SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
January 31, 1997
Date of Report (Date of earliest event reported)
CELTIC INVESTMENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-37436-C 36-3729989
State of Commission File No. IRS Employer
Incorporation Identification No.
17W220 22nd Street, Suite 420
Oakbrook Terrace, IL 60181
(Address of principal executive offices)
(630) 993-9010
(Registrant's telephone number)
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Item 2. Acquisition or Disposition of Assets
General
Celtic Investment, Inc. is a financial services related holding company.
Prior to January 31, 1997, the Company's operations were limited to the
factoring industry and were conducted by its Illinois based, wholly-owned
subsidiary, U.S. Commercial Funding Corp. On January 15, 1997, Celtic
Investment, Inc. (the "Company"), entered into an Agreement and Plan of Merger
("Merger Agreement") with Salt Lake Mortgage, a privately held Utah corporation
("SLM"), and with the SLM Shareholders. Pursuant to the Merger Agreement, SLM
was acquired by the Company and as a result thereof, SLM is now a wholly-owned
subsidiary of the Company.
SLM is engaged in the mortgage brokerage business with offices in Salt
Lake City, Utah and Las Vegas, Nevada. SLM also owns all of the shares of
Advantage Realty Corp., a Utah corporation engaged in the real estate brokerage
business. As a result of the acquisition of SLM, the Company is now engaged in
the factoring business, the mortgage brokerage business and the real estate
marketing business.
Terms of the Merger
The Merger Agreement was executed on January 15, 1997 and the Merger
transaction was effected on January 31, 1997, and on this date the Articles of
Merger were filed with the State of Utah Department of Commerce, Division of
Corporations. In connection with the Merger, all of the issued and outstanding
shares of SLM owned by the two SLM Shareholders, were converted into a total of
1,100,000 shares of the Company's common stock. The Merger Agreement required
that a portion of the shares issued to the SLM Shareholders in the Merger be
deposited into and held in Escrow pending the fulfillment of certain financial
performance results validating the valuation given to SLM by the Company (See
"Escrow"). Pursuant to the Merger Agreement, the two SLM Shareholders entered
into Employment Agreements and Stock Option Agreements with the Company (See
"Employment Agreements" and " Stock Option Agreements"). Pursuant to the Merger
Agreement, the Company's Board of Directors was increased from three to five
persons and one of the SLM Shareholders was appointed an officer of the Company
(See "Management").
Prior to the Merger, there were 3,306,471 shares of the Company's common
stock issued and outstanding. A total of 1,100,000 shares were issued in the
Merger to the SLM Shareholders. Therefore, as a result of the Merger, the SLM
Shareholders converted their SLM Shares into shares of the Company's common
stock which equal approximately 25% of the 4,406,471 shares of the Company's
common stock now issued and outstanding.
Escrow
In the Merger Agreement, the parties agreed that the value of SLM is
dependent upon, among other things, the financial performance of SLM on a near
term basis and that SLM's ability to achieve certain financial results is
dependent upon its access to additional capital. In the Merger Agreement, the
Company agreed to us its best efforts to obtain additional equity or debt
capital for
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use in SLM's operations. The parties agreed that if such additional capital is
made available to SLM within an agreed upon time frame, that the value of SLM is
dependent upon increased revenues from the use of such capital.
Each of the SLM Shareholders deposited into Escrow, a total of 250,000
shares of the Company's common stock which were issued to them in the Merger
(500,000 total shares were deposited into the Escrow, the "Escrow Shares"). If
SLM obtains additional capital, then in order for the Escrow Shares to be
released to the SLM Shareholders, SLM must achieve certain adjusted pretax
profits during the term of the Escrow. The amount of adjusted pretax profits
required for the release of Escrow Shares is dependent upon the amount of the
additional capital made available to SLM and the timing of the receipt of such
additional capital. If no additional capital is made available to SLM during the
term of the Escrow, all of the Escrow Shares will be released from the Escrow
and delivered to the SLM Shareholders pursuant to the terms of the Escrow
Agreement.
The parties are unable to determine at this time whether all, none or some
of the Escrow Shares will be released from the Escrow and delivered to the SLM
Shareholders or released to the Company and canceled.
During the term of Escrow, the Escrow Shares are deemed to be issued and
outstanding. The SLM Shareholders owning the Escrow Shares are entitled to vote
the Escrow Shares and to receive dividends or other distributions relating to
the Escrow Shares if dividends or other distributions are made on the Company's
common stock. The Escrow Agreement is attached hereto as an exhibit.
Employment Agreements
As part of the Merger Transaction, the Company entered into Employment
Agreements with each of the SLM Shareholders. Each Employment Agreement provides
for an annual base salary of $90,000, cash bonuses based upon the adjusted
pretax profits of SLM and incentive stock options which are further described
below. The Employment Agreements are attached hereto as exhibits.
Incentive Stock Option Agreements
As part of their employment compensation package, each of the SLM
Shareholders were granted Incentive Stock Options ("Options") entitling each of
them to purchase up to 500,000 shares of the Company's common stock at $3.00 per
share. Each Option is divided into 150,000 Time Based Options and 350,000
Performance Based Options. The Time Based Options vest over two years - 75,000
each year. The Performance Based Options vest over three years commencing in the
third employment year. In order for the Performance Based Options to vest, SLM
must achieve an annual increase in adjusted pretax profits of at least 18% over
the previous year. The Option Agreements are attached hereto as exhibits.
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Management
Pursuant to the Merger Agreement, the officers and directors of the
Company, and the officers and directors of SLM, are as follows:
Celtic Investment, Inc.
Douglas P. Morris CEO/President/Chairman
Reese Howell, Jr. Senior Vice President/Director
Larry Meek Director
Howard Talks Director
Pamela Davis Director
Frank Lucchese Chief Financial Officer
Salt Lake Mortgage
Reese Howell, Jr. CEO/President/Chairman
Roger Davis Vice President Sales and Marketing/ Secretary/
Director
Douglas P. Morris Director
Additional Information
The description contained herein of the Merger, the Merger Agreement and
other related Agreements is qualified in its entirety by reference to the
agreements attached hereto as exhibits.
Item 7. Financial Statements and Exhibits
(a) Financial Statements. As of the date of the filing of this Current
Report on Form 8-K, it is impractical for the Company to provide the financial
statements required by this Item 7(a). In accordance with Item 7(a)(4) of Form
8-K, such financial statements shall be filed by amendment to this Form 8-K no
later than 60 days after February 14, 1997.
(b) Pro Forma Financial Statements. As of the date of the filing of this
Current Report on Form 8-K, it is impractical for the Company to provide the pro
forma financial statements required by this Item 7(b). In accordance with Item
7(a)(4) of Form 8-K, such pro forma financial statements shall be filed by
amendment to this Form 8-K no later than 60 days after February 14, 1997.
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(c) Exhibits.
No. Description
2.1 Agreement and Plan of Merger
4.1. Escrow Agreement
10.1 Employment Agreement - Reese Howell, Jr.
10.2. Employment Agreement - Roger Davis
10.3. Stock Option Agreement - Reese Howell, Jr.
10.4 Stock Option Agreement - Roger Davis
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: February 14, 1997 CELTIC INVESTMENT, INC.
By /s/ Douglas P. Morris
Douglas P. Morris
President
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CELTIC INVESTMENT, INC.
a Delaware Corporation
AND
SALT LAKE MORTGAGE CORP.
a Utah Corporation
AND
THE SHAREHOLDERS OF SALT LAKE MORTGAGE CORP.
