ------------ ------------ ------------
Net income applicable to common stock ................................ $ 2,648 $ 14,737 $ 12,795 $ 6,655
============ ============ ============ ============
Shares:
Weighted average number of common shares outstanding ................. 11,500,000 11,500,000 11,035,342 9,200,000
Effect of dilutive securities - 1998 Tandem Stock Option Plan ........ 0 0 0 0
------------ ------------ ------------ ------------
Weighted average number of common share outstanding as adjusted ...... 11,500,000 11,500,000 11,035,342 9,200,000
============ ============ ============ ============
Primary earnings per common share:
Net Income ........................................................... $ 0.23 $ 1.28 $ 1.16 $ 0.72
============ ============ ============ ============
FULLY DILUTED EARNINGS:
Net Income ........................................................... $ 2,648 $ 14,737 $ 12,795 $ 6,655
Effect of dilutive securities - 1998 Tandem Stock Option Plan ........ 0 0 0 0
------------ ------------ ------------ ------------
Net income applicable to common stock ................................ $ 2,648 $ 14,737 $ 12,795 $ 6,655
============ ============ ============ ============
Shares
Weighted average number of common shares outstanding ................. 11,500,000 11,500,000 11,035,342 9,200,000
Effect of dilutive securities - 1998 Tandem Stock Option Plan ........ 0 0 0 0
------------ ------------ ------------ ------------
Weighted average number of common share outstanding as adjusted ...... 11,500,000 11,500,000 11,035,342 9,200,000
============ ============ ============ ============
Fully diluted earnings per common share:
Net income ........................................................... $ 0.23 $ 1.28 $ 1.16 $ 0.72
============ ============ ============ ============
</TABLE>
<PAGE> 1
EXIHIBIT 12.1
NEWMARK HOMES CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM DECEMBER FROM JANUARY YEAR YEAR
16, 1999 TO 1, 1999 TO ENDED ENDED
DECEMBER 31, DECEMBER 15, DECEMBER 31, DECEMBER 31,
1999 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FIXED CHARGES:
Interest Expense ................................................ $ 124 $ 1,721 $ 1,939 $ 1,987
Interest included in cost of sales .............................. 428 9,836 8,877 3,453
Rental Expense (1) .............................................. 0 0 0 0
------------ ------------ ------------ ------------
Total fixed charges before capitalization interest and
preferred stock dividends of subsidiaries ....................... $ 552 $ 11,557 $ 10,816 $ 5,440
Preferred stock dividends of subsidiaries ............................ 0 0 0 0
Capitalized interest ................................................. 31 719 347 1,078
------------ ------------ ------------ ------------
Total fixed charges ............................................. $ 583 $ 12,276 $ 11,163 $ 6,518
============ ============ ============ ============
EARNINGS AVAILABLE FOR FIXED CHARGES:
Earnings (2) ......................................................... 4,147 $ 22,939 $ 20,432 $ 10,927
Less undistributed income in minority owned companies ................ 0 0 0 0
Add fixed charges before capitalized interest and preferred
stock dividends of subsidiaries ................................. 552 11,557 10,816 5,440
------------ ------------ ------------ ------------
Total earnings available for fixed charges ........................... $ 4,699 $ 34,496 $ 31,248 $ 16,367
============ ============ ============ ============
Ratio of earnings to fixed charges (1) ............................... 8.06 2.81 2.80 2.51
============ ============ ============ ============
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges has been computed based
on the Company's continuing operations by dividing total
earnings available for fixed charges, excluding capitalized
interest and preferred stock dividends of subsidiaries, by
total fixed charges. Fixed charges consist of interest,
including capitalized interest and preferred stock dividends
of subsidiaries, and that portion of rental expense
representative of the interest factor.
(2) Earnings reflect income before taxes.
<PAGE> 1
EXHIBIT 21.1
NEWMARK HOMES CORP. AND SUBSIDIARIES
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
CORPORATE NAME OF SUBSIDIARY STATE INCORPORATED ASSUMED NAME USED
--------------------------------- ------------------ -----------------------------
<S> <C> <C>
Newmark Home Corporation Nevada Fedrick, Harris Estate Homes
Newmark Finance Corporation Texas
Newmark Finance Affiliate, Ltd. Texas
NHC Homes, Inc. Nevada
Newmark Homes, L.P. Texas Fedrick, Harris Estate Homes,
Newmark Homes,
Marksman Homes
NMH Investments, Inc. Nevada
The Adler Companies, Inc. Florida
Adler Realty Co. Florida
ADRO Const., Inc. Florida
TAP Acquisition Co. Florida
Twin Acres Partnership Florida
Pacific United Development Corp. Nevada
PUDC, Inc. Nevada
Pacific United, L.P. Texas
Silverlake Interests, L.C. Texas
Westbrooke Acquisition Corp. Florida
Westbrooke at Oak Ridge, Inc. Florida
Westbrooke at Pembroke Pines, Inc. Florida
Westbrooke at West Lake, Inc. Florida
Westbrooke at Winston Trails, Inc. Florida
Westbrooke Communities, Inc. Florida
The Westbrooke Companies, Inc. Florida
The Westbrooke Partnership Florida
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of the Registrant for the year ended December
31, 1999 and is qualified in its entirety by reference to such Consolidated
Financial Statements contained in the Registrant's annual report on Form 10-K
for the year ended December 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,080
<SECURITIES> 0
<RECEIVABLES> 9,206
<ALLOWANCES> 0
<INVENTORY> 255,576
<CURRENT-ASSETS> 272,862
<PP&E> 5,946
<DEPRECIATION> 0
<TOTAL-ASSETS> 328,892
<CURRENT-LIABILITIES> 36,639
<BONDS> 163,853
115
0
<COMMON> 0
<OTHER-SE> 109,503
<TOTAL-LIABILITY-AND-EQUITY> 328,892
<SALES> 491,714
<TOTAL-REVENUES> 491,714
<CGS> 411,011
<TOTAL-COSTS> 411,011
<OTHER-EXPENSES> 53,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,845
<INCOME-PRETAX> 27,086
<INCOME-TAX> 9,701
<INCOME-CONTINUING> 17,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,385
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.51
</TABLE>