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS..................................................................1
ARTICLE II
THE MERGER...................................................................4
2.1. The Merger.......................................................4
2.2. Effective Time...................................................4
2.3. Conversion of SLM Securities.....................................4
2.4. Effect of Conversion.............................................4
2.5. Conversion of Capital Stock of Celtic Merger Sub.................4
2.6. Exchange of Shares...............................................5
2.7. Reorganization...................................................5
2.8. Escrow of Shares.................................................5
ARTICLE III
THE SURVIVING CORPORATION AND AFFIRMATIVE COVENANTS..........................5
3.1. Surviving Corporation............................................5
3.2. Articles of Incorporation........................................6
3.3. Bylaws...........................................................6
3.4. Directors and Officers of SLM....................................6
3.5. Effect of Merger.................................................6
3.6. Directors and Officers of Celtic.................................6
3.7. Registration Rights..............................................6
3.8. Amendments to Articles of Incorporation & Bylaws of Celtic & SLM.7
3.9. Access to Information............................................7
3.10. Preemptive Rights................................................7
3.11. Rules 144 and 144A...............................................7
ARTICLE IV
CLOSING......................................................................7
4.1 Closing............................................................7
4.2 Documents at Closing...............................................8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND SLM.......................9
5.1. Shareholders.....................................................9
5.2. Restricted Shares to be Issued...................................9
5.3. Organization.....................................................9
5.4. Capitalization..................................................10
5.5. Reorganization and Securities Related Expenses..................10
5.6. Authority Relative to this Agreement............................11
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5.7. Approvals and Consents; Non-Contravention.......................12
5.8. Articles of Incorporation and Bylaws............................13
5.9. Financial Statements............................................13
5.10. No Undisclosed Material Liabilities............................14
5.11. Absence of Certain Changes or Events...........................14
5.12. Litigation and Proceedings.....................................15
5.13. Compliance with Laws, Rules and Regulations....................15
5.14. Contracts......................................................16
5.15. Material Contract Defaults.....................................16
5.16. Taxes and Tax Returns..........................................16
5.17. Subsidiaries...................................................17
5.18. Title and Related Matters......................................17
5.19. Intellectual Property..........................................17
5.20. Accounts Receivable............................................17
5.21. Insurance......................................................18
5.22. Environmental Matters..........................................18
5.23. Employees......................................................19
5.24. Relationships with Associates and Affiliates...................19
5.25. Brokers........................................................19
5.26. SLM Schedules..................................................19
5.27. Information....................................................21
5.28. Limitation on Liability........................................21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CELTIC..........................22
6.1. Organization....................................................22
6.2. Capitalization..................................................22
6.3. Authority Relative to this Agreement............................23
6.4. Reorganization and Security Related Representations.............23
6.5. Approvals and Consents; Non-Contravention.......................24
6.6. Certificate of Incorporation and Bylaws.........................25
6.7. Financial Statements............................................25
6.8. No Undisclosed Material Liabilities.............................26
6.9. Absence of Certain Changes of Events............................26
6.10. Litigation and Proceedings.....................................27
6.11. Compliance with Laws, Rules and Regulations....................27
6.12. Contracts......................................................28
6.13. Material Contract Defaults.....................................28
6.14. Taxes and Tax Returns..........................................28
6.15. Subsidiaries..................................................29
6.16. Title and Related Matters......................................29
6.17. Intellectual Properties........................................29
6.18. Accounts Receivable............................................30
6.19. Insurance......................................................30
6.20. Environmental Matters..........................................30
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6.21. Employees......................................................31
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6.22. Relationships with Affiliates and Associates...................31
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6.23. Brokers........................................................32
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6.24. Celtic Schedules...............................................32
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6.25. Information....................................................33
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6.26. Additional Information Available...............................33
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6.27. Limitation on Liability........................................34
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ARTICLE VII
CONDUCT PRIOR TO CLOSING....................................................34
7.1. Conduct of Business.............................................34
7.2. Additional Covenants by SLM and SLM Shareholders and Celtic.....34
7.3. Access..........................................................35
7.4. Compliance with Blue Sky Law....................................36
7.5. Disclosure Supplements, Etc.....................................36
7.6. Reasonable Efforts..............................................36
7.7. Public Announcements............................................36
ARTICLE VIII
CONDITIONS OF SHAREHOLDERS..................................................37
8.1. Representations.................................................37
8.2. Compliance......................................................37
8.3. No Material Adverse Change......................................37
8.4. Certificate of Celtic...........................................37
8.5. Absence of Litigation...........................................37
8.6. Good Standing...................................................37
8.7. Employment Agreements...........................................37
8.8. Consents........................................................37
8.9. Advantage.......................................................38
8.10. Escrow Agreement...............................................38
8.11. Certificate....................................................38
ARTICLE IX
CONDITIONS OF CELTIC........................................................38
9.1. Representations.................................................38
9.2. Compliance......................................................38
9.3. No Material Adverse Change......................................38
9.4. Certificates of Shareholders and SLM............................38
9.5. Absence of Litigation...........................................38
9.6. Good Standing...................................................39
9.7. Investment Letters..............................................39
9.8. Form 8-K Financial Statements...................................39
9.9. Employment Agreements...........................................39
9.10. Consents.......................................................39
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9.11. Advantage......................................................39
9.12. Escrow Agreement...............................................39
9.13. Certificate....................................................39
ARTICLE X
INDEMNIFICATION, SURVIVAL, TERMINATION AND EXPENSES.........................39
10.1. Nature and Survival of Representations.........................39
10.2. Indemnification and Payment of Damages by Shareholders.........39
10.3. Indemnification and Payment of Damages by Celtic...............40
10.4. Limitations on Amount--Shareholder.............................40
10.5. Limitations on Amount--Celtic..................................41
10.6. Procedure for Indemnification--Third Party Claims..............41
10.7. Procedure for Indemnification--Other Claims....................42
10.8. Arbitration....................................................43
10.9. Exclusive Remedies.............................................44
10.10. Termination...................................................44
10.11. Effect of Termination.........................................45
ARTICLE XI
MISCELLANEOUS...............................................................45
11.1. Notices........................................................45
11.2. Entire Agreement...............................................46
11.3. Effect; Assignment.............................................46
11.4. Amendments; Waivers............................................46
11.5. Further Assurances.............................................46
11.6. Headings.......................................................46
11.7. Counterparts...................................................47
11.8. Severability...................................................47
11.9. Governing Law..................................................47
11.10. Legal Fees and Expenses.......................................47
11.11. Schedules, Exhibits and Amendments............................47
Attachments
Exhibit "A"--Articles of Merger
Exhibit "B"--List of SLM Shareholders
Exhibit "C"--Escrow Agreement
Exhibit "D"--Investment Letter
Exhibit "E"--Employment Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into this 15th
day of January, 1997, by and between Celtic Investment, Inc., a Delaware
corporation ("Celtic"); Celtic Merger Sub, Inc., a Utah corporation and the
wholly-owned subsidiary of Celtic ("Celtic Merger Sub"); Salt Lake Mortgage
Corp., a Utah corporation, ("SLM"); and Reese Howell, Jr. and Roger D. Davis,
the Shareholders of SLM ("Shareholders").
RECITALS
The Boards of Directors of Celtic and SLM have each determined that it is
advisable and in the best interests of their respective shareholders to enter
into this Agreement and to engage in the transactions contemplated hereby
pursuant to which Celtic Merger Sub will merge into SLM; and the outstanding
shares of the common stock of SLM will be converted into shares of common stock
of Celtic; and
The Shareholders and SLM have made certain representations to Celtic
concerning the status, operations and condition of SLM, which representations
are contained in this Agreement; and
Celtic has made certain representations to SLM and the Shareholders
concerning the status, operations and condition of Celtic, which representations
are contained in this Agreement;
The Boards of Directors of Celtic, Celtic Merger Sub and SLM have approved
the Merger agreed to herein;
AGREEMENT
In consideration of the mutual agreements, representations, warranties and
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
Article I
Definitions
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Associate"--when used to indicate a relationship with any Person, means
(i) a corporation or organization (other than such Person or a majority-owned
subsidiary of such Person) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten (10) percent or more of any
class of equity securities, (ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar capacity, and (iii) any Affiliate of such Person.
"Affiliate"--of a Person is a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person.
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"Contract"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Governmental Authorization"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district,
or other political subdivision of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS"--the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter;
or (b) a prudent individual could be expected to discover or
otherwise become aware
of such fact or other matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or other
matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact
or other matter if any individual who is serving, or who has at any time served,
as a director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter under the foregoing clauses (a) or (b).
"Legal Requirement"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Order"--any award, decision, injunction, judgment, order, ruling or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
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"Ordinary Course of Business"--an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator; provided, however, that any
representation or warranty concerning "Proceedings", shall, with respect to
audits and investigations, be deemed made only to the Knowledge of the party
making such representation or warranty and such party shall not be deemed to be
required to make any inquiry of any Governmental Body concerning the pendency of
any investigation or audit with respect to itself or the subject matter of the
representation
"Prospects" -- shall be limited to the general business expansion plan of
a Person with respect only to potential new markets, potential new operations
and potential new lines of business which such Person is currently considering.
Prospects does not refer to any financial projections. Prospects are by their
very nature speculative and a Person shall not be deemed to represent, warrant
or guarantee that its Prospects will be ever be realized or that its Prospects
will not change from time to time.
"Securities Act"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Securities Exchange Act "-- the Securities Exchange Act of 1934 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Tax Return"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any tax.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing) that
would lead a prudent Person to conclude that such a claim, Proceeding, dispute,
or other matter is likely to be asserted, commenced, taken, or otherwise pursued
in the future.
"Transaction" -- the Merger provided for and agreed to herein and all
employment matters, escrows and other matters and agreements provided for
herein.
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Article II
The Merger
2.1 The Merger. Subject to the terms and conditions of this Agreement and
the Revised Business Corporation Act of the State of Utah ("Utah Statute"), at
the Effective Time (as defined in Section 2.2 of this Agreement), Celtic Merger
Sub will be merged with and into SLM (the "Merger") whereupon the separate
existence of Celtic Merger Sub shall cease and SLM shall be the surviving
corporation ("Surviving Corporation").
2.2. Effective Time. The Merger shall become effective when properly
executed Articles of Merger in the form of those attached hereto as Exhibit A,
are duly filed with the Division of Corporations, Department of Commerce of the
State of Utah pursuant to the Utah Statute. The time at which such Articles of
Merger are filed shall be referred to in this Agreement as the "Effective Time"
and the date on which the Effective Time occurs is referred to in this Agreement
as the "Effective Date".
2.3. Conversion of SLM Securities. At the Effective Time, all shares of
common stock of SLM outstanding ("SLM Common Stock") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted (
"Converted", "Conversion" or "Exchange") into shares of $.001 par value common
stock of Celtic ("Celtic Common Stock"). Each share of SLM Common Stock
outstanding immediately prior to the Effective Time shall be Converted into
approximately 11.1111 shares of Celtic Common Stock. At the Effective Date,
there will be 99,000 shares of SLM Common Stock issued and outstanding all of
which will be Converted into 1,100,000 shares of Celtic Common Stock. Attached
hereto as Exhibit "B", and by this reference made a part hereof, is a list of
the Shareholders of SLM which sets forth the number of shares of SLM Common
Stock owned by each and the number of shares of Celtic Common Stock to be issued
to each Shareholder in the Conversion. At the Effective Time, there will be
1,000 shares of SLM preferred stock issued and outstanding ("SLM Preferred
Stock"), none of which will be Converted into Celtic Common Stock but instead
all of which shall remain outstanding and unaffected by the Merger. Exhibit "B"
also describes such SLM Preferred Stock and the beneficial owner thereof.
2.4. Effect of Conversion. Each share certificate which immediately prior
to the Effective Time represented SLM Common Stock, shall be deemed for all
purposes at and after the Effective Time to evidence ownership of, and to
represent the number of shares of Celtic Common Stock into which the shares of
SLM Common Stock represented by such certificate immediately prior to the
Effective Time, have been Converted pursuant to Section 2.3 hereof. Each
Shareholder of SLM at the Effective Time shall, until such owner's certificate
for SLM Common Stock has been surrendered for transfer or exchange, be entitled
to exercise any voting and other rights with respect thereto and be entitled to
receive any dividends or other distributions, equivalent to the number of shares
of Celtic Common Stock into which the shares of SLM Common Stock represented by
such certificate have been Converted.
2.5. Conversion of Capital Stock of Celtic Merger Sub. At and as of the
Effective Time, each share of the common stock of Celtic Merger Sub shall be
converted into one share of common stock of the Surviving Corporation.
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2.6. Exchange of Shares. The exchange of share certificates shall be
effected by Celtic. Celtic shall deliver to the Shareholders certificates for
the shares of Celtic Common Stock to be Exchanged for stock certificates
representing all shares of SLM Common Stock pursuant to the terms of this
Agreement. Each holder of an outstanding certificate or certificates
representing SLM Common Stock shall be entitled, upon surrender of such
certificate(s) to Celtic, duly endorsed in blank or accompanied by stock powers
duly endorsed in blank, to receive a certificate representing the number of
shares of Celtic Common Stock into which SLM Common Stock shall have been
Converted pursuant to the Merger. All Celtic stock certificates issued to the
Shareholders at the Effective Time shall contain a legend substantially in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES ACT AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES ACTS; (B) CELTIC HAS BEEN FURNISHED WITH AN
OPINION OF COUNSEL, BOTH OF WHICH OPINION AND COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO CELTIC, TO THE EFFECT THAT NO REGISTRATION IS LEGALLY
REQUIRED FOR SUCH TRANSFER; OR (C) THESE SECURITIES ARE SOLD IN COMPLIANCE
WITH RULE 144 PROMULGATED UNDER THE ACT.
No opinion of counsel shall be required with respect to the transfer of
shares from the Shareholders to the Escrow Agent or from the Escrow Agent to the
Shareholders.
2.7. Reorganization. It is the intent of the parties that the Merger will
qualify as a tax-free reorganization under Section 368(a)(1)(A) of the IRC and
will report the Merger accordingly for federal, state and local income tax
purposes. The parties acknowledge that no Person has obtained a revenue ruling
from the IRS or a legal opinion as to the tax consequences and effect of the
Merger.
2.8. Escrow of Shares. The parties agree that the value of SLM is based, in
part, upon its projected future earnings. Inasmuch as the amount of SLM's future
earnings are unknown, the Shareholders agree to deposit a portion of Celtic
Common Stock issued at the Effective Time into an escrow ("Escrow"). At the
Effective Time, 500,000 of the shares of Celtic Common Stock ("Escrow Shares")
issued to the Shareholders shall be deposited into Escrow and retained therein
and released therefrom pursuant to the Escrow Agreement ("Escrow Agreement")
attached hereto as Exhibit "C" and by this reference made a part hereof. The
Escrow Shares shall be released from the Escrow in accordance with the terms of
the Escrow Agreement.
Article III
The Surviving Corporation and Affirmative Covenants
3.1. Surviving Corporation. In the Merger, Celtic Merger Sub shall merge
into SLM and SLM shall be the Surviving Corporation.
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3.2. Articles of Incorporation. The Articles of Incorporation of SLM in
effect at the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until amended in accordance with applicable law.
3.3. Bylaws. The Bylaws of SLM in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation until amended.
3.4. Directors and Officers of SLM. From and after the Effective Time, the
directors and officers of SLM, the Surviving Corporation shall be as follows:
Directors Officers
Reese Howell, Jr. Reese Howell, Jr. - Chairman, CEO
President
Roger Davis Roger Davis - Vice President Sales and
Marketing/Secretary/Treasurer
Douglas P. Morris
Such officers and directors shall constitute the directors and officers of
the SLM to serve in accordance with the Bylaws of SLM until their respective
successors have been duly elected or appointed and qualified.
3.5. Effect of Merger. The Merger will have the effects specified in
Section 16-10a-1106 of the Utah Statute.
3.6. Directors and Officers of Celtic. Celtic shall, prior to the
Effective Time, take all action reasonably necessary to insure that the
Directors and Officers of Celtic shall, immediately after the Effective Time, be
as follows:
Directors Officers
Douglas P. Morris Douglas P. Morris - President/CEO
Howard Talks Frank Lucchese- Chief Financial Officer
Larry Meek Reese Howell, Jr. - Senior Vice President
Reese Howell, Jr.
Pamela Davis
Such officers and directors shall constitute the directors and officers of
Celtic to serve in accordance with the Bylaws of Celtic until their respective
successors have been duly elected or appointed and qualified. At the next two
Annual Meetings of Celtic Shareholders, the Celtic Board of Directors shall
nominate Reese Howell Jr. and Pamela Davis, as two of the nominees of the Celtic
Board of Director's slate of directors and recommend to the Celtic shareholders
such persons election as directors of Celtic.
3.7. Registration Rights. If, after the Effective Time, Celtic grants any
registration rights to any Person other than the Shareholders in connection with
an acquisition, merger or business combination of any type or kind in which any
security of Celtic is issued to such Person, then in
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such event, and at such time, the Shareholders shall be granted registration
rights which are equivalent to the registration rights granted to such other
Person in connection with such acquisition, merger or business combination.
3.8. Amendments to Articles of Incorporation and Bylaws of Celtic and SLM.
Following the Effective Time, the Boards of Directors of each of Celtic and SLM
shall appoint a committee of the Board to study each of such company's Articles
of Incorporation and Bylaws and to make recommendations for changes thereto to
the full Board of Directors of each company. The Boards of Directors of both
Celtic and SLM shall appoint Douglas P. Morris and Reese Howell, Jr. to such
committees.
3.9. Access to Information. If, subsequent to the Effective Time, Celtic
is not required to file, and does not file, with the Securities and Exchange
Commission ("SEC"), the kind of reports ("Reports") it is currently required to
file under the Securities Exchange Act, it shall make available to the
Shareholders the information which would have been available to the Shareholders
if Celtic had filed such Reports with the SEC. However, the obligation to
provide Shareholders such information shall terminate at the time a Shareholder
is no longer a shareholder of Celtic.
3.10. Preemptive Rights. If, after the Effective Time, any Person who is a
Shareholder of Celtic at the Effective Time is granted the preemptive right to
purchase securities of Celtic, the Shareholders shall be granted equivalent
preemptive rights at such time.
3.11. Rules 144 and 144A. Celtic shall timely file the reports required to
be filed by it under the Securities Act and the Securities Exchange Act and the
rules and regulations adopted thereunder and will take such further action as
any Shareholder may reasonably request, all to the extent required from time to
time to enable such Shareholder to sell its Celtic Common Stock without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Securities and Exchange Commission. Upon the request of any Shareholder,
Celtic will deliver to such holder a written statement as to whether it has
complied with the requirements of this Section 3.11. If Celtic shall at any time
not be filing periodic reports under the Securities Exchange Act Celtic shall,
upon the request of any Shareholder, furnish in writing to such Shareholder
Celtic's most recent fiscal year end financial statements and Celtic's most
recent quarterly financial statements, if any, since its last fiscal year end
and a description of the nature of the business of Celtic and the products and
services it offers. The fiscal year end financial statements delivered hereunder
shall be audited.
Article IV
Closing
4.1 Closing. Prior to the Effective Time a closing (the "Closing") of the
Transaction shall take place for the purpose of confirming the satisfaction of,
or if permissible, waiver, of the conditions set forth in Articles VIII and IX
hereof. The Closing shall take place within seven days following the date on
which all conditions to each party's obligations hereunder have been satisfied
or waived and shall be held at such time and place as agreed to by the parties.
However, in no event will the Closing occur subsequent to January 31, 1997.
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4.2. Documents at Closing. At the Closing, the following transactions shall
occur, all of such transactions being deemed to occur simultaneously:
4.2.1. The Shareholders and SLM will deliver, or cause to be delivered, to
Celtic the following:
(a) Stock certificates for all of the issued and outstanding stock of SLM
duly endorsed;
(b) A certificate from the Division of Corporations of the State of
Utah dated at or about the Effective Date to the effect that SLM is in
good standing under the laws of said state and a certificate of good
standing from the appropriate state authorities of the state in which each
subsidiary of SLM is organized to the effect that each of such
subsidiaries is in good standing in the state in which it is organized;
(c) An Investment Letter in the form of Exhibit "D" attached hereto
from each Shareholder representing that he is acquiring the Celtic Common
Stock for investment purposes only and not with a view to further
distribution;
(d) A duly executed Escrow Agreement in the form attached hereto as Exhibit
"C"; and
(e) Such other instruments, documents and certificates as are
required to be delivered pursuant to the provisions of this Agreement or
which may be reasonably requested in furtherance of the provisions of this
Agreement.
4.2.2 Celtic will deliver or cause to be delivered to the Shareholders:
(a) Certificates for the Celtic Shares to be issued to the Shareholders;
(b) A duly executed Escrow Agreement in the form attached hereto as
Exhibit "C".
(c) Duly executed Employment Agreements in the forms attached hereto as
Exhibit "E-1" and "E-2";
(d) Duly executed Option Agreements in the forms attached hereto as Exhibit
"F-1" and "F-2";
(e) A certificate from the Secretary of State of the State of
Delaware dated at or about the Effective Date to the effect that Celtic is
in good standing under the laws of said state and a certificate of good
standing from the appropriate state authorities of the state in which each
subsidiary of Celtic is organized to the effect that each of such
subsidiaries is in good standing in the state in which it is organized;
and
(f) Such other instruments, documents and certificates as are
required to be delivered pursuant to the provisions of this Agreement or
which may be reasonably requested in furtherance of the provisions of this
Agreement.
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Article V
Representations and Warranties of
Shareholders and SLM
SLM and each of the Shareholders, individually and neither jointly nor
severally, represents and warrants to Celtic, except as disclosed in this
Agreement or in the case of any representation qualified by its terms to a
particular schedule ("Schedule") of SLM attached hereto ("SLM Schedule") such
specific SLM Schedule, that the statements made in this Article V will be
correct and complete at the Effective Time provided, however, if there is no
Effective Time, then no party shall be liable for any inaccuracy. For purposes
of this Article V, each and every reference to SLM shall mean and include SLM
and each subsidiary of SLM ("SLM Subsidiary") unless otherwise indicated. Each
representation and warranty made by SLM and the Shareholders relating to SLM,
shall be deemed to be a representation and warranty made by SLM and the
Shareholders for each SLM Subsidiary, except to the extent that a specific
representation or warranty does not relate to the existence, assets, liabilities
or operations of such SLM Subsidiary, and that the term SLM taken as a whole
shall mean SLM and all of its Subsidiaries.
5.1. Shareholders. Each of the Shareholders is the owner of all of the
issued and outstanding shares of the capital stock of SLM attributed to such
Shareholder on Exhibit "B"; each Shareholder has full legal title to all SLM
Shares described in Exhibit "B" as being owned by such Shareholder free from any
and all claims, liens or other encumbrances. Shareholders have the unqualified
right to sell, transfer and dispose of their SLM Shares subject to the laws of
bankruptcy, insolvency and general creditor's rights. Each Shareholder
represents and warrants that, in regards to such Shareholder's shares of SLM,
such Shareholder has the full right and authority to execute this Agreement and
to transfer his shares of SLM to Celtic.
5.2. Restricted Shares to be Issued. Each Shareholder understands and is
aware that the issuance of Celtic Shares at the Effective Time will be made
without registration under the Securities Act or under any state securities laws
and that the Shares may not be sold or transferred without registration under
the Securities Act and under applicable state securities laws or unless an
exemption from such registration is available. Each Shareholder understands that
the investment in the Celtic Shares is speculative and may remain so for an
indefinite period and each Shareholder hereby represents that he is able to bear
the economic risk of his investment in the Celtic Shares. All certificates
evidencing the Celtic Shares shall bear appropriate restrictive legends in
accordance with Section 2.6.
5.3. Organization. SLM is a corporation duly organized, validly existing
and in good standing under the laws of the State of Utah and has all requisite
corporate power and authority to own, lease and operate its assets and to carry
on its business as now being conducted, except where the failure to be so
existing and in good standing or to have such power and authority would not in
the aggregate have a material adverse effect on the business, operations or
financial condition of SLM taken as a whole. SLM is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
state or jurisdiction which requires such qualification. Attached hereto as
Schedule 5.3 are copies of Good Standing Certificates and Letters of SLM and the
SLM Subsidiaries.
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5.3.1. Each SLM Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the state in which it is
organized and has all requisite corporate power and authority to own, lease and
operate its assets and to carry on its business as now being conducted, except
where the failure to be so existing and in good standing or to have such power
and authority would not in the aggregate have a material adverse effect on the
business, operations or financial condition of such SLM Subsidiary taken as a
whole. Each SLM Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or jurisdiction
which requires such qualification.
5.4. Capitalization. The entire authorized capital stock of SLM consists
of 1,050,000 shares of common stock having no par value, of which 99,000 shares
are currently issued and outstanding and of which not more than 99,000 will be
issued and outstanding at the Effective Time, and 10,000 shares of SLM Preferred
Stock having $100.00 par value, of which 1,000 shares are currently issued and
outstanding and of which not more than 1,000 will be issued and outstanding at
the Effective Time. There are no outstanding convertible securities, warrants,
options, or commitments of any nature which may cause authorized but unissued
shares of SLM Common Stock to be issued to any Person except as disclosed in
Schedule 5.4 attached hereto. At the Effective Time, all issued and outstanding
shares of SLM will have been duly authorized, validly issued, fully paid, and
non-assessable, and not issued in violation of the preemptive or other right of
any Person. None of the outstanding equity securities or other securities of SLM
was issued in violation of the Securities Act or any other Legal Requirement.
5.4.1 Each SLM Subsidiary is a wholly-owned subsidiary of SLM. The
entire authorized and issued capital stock of each SLM Subsidiary is set out on
Schedule 5.4.1. All of the outstanding capital stock reflected on such Schedule
5.4.1 is owned beneficially and of record by SLM. There are no outstanding
convertible securities, warrants, options or commitments of any nature which may
cause authorized but unissued shares of capital stock of any SLM Subsidiary to
be issued to any Person except as disclosed in Schedule 5.4.1.
Each share of outstanding capital stock of each SLM Subsidiary has been
duly authorized and validly issued, been fully paid for, is not assessable and
was not issued in violation of the pre-emptive or other rights of any Person.
5.5. Reorganization and Securities Related Representations.
5.5.1.There is no plan or intention by the Shareholders to sell,
exchange, or otherwise dispose of a number of shares of Celtic Common Stock
received in the Merger that would reduce the Shareholders' ownership of Celtic
stock to a number of shares having a value, as of the date of the Merger, of
less than 50% of the value of all of the formerly outstanding stock of SLM as of
the same date. The SLM Common Stock and shares of Celtic Common Stock held by
the Shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger are considered in making this representation.
5.5.2.Following the Effective Time, SLM will hold at least 90% of
the fair market value of its net assets and at least 70% of the fair market
value of its gross assets, and at least 90% of the fair market value of Celtic
Merger Sub's net assets and at least 70% of the fair market value of Celtic
Merger Sub's gross assets held immediately prior to the Merger. For purposes of
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this representation, amounts used by SLM or Celtic Merger Sub to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by SLM are included as assets of SLM or Celtic
Merger Sub, respectively, immediately prior to the Merger.
5.5.3.SLM has no plan or intention to issue additional shares of
stock that would result in Celtic losing control of SLM within the meaning of
Section 368(c) of the IRC.
5.5.4.Following the Effective Time, SLM will continue its historic
business or use a significant portion of its historic business assets in its
business.
5.5.5.There is no intercorporate indebtedness existing between
Celtic and SLM, or between Celtic Merger Sub and SLM, which was issued,
acquired, or will be settled at a discount.
5.5.6.At the Effective Time, shares of SLM Common Stock representing
control of SLM as defined in Section 368(c) of the IRC, will be Exchanged solely
for voting stock of Celtic.
5.5.7.At the Effective Time, SLM will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in SLM that, if exercised or converted,
would affect Celtic's acquisition or retention of control of SLM, as defined in
Section 368(c) of the IRC.
5.5.8.SLM is not an investment company as defined in Section
368(a)(2)(f)(iii) and (iv) of the IRC.
5.5.9.On the Effective Date, the fair market value of the assets of
SLM will exceed the sum of its liabilities plus the amount of liabilities, if
any, to which the assets are subject.
5.5.10. SLM is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the IRC.
5.5.11. None of the compensation received by any
shareholder-employees of SLM will be separate consideration for, or allocable
to, any of their shares of SLM Common Stock; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms-length for
similar services.
5.5.12. No Order has been entered revoking or suspending for cause
any license, permit or other authority of any director or officer of SLM, or of
any corporation of which any such Person is an officer or director, to engage in
the securities business or in the sale of a particular security or temporarily
or permanently restraining or enjoining any such Person or any corporation of
which he is an officer or director from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such Person of any felony or misdemeanor involving a security or any
aspect of the securities business, or of any felony.
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5.6. Authority Relative to this Agreement. SLM has full corporate power
and authority to execute and deliver this Agreement and to consummate the
Transaction. The execution and delivery of this Agreement and the consummation
of the Transaction have been duly and validly authorized by the Board of
Directors of SLM and have or will be duly and validly authorized by all of the
Shareholders and no other corporate action on the part of SLM are necessary to
authorize this Agreement or to consummate the Transaction. This Agreement has
been duly and validly executed and delivered by SLM and by each of the
Shareholders and constitutes a valid and binding agreement of SLM and the
Shareholders, enforceable against each of them in accordance with its terms
subject to the laws of bankruptcy, insolvency, general creditor's rights, and
equitable principles.
5.7. Approvals and Consents; Non-Contravention.
5.7.1. Except as set forth in Schedule 5.7.1, no material consent,
material approval, or other material action by, or notice to or material
registration or filing with, any governmental or administrative agency or
authority is required or necessary to be obtained by SLM or either Shareholder
in connection with the execution, delivery or performance of this Agreement by
SLM or either Shareholder or the consummation of the Transaction.
5.7.2. Except as set forth in schedule 5.7.2, no consent, approval,
waiver or other action by any Person under any material Contract or material
instrument, to which SLM or either Shareholder is a party or by which they or
any of their assets are bound, is required or necessary for the execution,
delivery, and performance of this Agreement by SLM or the consummation of the
Transaction. Each Shareholder represents with respect to himself and not with
respect to the other Shareholder, that no consent, approval, waiver or other
action by any Person under any material Contract or material instrument to which
such Shareholder is a party or by which it or any of its assets is bound, is
required or necessary for the execution, delivery, and performance of this
Agreement by SLM and the Shareholders, or the consummation of the Transaction.
5.7.3. Except as set forth in Schedule 5.7.3, the execution,
delivery, or performance of this Agreement by SLM and the Shareholders and the
consummation of the Transaction will not: (i) violate or conflict with the
charter documents or Bylaws of SLM; (ii) violate or conflict with any law,
regulation, Order or administrative interpretation applicable to SLM or any
Shareholder or by which they or any of their assets are bound, or any agreement
or understanding between any Governmental Body, on the one hand, and SLM on the
other hand; or (iii) violate or conflict with, result in a breach of, result in
or permit the acceleration or termination of, or constitute a default under any
material agreement, material instrument or material understanding to which SLM
is a party or by which it or any of its assets are bound excluding from the
foregoing clauses (ii) and (iii) such violations or conflicts which, in the
aggregate, could not reasonably be expected to have a material adverse affect on
the business, operations or financial condition of SLM taken as a whole.
Each Shareholder represents that, as to himself, and not as to any
other Shareholder, the execution, delivery and performance of this Agreement by
such Shareholder will not: (i) violate or conflict with any law, regulation,
Order, or administrative interpretation applicable to such Shareholder or by
which it or any of its assets are bound, or any agreement or understanding
between any Governmental Body on the one hand and such Shareholder on the other
hand or (ii) violate or conflict with, result in a breach of, or result in or
permit the acceleration
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or termination of, or constitute a default under any material agreement,
material instrument or material understanding to which such Shareholder is a
party or by which it or any of its assets are bound, excluding from the
foregoing clause (i) such violations or conflicts which could not reasonably be
expected to have a material adverse affect on the ability of such Seller to
consummate the Transactions.
5.8. Articles of Incorporation and Bylaws. Attached hereto as Schedule 5.8
are true and correct copies of the Articles of Incorporation and Bylaws of SLM
and each SLM Subsidiary. Such Articles of Incorporation and Bylaws are in full
force and effect and no amendments are pending. SLM is not in violation of any
provision of its Certificate of Incorporation or Bylaws. Schedule 5.8 also
contains all Board of Director minutes and resolutions and all shareholder
minutes and resolutions of SLM and of each SLM Subsidiary from the date of their
inceptions.
5.9. Financial Statements. Attached hereto as Schedule 5.9 are unaudited
financial statements of SLM and each of the SLM Subsidiaries as of November
30,1996 ("SLM Management Reports") and audited financial statements of SLM (but
not the SLM Subsidiaries) for the years ended February 29, 1996 and February 28,
1995, together with the related footnotes and report thereon of Andersen,
Andersen & Strong L.C. (the "SLM Audited Financial Statements"). The SLM
Management Reports and the SLM Audited Financial Statements are hereafter
referred to as the "SLM Financial Statements." The parties acknowledge that
Celtic is required to file a Form 8-K with the Securities and Exchange
Commission within 15 days after the Effective Date. Such Form 8-K must contain
audited and other financial statements of SLM and any predecessor of SLM which
meet the requirements of such Form 8-K. The SLM Financial Statements are correct
and complete in all material respects and fairly present, in accordance with
generally accepted accounting principles, consistently applied, the financial
position of SLM as of such dates and the results of operations and changes in
financial position for such periods all in accordance with GAAP, (in the case of
the SLM Management Reports, GAAP as applicable to quarterly financial
statements) subject, in the case of the SLM Management Reports, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of the notes (that if
presented would not differ materially from those included in the SLM Audited
Financial Statements).
5.9.1. SLM (i) keeps books, records and accounts that, in reasonable
detail, accurately and fairly reflect (A) the transactions and dispositions of
assets of such entity and (B) the value of inventory calculated in accordance
with GAAP, and (ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets, (C) access to
assets is permitted only in accordance with management's general or specific
authorizations, and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
5.9.2.Neither SLM nor any employee, agent, consultant or
representative of SLM has made any payment of funds of SLM or received or
retained any funds in violation of any applicable law, rule or regulation.
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5.9.3.Each Shareholder represents as to himself, and not the other
Shareholder, that he has not made any payment of funds of SLM or received or
retained any funds in violation of any applicable law, rule or regulation.
5.10. No Undisclosed Material Liabilities. SLM is not subject to any
material liability ($20,000 or more) of any kind whatsoever (whether accrued,
absolute, contingent, or otherwise) that are, individually or in the aggregate,
material to SLM taken as a whole other than:
(a) liabilities disclosed or provided for in the most recent SLM Financial
Statements;
(b) liabilities incurred in the Ordinary Course of Business since the date
of the Audited Financial Statements;
(c) liabilities contemplated by and arising under this Agreement or in
connection with the Transaction; and
(d) liabilities described in Schedule 5.10 attached hereto.
To the Knowledge of SLM and the Shareholders, there is no basis for the
imposition of any other liabilities which could reasonably be expected to have a
material adverse effect on the business, properties, assets or operations of SLM
taken as a whole.
5.11. Absence of Certain Changes or Events. Except (i) as contemplated by
this Agreement; and (ii) as disclosed in Schedule 5.11, since November 30,1996,
SLM has not:
(a) suffered any change in its business, operations, properties,
condition (financial or otherwise), or Prospects which has had, or to
Knowledge of SLM or the Shareholders, could reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, properties, assets or operations of SLM taken as a whole;
(b) suffered any damage, destruction or loss (whether or not covered
by insurance) with respect to any of its properties or assets which has
had, or to the Knowledge of SLM or the Shareholders, could reasonably be
expected to have, individually or in the aggregate, a material adverse
effect on the business, properties, assets or operations of SLM taken as a
whole;
(c) except in the Ordinary Course of Business, incurred any
liability or obligation (absolute, accrued, contingent or otherwise), in
an amount in excess of $20,000;
(d) changed any of its accounting methods, principles or practices;
(e) revalued any asset, other than due to depreciation or amortization;
(f) paid, discharged or satisfied any claim, liability or obligation not
reflected in the SLM Financial Statements in an amount in excess of $20,000;
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(g) except in the Ordinary Course of Business, entered into any
commitment or transaction material to SLM taken as a whole in an amount in
excess of $20,000;
(h) declared, set aside or paid any dividend or distribution in
respect of any capital stock, or redeemed, purchased or otherwise acquired
any of these securities or modified its capitalization;
(i) increased or established any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plan, or otherwise changed the
compensation payable or to become payable to any officer or key employees
of SLM;
(j) except in the Ordinary Course of Business, canceled or written off any
debts or waived any claims in an amount in excess of $20,000;
(k) except in the Ordinary Course of Business, transferred any
assets in an amount in excess of $20,000 or made capital expenditures and
commitments in an amount in excess of $20,000 in the aggregate;
(l) paid or loaned (other than payment of salaries or benefits or
reimbursement of expenses) any amount to, or sold, transferred or leased
any properties or assets to, or entered into any contract with, any of its
officers or directors, or any Affiliate or Associate of any of its
officers or directors;
(m) increased its reserves for bad debts, guaranteed any obligation, except
in the Ordinary Course of Business, or indemnified any Person; or
(n) agreed (whether or not in writing) to do any of the foregoing.
5.12. Litigation and Proceedings. Except as set forth in the Schedule
5.12, there is no claim or Proceeding pending or, to the Knowledge of any of the
Shareholders or SLM, Threatened against SLM or any Shareholder, or any property
or asset of SLM, by any Person or any Governmental Authority which (i) is
reasonably likely to have, individually and in the aggregate, a material adverse
effect on the business, assets or operations of SLM taken as a whole or (ii)
seeks to delay or prevent the consummation of the Transaction. As of the date
hereof, neither SLM nor any property or asset of SLM, is subject to any Order.
To the Knowledge of SLM and the Shareholders, there is no basis for any claim,
action or Proceeding against SLM which could reasonably be expected to have a
material adverse effect on the business assets, operations or financial
condition of SLM taken as a whole.
5.13. Compliance with Laws, Rules and Regulations. Schedule 5.13 sets
forth all material governmental licenses, material permits and other material
Governmental Authorizations (or requests or applications therefor) pursuant to
which SLM carries on its business. To the Knowledge of SLM and the Shareholders,
SLM complies with all applicable federal laws, rules, regulations and all
applicable state and local laws, rules and regulations relating to the operation
of its business, except to the extent that non-compliance could reasonably be
expected to
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materially and adversely affect the business, operations, properties, assets or
condition of SLM taken as a whole or except to the extent that non-compliance
would not result in the occurrence of any material liability for SLM taken as a
whole.
5.14. Contracts. Schedule 5.14 sets forth a complete and correct list of
all leases and all material Contracts to which SLM is a party or by which any of
its properties or assets are bound. To the Knowledge of SLM and the
Shareholders, and subject to the laws of bankruptcy, insolvency, general
creditor's rights, and equitable principles, all such leases and Contracts are
valid and enforceable in all material respects. For purposes of this Section
5.14, a "Material" agreement is an agreement which can reasonably be expected to
involve more than $20,000.
5.15. Material Contract Defaults. Except as set forth in Schedule 5.15, to
the Knowledge of SLM and the Shareholders, SLM is not in default under the terms
of any outstanding Contract, license, lease, or other commitment which is
material to the business, operations, assets, or condition of SLM, and no event
has occurred or circumstances exist which, with notice or lapse of time or both,
would constitute a default under any such Contract, license, or other commitment
other than any defaults which could not reasonably be expected to have a
material adverse effect on the business, assets, operations or financial
condition of SLM taken as a whole.
5.16. Taxes and Tax Returns. All Tax Returns with respect to taxes based
upon net income filed by SLM since its inception are set forth in Schedule 5.16
attached hereto. SLM has filed all Tax Returns required to be filed by it and
has paid and discharged all taxes shown as due thereon and has paid all taxes
when due, other than such payments as are being contested in good faith by
appropriate Proceedings and as to which sufficient reserves have been
established. Neither the IRS nor any other taxing authority or agency, domestic
or foreign, is now asserting or, to the Knowledge of SLM and the Shareholders,
has Threatened to assess against SLM, any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith. SLM has not
granted any waiver of any statute of limitations with respect to, or agreed to
any extension of the period for the assessment of, any tax. SLM has properly
reported on Form 1099 all amounts paid to consultants and no consultant or other
person to whom a payment has been made by SLM should be classified as an
employee under the IRC.
All Tax Returns filed by SLM are true, correct and complete in all
material respects and accurately set forth all items to the extent required to
be reflected or included in such returns by applicable law. SLM is not a party
to any tax sharing agreement.
SLM has not agreed, and is not required, to make any adjustments pursuant
to Section 481(a) of the IRC or any similar provision of state or local law by
reason of a change in accounting method initiated by it or any other relevant
party. To the Knowledge of SLM and each Shareholder, the IRS has not proposed
any such adjustment or change in accounting method. No application is pending
with any taxing authority requesting permission for any changes in accounting
methods that relate to the business or assets of SLM.
5.16.1. The accruals and reserves for taxes reflected in the most
recent balance sheet ("SLM Balance Sheet") included in the SLM Financial
Statements are adequate to cover all taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with generally
accepted accounting principles consistently applied. The term "tax" or "taxes"
means
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federal state, local, foreign, and other taxes, including without limitation,
income taxes, estimated taxes, alternative minimum taxes, excise taxes, sales
taxes, use taxes, value-added taxes, gross receipts taxes, withholding taxes,
stamp taxes, transfer taxes, windfall profit taxes, environmental taxes and
property taxes, whether or not measured in whole or in part by net income, and
all deficiencies, or other additions to tax, interest, fines and penalties.
5.17. Subsidiaries. Except as set forth in Schedule 5.4.1., SLM has no
Subsidiaries and does not own any capital stock, security, partnership interest,
or other interest of any kind in any corporation, partnership, joint venture,
association, limited liability company or other entity.
5.18. Title and Related Matters. SLM has good and marketable title to all
of its assets which are reflected in the SLM Management Reports or acquired
after that date (except properties, interests in properties, and assets sold or
otherwise disposed of since such date in the Ordinary Course of Business), free
and clear of all mortgages, liens, pledges, charges or encumbrances, except (i)
statutory liens or claims not yet delinquent; (ii) such imperfections of title
and easements as do not and will not materially detract from or interfere with
the present or proposed use of the assets or properties subject thereto or
affected thereby or otherwise materially impair present business operations on
such properties or in connection with such assets; and (iii) such liens as are
described or referred to in the SLM Financial Statements or in the SLM
Schedules. SLM owns, free and clear of any liens, claims, encumbrances, royalty
interests and other restrictions or limitations of any nature whatsoever, or
otherwise has the legal right to use, any and all procedures, techniques,
business plans, methods of management and other information utilized in the
conduct of its business or operations, whether or not the value thereof is
reflected in the SLM Management Reports. The offices and equipment of SLM that
are necessary or used in the operations of its business are in good operating
condition and repair, normal wear and tear excepted.
5.19. Intellectual Property. Schedule 5.19 hereto contains a complete list
and description of all SLM's United States and foreign (a) patents and patent
applications; (b) trademark registrations and applications for trademark
registrations; (c) copyright registrations and applications for copyright
registrations; (d) unregistered trademarks, trade names, service marks and
copyrights; and (e) unpatented trade secrets. SLM wholly owns the exclusive
rights to all of the above-described intellectual property and there are no
existing, or to the Knowledge of SLM and the Shareholders, Threatened claims of
any third party challenging the ownership, scope or validity of any of such
intellectual property; to the Knowledge of SLM and the Shareholders, there is no
infringing use by any Person or entity of any such intellectual property; and,
except as set forth in Schedule 5.19, to the Knowledge of SLM and Shareholders,
there has been no disclosure of any of the trade secrets to any Person other
than Persons who have executed confidentiality/non-competition agreements.
5.20. Accounts Receivable. To the Knowledge of SLM and the Shareholders,
all of SLM's accounts receivable arose in the Ordinary Course of Business, are
"arms length" (other than employee advances which are described in Schedule
5.20), bona fide and correctly reflected in SLM's books and records. To the
Knowledge of SLM and the Shareholders, all of SLM's accounts receivable (net of
reserves for doubtful accounts set forth on SLM's financial records) are
collectible in accordance with their terms. To the Knowledge of SLM and the
Shareholders, none of SLM's accounts receivable is subject to any set off,
counterclaim or adjustment by reason of any product
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liability, breach of warranty, Contract, accounting error or other claim except
for adjustments resulting from the settlement of escrows, none of which is
material.
5.21. Insurance. SLM currently maintains the insurance policies described
on the attached Schedule 5.21 which sets out the type of insurance, insurer,
policy number, expiration date, whether such insurance is written on a claims
made or occurrence basis, the deductible and policy limit.
5.22. Environmental Matters.
5.22.1. Neither SLM nor any predecessor of SLM (i) has violated or
is in violation of any Environmental Law; (ii) has owned or leased properties
(including, without limitation, soils and surface and ground waters) which are
contaminated with any Hazardous Substance; (iii) is liable for any off-site
contamination; (iv) actually or potentially (other than as a result of a
foreclosure action of a mortgage interest) or, to the Knowledge of SLM and the
Shareholders, liable under any Environmental Law (including, without limitation,
pending or Threatened liens); (v) has failed to obtain all permits, licenses and
other authorization required to be obtained by it under any Environmental Law
("SLM Environmental Permits"); and (vi) has failed to be in compliance with the
SLM Environmental Permits.
5.22.2. To the Knowledge of SLM and the Shareholders, neither SLM
nor any of its predecessors, or their respective subsidiaries or joint ventures
have any material Environmental Liabilities, and none of such entities has had
within the five (5) years preceding the date hereof a material release of
Hazardous Substances into the environment in violation of any Environmental Law
or Environmental Permit.
5.22.3. For the purposes of this Section 5.22, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all Federal, state and local
laws (including case law), regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions relating to
(i) human health, the environment or to emissions, discharges or releases
of pollutants, contaminants, Hazardous Substances or wastes into the
environment; (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof; or (iii) the pollution of the environment or the
protection of human health.
"Environmental Liabilities" shall mean all liabilities, whether
vested or unvested, contingent or fixed, which (i) arise under or relate
to Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Effective Time.
"Hazardous Substances" shall mean (i) those substances defined in or
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resources Conservation and Recovery
Act, the Comprehensive Environmental
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Response, Compensation and Liability Act, the Clean Air Act, the Safe
Drinking Water Act (Clean Water Act), the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act and the Substances Control
Act; (ii) petroleum and petroleum products including crude oil and any
fractions thereof; (iii) natural gas, synthetic gas, natural gas liquids
and any mixtures thereof; (iv) radon; (v) any other contaminant; and (vi)
any substance with respect to which a Governmental Authority requires
environmental investigation, monitoring, reporting or remediation
5.23. Employees. Schedule 5.23 contains a complete and accurate list of
the following information for each employee, consultant, representative
(excluding real estate agents and loan officers) or director of SLM, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
December 31, 1995; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under any pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment credit or
payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other employee pension benefit plan or employee welfare benefit
plan, or any other employee benefit plan or any director plan.
5.23.1. No employee, consultant, representative or director of SLM
is a party to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, non-competition, or proprietary rights agreement, between
such employee, consultant, representative or director and any other Person
("Proprietary Rights Agreement") that in any way materially adversely affects or
could reasonably be expected to materially adversely affect (i) the performance
of his duties as an employee or director of SLM, or (ii) the ability of SLM to
conduct its business. To the Knowledge of SLM and Shareholders, no director,
officer, or other key employee of SLM intends to terminate his employment with
SLM; provided, however, that for purposes of this Section 5.23.1, neither SLM
nor any Shareholder shall be deemed to be obligated to make any inquiry of any
director, officer or key employee concerning their intention to terminate their
employment with SLM.
5.24. Relationships with Associates and Affiliates. Except as set forth in
Schedule 5.24, no Shareholder nor any Associate or Affiliate of any Shareholder
has, or since January 1, 1994 has had, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used in or
pertaining to SLM. Except as set forth in Schedule 5.24, no Shareholder nor any
Associate or Affiliate of any Shareholder is, or since January 1, 1994 has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with SLM, other than business dealings or
transactions conducted in the Ordinary Course of Business at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with SLM with respect to any line of the products or
services of SLM (a "Competing Business") in any market presently served by SLM.
Except as set forth in Schedule 5.24, no Shareholder and no Associate or
Affiliate of any Shareholder is a party to any Contract with, or has any claim
or right against, SLM.
5.25. Brokers. Neither SLM nor any Shareholder, has incurred nor will any
of them incur, any brokerage, finder's, or similar fee in connection with the
Transaction.
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5.26. SLM Schedules. Prior to Closing, SLM shall deliver to Celtic the
following schedules (collectively "SLM Schedules") which consist of separate
schedules dated as of the date of execution of this Agreement and instruments
and data as of such date, all certified by the chief executive officer of SLM
and by the Shareholders as complete, true, and correct in all material respects:
(a) A Schedule containing copies of Good Standing Certificates and
Letters of SLM and the SLM Subsidiaries (Schedule 5.3).
(b) A Schedule describing any and all options, warrants or other
rights to purchase the securities of SLM, together with copies of any
documents relating thereto (Schedule 5.4);
(c) A Schedule describing the authorized and issued capital stock of
each SLM Subsidiary and the owners thereof, and a description of any
outstanding warrant, option or other right to purchase the securities of
each SLM Subsidiary (Schedule 5.4.1);
(d) A Schedule describing required notifications regarding change of
control (Schedule 5.7.1);
(e) A Schedule describing required notifications regarding change of
control (Schedule 5.7.2);
(f) A Schedule describing required notifications regarding change of
control (Schedule 5.7.3);
(g) A Schedule containing complete and correct copies of the
Articles of Incorporation and Bylaws, as amended, of SLM and each SLM
Subsidiary in effect as of the date of this Agreement and all Board of
Director and Shareholder minutes and resolutions adopted since their
respective incorporations (Schedule 5.8);
(h) A Schedule including SLM Financial Statements (Schedule 5.9);
(i) A Schedule of all liabilities (which are in the amount of
$20,000 or more) included on the SLM Financial Statements or arising
thereafter. This Schedule shall be updated as of the Effective Date and
such updated Schedule shall be delivered to Celtic immediately prior to
the Effective Time (Schedule 5.10);
(j) A Schedule setting forth a description of any material adverse
change in the business, operations, property, inventory, assets, or
condition of SLM since the date of SLM Financial Statements (Schedule
5.11);
(k) A Schedule describing any and all litigation or proceeding to
which SLM is a party or Threatened to be party or which may otherwise
affect SLM, its business or assets (Schedule 5.12);
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(l) A Schedule describing all material governmental licenses,
material permits and other material Governmental Authorizations (or
requests or applications therefor) pursuant to which SLM carries on or
proposes to carry on its business (except those which, in the aggregate,
are immaterial to the present or proposed business of SLM) (Schedule
5.13);
(m) A Schedule containing a description of all leases and all material
Contracts of SLM (Schedule 5.14);
(n) A Schedule relating to Material Contract defaults (Schedule 5.15);
(o) A Schedule containing copies of all Tax Returns of SLM (Schedule 5.16);
(p) A Schedule of all intellectual property owned by SLM (Schedule 5.19);
(q) A Schedule describing all employee advances (Schedule 5.20);
(r) A Schedule of all insurance maintained by SLM (Schedule 5.21);
(s) A Schedule containing copies of employee information (Schedule 5.23);
(t) A Schedule describing transactions with Shareholders, Associates or
Affiliates (Schedule 5.24);
(u) A Schedule of all other documents, disclosures, or representations
required to be disclosed by this Agreement or required to be disclosed in order
to set forth all material facts regarding SLM.
5.26.1. The SLM Schedules delivered pursuant this Agreement are
qualified in their entirety by reference to specific provisions of this
Agreement, and are not intended to constitute, and shall not be construed as
constituting, independent representations and warranties of the Shareholders to
any extent. The SLM Schedules may include items or information which the
Shareholders are not required to disclose under this Agreement; disclosure of
such items or information shall not affect (directly or indirectly) the
interpretation of this Agreement or the scope of the disclosure obligation under
this Agreement, including, without limitation, any assessment of whether any
matter arose or any agreement was entered into in the Ordinary Course of
Business. Inclusion of information herein shall not be construed to establish a
specific definition or level of what is material to the business, assets,
financial position, operations or results of operations of SLM other than what
is provided in the representations or warranties themselves.
5.26.2. SLM may provide additional schedules to qualify one or more
of the representations and warranties of SLM and the Shareholders in whole or in
part and any such Schedule so delivered in accordance with Section 5.26 shall
constitute an SLM Schedule and qualify and limit the representations and
warranties of SLM and the Shareholders for all purposes of this Agreement to the
same extent as if such Schedule were referred to in this Agreement. The
descriptions of the SLM Schedules set out in this Section 5.26 are for
convenience of reference only and not intended to modify, or to constitute
additional, representations or warranties to any
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extent or for any purpose. In the event of any discrepancy or conflict between
the description of an SLM Schedule as set out in this Section 5.26 and the
actual language of the representation or warranty, the actual language of the
representation or warranty shall control for all purposes and this Section 5.26
shall not be used to interpret their meaning to any extent or for any purpose.
5.27. Information. Each Shareholder represents unto himself and not as to
the other Shareholder that he has not failed to disclose any information known
to such Shareholder relating to SLM that is material to a decision to purchase
the SLM Shares. To the Knowledge of each Shareholder, none of the
representations or warranties contained in Article V of this Agreement contain
any untrue statement of material fact or omits to state a material fact required
to make the statements contained therein not misleading in light of the
circumstances under which they were made.
5.28. Limitation on Liability. Notwithstanding anything to the contrary
contained in this Agreement, neither SLM nor either of the Shareholders shall
have any liability for any misrepresentation or breach of any representation or
warranty contained in this Article V if Celtic has actual knowledge (rather than
Knowledge) of such misrepresentation or breach.
Article VI
Representations And Warranties of Celtic
Celtic represents and warrants to SLM and to each Shareholder except as
disclosed in this Agreement or in the case of any representation qualified by
its terms to a particular schedule ("Schedule") of Celtic ("Celtic Schedule"),
such specific Celtic Schedule, that the statements made in this Article VI will
be correct and complete at the Effective Time provided, however, that if there
is no Effective Time, then no party shall be liable for any inaccuracy. For
purposes of this Article VI, each and every reference to Celtic shall mean and
include Celtic and each subsidiary of Celtic ("Celtic Subsidiary") unless
otherwise indicated. Each representation and warranty made by Celtic relating to
Celtic shall be deemed to be a representation and warranty made by Celtic for
each Celtic Subsidiary, except to the extent that a specific representation or
warranty does not relate to the existence, assets, liabilities or operations of
each Celtic Subsidiary.
6.1. Organization. Celtic is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a materially adverse effect on the
business, operations or financial condition of Celtic taken as a whole, and that
the term Celtic taken as a whole shall mean Celtic and all of its Subsidiaries.
Celtic is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or jurisdiction which requires such
qualification. Attached hereto as Schedule 6.1 are copies of Good Standing
Certificates of Celtic and the Celtic Subsidiaries.
6.1.1. Each Celtic Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state in which it is
organized and has all requisite corporate power and authority to own, lease and
operate its assets and to carry on its business as now being conducted, except
where the failure to be so existing and in good standing or to have such power
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and authority would not in the aggregate have a material adverse effect on the
business, operations or financial condition of such Celtic Subsidiary taken as a
whole. Each Celtic Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or jurisdiction
which requires such qualification.
6.2. Capitalization. The entire authorized capital stock of Celtic
consists of 25,000,000 shares of common stock, $.001 par value of which
3,306,471 shares are currently issued and outstanding. Celtic also has 7,500,000
shares of Preferred Stock authorized, none of which are issued or outstanding.
There are no outstanding convertible securities, warrants, options, or
commitments of any nature which may cause authorized but unissued shares of
Celtic Common Stock or Preferred Stock to be issued to any Person except as
disclosed in Schedule 6.2 attached hereto. From and at the Effective Time, all
issued and outstanding shares of Celtic will have been duly authorized, validly
issued, fully paid, and non-assessable, and not issued in violation of the
pre-emptive or other right of any Person. None of the outstanding equity
securities or other securities of Celtic was issued in violation of the
Securities Act or any other Legal Requirement.
6.2.1 Each Celtic Subsidiary is a wholly-owned subsidiary of Celtic.
Schedule 6.2 sets out a list of all registration rights and preemptive rights
granted by Celtic to any holder of its capital stock or any convertible
securities, warrants, options or commitments of any nature which may require
Celtic to issue any shares of Celtic Common Stock. Celtic is not obligated to
repurchase or redeem any of its outstanding shares of capital stock or any share
of its capital stock which may become issuable upon exercise of any rights under
any convertible securities, warrants, options or commitments of any nature which
may require Celtic to issue any shares of Celtic Common Stock.
6.3. Authority Relative to this Agreement. Each of Celtic and Celtic
Merger Sub has the full corporate power and authority to execute and deliver
this Agreement and to consummate the Transaction which includes, but is not
limited, the issuance of the Celtic Common Stock to the Shareholders in the
Merger, the execution and delivery of Employment Agreements, the execution and
delivery of Option Agreements and the execution and delivery of an Escrow
Agreement. The execution and delivery of this Agreement and the consummation of
the Transaction have been duly and validly authorized by the Board of Directors
of Celtic and Celtic Merger Sub, and no other corporate action on the part of
Celtic or Celtic Merger Sub are necessary or required to authorize this
Agreement or to consummate the Transaction. This Agreement has been duly and
validly executed and delivered by Celtic and constitutes a valid and binding
agreement of Celtic, enforceable against it in accordance with its terms subject
to the laws of bankruptcy, insolvency, general creditor's rights, and equitable
principles.
6.4. Reorganization and Securities Related Representations.
6.4.1.The fair market value of the Celtic Common Stock received by
each Shareholder of SLM in the Merger will be approximately equal to the fair
market value of the SLM Common Stock surrendered in the Exchange.
6.4.2.Following the Effective Time, SLM will hold at least 90% of
the fair market value of its net assets and at least 70% of the fair market
value of its gross assets, and at least 90% of the fair market value of Celtic
Merger Sub's net assets and at least 70% of the fair market
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value of Celtic Merger Sub's gross assets held immediately prior to the Merger.
For purposes of this representation, amounts used by SLM or Celtic Merger Sub to
pay reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by SLM are included as assets of SLM or Celtic
Merger Sub, respectively, immediately prior to the Effective Time.
6.4.3.Immediately prior to the Effective Time, Celtic will be in
control of Celtic Merger Sub within the meaning of Section 368(c) of the IRC.
6.4.4 Celtic has no plan or intention to reacquire any of its stock issued
in the Merger.
6.4.5.Celtic has no plan or intention to liquidate SLM, to merge SLM
with or into another corporation; to sell or otherwise dispose of the stock of
SLM except for transfers of stock to corporations controlled by Celtic; or to
cause SLM to sell or otherwise dispose of any of its assets or any of the assets
acquired from Celtic Merger Sub, except for dispositions made in the Ordinary
Course of Business or transfers of assets to a corporation controlled by SLM.
6.4.6.Celtic Merger Sub will have no liabilities assumed by SLM and
will not transfer to SLM any assets subject to liabilities in the Merger.
6.4.7.Following the Effective Time, SLM will continue its historic
business or use a significant portion of its historic business assets in its
business.
6.4.8.There is no intercorporate indebtedness existing between
Celtic and SLM, or between Celtic Merger Sub and SLM, which was issued,
acquired, or will be settled at a discount.
6.4.9.In the Merger, shares of SLM stock representing control of SLM
as defined in Section 368(c) of the IRC, will be Exchanged solely for voting
stock of Celtic.
6.4.10. Celtic does not own, nor has it owned during the past five years,
any shares of the stock of SLM.
6.4.11. Celtic is not an investment company as defined in Section
368(a)(2)(f)(iii) and (iv) of the IRC.
6.4.12. None of the compensation received by any
shareholder-employees of SLM will be separate consideration for, or allocable
to, any of their shares of SLM stock; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms-length for
similar services.
6.4.13. No Order has been entered revoking or suspending for cause
any license, permit or other authority of any director or officer of Celtic, or
of any corporation of which such Person is an officer or director, to engage in
the securities business or in the sale of a particular security or temporarily
or permanently restraining or enjoining any such Person or any corporation of
which he is an officer or director from engaging in or continuing any conduct,
practice or
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employment in connection with the purchase or sale of securities, or convicting
such Person of any felony or misdemeanor involving a security or any aspect of
the securities business, or of any felony.
6.5. Approvals and Consents; Non-Contravention.
6.5.1. No material consent, material approval, or other material
action by, or notice to a material registration or filing with, any governmental
or administrative agency or authority is required or necessary to be obtained by
Celtic in connection with the execution, delivery or performance of this
Agreement by Celtic or the consummation of the transactions contemplated by this
Agreement.
6.5.2. No consent, approval, waiver or other action by any Person
under any material Contract or material instrument to which Celtic is a party or
by which it or any of its assets are bound, is required or necessary for the
execution, delivery, and performance of this Agreement by Celtic or the
consummation of the Transaction.
6.5.3. The execution, delivery, or performance of this Agreement by
Celtic and the consummation of the Transactions contemplated by this Agreement
will not: (i) violate or conflict with the charter documents or Bylaws of Celtic
(ii) violate or conflict with any law, regulation, Order or administrative
interpretation applicable to Celtic or by which it or any of its assets are
bound, or any agreement or understanding between any Governmental Body, on the
one hand, and Celtic on the other hand; or (iii) violate or conflict with,
result in a breach of, result in or permit the acceleration or termination of,
or constitute a default under any material agreement, material instrument or
material understanding to which Celtic is a party or by which it or any of its
assets are bound excluding from the foregoing clauses (ii) and (iii) such
violations or conflicts which, in the aggregate, could not reasonably be
expected to have a material adverse affect on the business, operations or
financial condition of Celtic taken as a whole.
6.6. Certificate of Incorporation and Bylaws. Attached hereto as Schedule
6.6 are true and correct copies of the Certificate of Incorporation and Bylaws
of Celtic and each Celtic Subsidiary. Such Certificate of Incorporation and
Bylaws are in full force and effect and no amendments are pending. Celtic is not
in violation of any provision of its Certificate of Incorporation or Bylaws.
Schedule 6.6 also contains all Board of Director minutes and resolutions and all
Shareholder minutes and resolutions of Celtic and of each Celtic Subsidiary from
the date of their inceptions.
6.7 Financial Statements. Attached hereto as Schedule 6.7 are unaudited
consolidated financial statements of Celtic (excluding Celtic Merger Sub which
is recently formed, has no assets and no liabilities) as of September 30, 1996
("Celtic Management Reports") and audited consolidated financial statements for
the years ended June 30, 1996 and June 30, 1995, together with the related
footnotes and report thereon of the auditors rendering such reports (the "Celtic
Audited Financial Statements"). The Celtic Management Reports and the Celtic
Audited Financial Statements are hereafter referred to as the "Celtic Financial
Statements." The Celtic Financial Statements are correct and complete in all
respects and fairly present, in accordance with generally accepted accounting
principles, consistently applied, the consolidated financial position of Celtic
as of such dates and the results of operations and changes in financial position
for such periods all in accordance with GAAP, subject, in the case of the
Management Reports, to normal recurring
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year end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of the notes (that if
presented would not differ materially from those included in the Celtic Audited
Financial Statements).
6.7.1. Celtic (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect (A) the transactions and
dispositions of assets of such entity and (B) the value of inventory calculated
in accordance with GAAP, and (ii) maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(C) access to assets is permitted only in accordance with management's general
or specific authorizations, and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
6.7.2.Neither Celtic nor any employee, agent, consultant or
representative of Celtic has made any payment of funds of Celtic or received or
retained any funds in violation of any applicable law, rule or regulation.
6.8. No Undisclosed Material Liabilities. Celtic is not subject to any
material liability ($50,000 or more), whether accrued, absolute, contingent or
otherwise that are, individually or in the aggregate, material to Celtic taken
as a whole other than:
(a) liabilities disclosed or provided for in the most recent Celtic
Financial Statements;
(b) liabilities incurred in the Ordinary Course of Business since the date
of the Audited Financial Statements;
(c) liabilities contemplated by and arising under this Agreement or in
connection with the Transaction; and
(d) liabilities described in Schedule 6.8 attached hereto.
To the Knowledge of Celtic no circumstances exist which would result in
the imposition of any other liabilities.
6.9. Absence of Certain Changes or Events. Except (i) as contemplated by
this Agreement; (ii) as disclosed in Schedule 6.9 since September 30,1996,
Celtic has not:
(a) suffered any change in its business, operations, properties,
condition (financial or otherwise), or Prospects which has had, or to
Knowledge of Celtic could reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the business, properties,
assets or operations of Celtic taken as a whole;
(b) suffered any damage, destruction or loss (whether or not covered
by insurance) with respect to any of its properties or assets which has
had, or to the Knowledge of Celtic,
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could reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the business, properties, assets or operations
of Celtic taken as a whole;
(c) except in the Ordinary Course of Business, incurred any
liability or obligation (absolute, accrued, contingent or otherwise), in
an amount in excess of $50,000;
(d) changed any of its accounting methods, principles or practices;
(e) revalued any asset, other than due to depreciation or amortization;
(f) paid, discharged or satisfied any claim, liability or obligation not
reflected in the Celtic Financial Statements in an amount in excess of $50,000;
(g) except in the Ordinary Course of Business, entered into any
commitment or transaction material to Celtic taken as a whole in an amount
in excess of $50,000;
(h) declared, set aside or paid any dividend or distribution in
respect of any capital stock, or redeemed, purchased or otherwise acquired
any of these securities or modified its capitalization;
(i) increased or established any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plan, or otherwise changed the
compensation payable or to become payable to any officer or key employees
of Celtic;
(j) except in the Ordinary Course of Business, canceled or written off any
debts or waived any claims in an amount in excess of $50,000;
(k) except in the Ordinary Course of Business, transferred any
assets in an amount in excess of $50,000 or made capital expenditures and
commitments in an amount in excess of $50,000 in the aggregate;
(l) paid or loaned (other than payment of salaries or benefits or
reimbursement of expenses) any amount to, or sold, transferred or leased
any properties or assets to, or entered into any contract with, any of its
officers or directors, or any affiliate or Associate of any of its
officers or directors;
(m) increased its reserves for bad debts, guaranteed any obligation, except
in the Ordinary Course of Business, or indemnified any Person; or
(n) agreed (whether or not in writing) to do any of the foregoing.
6.10. Litigation and Proceedings. Except as set forth in the Schedule
6.10, there is no claim or Proceeding pending or, to the Knowledge of Celtic,
Threatened against Celtic, or any property or asset of Celtic by any Person or
any Governmental Authority which (i) is reasonably likely to have, individually
and in the aggregate, a material adverse effect on the business, assets
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or operations of Celtic or (ii) seeks to delay or prevent the consummation of
the Transaction. As of the date hereof, neither Celtic nor any property or asset
of Celtic, is subject to any Order. To the Knowledge of Celtic, there is no
basis for any claim, action or Proceeding against Celtic which could reasonably
be expected to have a material adverse effect on the business assets, operations
or financial condition of Celtic. Celtic has never been a party to any
Proceeding involving shareholder litigation nor has it been a party to any
Proceeding initiated by the Securities and Exchange commission or any state
securities agency.
6.11. Compliance with Laws, Rules and Regulations. Schedule 6.11 sets
forth all material, governmental licenses, material permits and other material
Governmental Authorizations (or requests or applications therefore) pursuant to
which Celtic carries on its business. To the Knowledge of Celtic, it complies
with all applicable federal laws, rules, regulations and all applicable state
and local laws, rules and regulations relating to the operation of its business,
except to the extent that non-compliance could reasonably be expected to
materially and adversely affect the business, operations, properties, assets or
condition of Celtic or except to the extent that non-compliance would not result
in the occurrence of any material liability for Celtic.
6.11.1Celtic has made all filings with the United States Securities
and Exchange Commission ("SEC") that it has been required to make under the
Securities Act and the Securities Exchange Act. The documents (including Celtic
Financial Statements contained therein) filed with the SEC, except as amended,
complied in all material respects with the requirements of the Securities Act
and the Securities Exchange Act and to the Knowledge of the Company none of such
documents contained an untrue statement a of material fact or omitted to state a
material fact required to be stated therein to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
Schedule 6.11.1 is a true, correct and complete list of all filings made by or
with respect to Celtic or Celtic Common Stock since January 1, 1994 and a true,
correct and complete copy of all such filings has been provided to SLM.
6.12. Contracts. Schedule 6.12 sets forth a complete and correct list of
all leases and all material Contracts to which Celtic is a party or by which any
of its properties or assets are bound. To the Knowledge of Celtic, and subject
to the laws of bankruptcy, insolvency, general creditor's rights, and equitable
principles, all such leases and Contracts are valid and enforceable in all
material respects. For purposes of this Section 6.12, a "Material" agreement is
an agreement which can reasonably be expected to involve more than $50,000.
6.13. Material Contract Defaults. To the Knowledge of Celtic, it is not in
default under the terms of any outstanding Contract, license, lease, or other
commitment which is material to the business, operations, assets, or condition
of Celtic and no event has occurred or circumstances exist which, with notice or
lapse of time or both, would constitute a default under any such Contract,
license, or other commitment other than any defaults which could not reasonably
be expected to have a material adverse effect on the business, assets,
operations or financial condition of Celtic taken as a whole.
6.14. Taxes and Tax Returns. All Tax Returns with respect to taxes based
upon net income filed by Celtic since January 1, 1994, are set forth in Schedule
6.14 attached hereto. Celtic has filed all Tax Returns required to be filed by
it and has paid and discharged all taxes shown as due thereon and has paid all
taxes when due, other than such payments as are being contested
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in good faith by appropriate Proceedings and as to which sufficient reserves
have been established. Neither the IRS nor any other taxing authority or agency,
domestic or foreign, is now asserting or, to the Knowledge of Celtic, has
Threatened to assess against Celtic any deficiency or claim for additional taxes
or interest thereon or penalties in connection therewith. Celtic has not been
granted any waiver of any statute of limitations with respect to, or agreed to
any extension of the period for the assessment of, any tax. Celtic has properly
reported on Form 1099 all amounts paid to consultants and no consultant or other
person to whom a payment has been made by Celtic should be classified as an
employee under the IRC.
All Tax Returns filed by Celtic are true, correct and complete in all
material respects and accurately set forth all items to the extent required to
be reflected or included in such returns by applicable law. Celtic is not a
party to any tax sharing agreement.
Celtic has not agreed, and is not required, to make any adjustments
pursuant to Section 481(a) of the IRC or any similar provision of state or local
law by reason of a change in accounting method initiated by it or any other
relevant party. To the Knowledge of Celtic, the IRS has not proposed any such
adjustment or change in accounting method. No application is pending with any
taxing authority requesting permission for any changes in accounting methods
that relate to the business or assets of Celtic.
6.14.1. The accruals and reserves for taxes reflected in the most
recent balance sheet ("Celtic Balance Sheet") included in the Celtic Financial
Statements are adequate to cover all taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with generally
accepted accounting principles consistently applied. The term "tax" or "taxes"
means federal state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties.
6.15. Subsidiaries. Except as set forth in Schedule 6.15, Celtic has no
Subsidiaries and does not own any capital stock, security, partnership interest,
or other interest of any kind in any corporation, partnership, joint venture,
association, limited liability company or other entity.
6.16. Title and Related Matters. Celtic has good and marketable title to
all of its assets which are reflected in the Celtic Management Reports or
acquired after that date (except properties, interests in properties, and assets
sold or otherwise disposed of since such date in the Ordinary Course of
Business), free and clear of all mortgages, liens, pledges, charges or
encumbrances, except (i) statutory liens or claims not yet delinquent; (ii) such
imperfections of title and easements as do not and will not materially detract
from or interfere with the present or proposed use of the assets or properties
subject thereto or affected thereby or otherwise materially impair present
business operations on such properties or in connection with such assets; and
(iii) such liens as are described or referred to in the Celtic Financial
Statements or in the Celtic Schedules. Celtic owns, free and clear of any liens,
claims, encumbrances, royalty interests and other restrictions or limitations of
any nature whatsoever, or otherwise has the legal right to use, any and all
procedures, techniques, business plans, methods of management and other
information utilized in the conduct of its business or operations, whether or
not the value thereof is reflected
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in the Celtic Management Reports. The offices and equipment of Celtic that are
necessary or used in the operations of its business are in good operating
condition and repair, normal wear and tear excepted.
6.17. Intellectual Property. Schedule 6.17 hereto contains a complete list
and description of all Celtic's United States and foreign (a) patents and patent
applications; (b) trademark registrations and applications for trademark
registrations; (c) copyright registrations and applications for copyright
registrations; (d) unregistered trademarks, trade names, service marks and
copyrights; and (e) unpatented trade secrets. Celtic wholly owns the exclusive
rights to all of the above-described intellectual property and there are no
existing or to the Knowledge of Celtic, Threatened claims of any third party
challenging the ownership, scope or validity of any of the said intellectual
property; to the Knowledge of Celtic, there is no infringing use by any Person
or entity of any of such intellectual property; and, except as set forth in
Schedule 6.17, to the Knowledge of Celtic, there has been no disclosure of any
of the trade secrets to any Person other than Persons who have executed
confidentiality/non-competition agreements.
6.18. Accounts Receivables. To the Knowledge of Celtic, all of its
accounts receivable arose in the Ordinary Course of Business, are "arms length"
(other than employee advances which are described in Schedule 6.18), bona fide
and are correctly reflected in Celtic's books and records. To the Knowledge of
Celtic, all of its accounts receivable (net of reserves for doubtful accounts
set forth on Celtic's financial records) are collectible in accordance with
their terms. To the Knowledge of Celtic, none of Celtic's accounts receivable is
subject to any set off, counterclaim or adjustment by reason of any product
liability, breach of warranty, Contract, accounting error or other claim except
for adjustments in the Ordinary Course of Business, none of which is material.
6.19. Insurance. Celtic currently maintains the insurance policies
described on the attached Schedule 6.19 which sets out the type of insurance,
insurer, policy number, expiration date, whether such insurance is written on a
claims made or occurrence basis, the deductible and policy limit.
6.20. Environmental Matters.
6.20.1. Neither Celtic nor any predecessor of Celtic (i) has
violated or is in violation of any Environmental Law; (ii) has owned or leased
properties (including, without limitation, soils and surface and ground waters)
which are contaminated with any Hazardous Substance; (iii) is liable for any
off-site contamination; (iv) is actually or potentially (other than as a result
of the foreclosure action of a mortgage interest) or, to the Knowledge of
Celtic, liable under any Environmental Law (including, without limitation,
pending or Threatened liens); (v) has failed to obtain all permits, licenses and
other authorization required to be obtained by it under any Environmental Law ("
Celtic Environmental Permits"); and (vi) Celtic has failed to be in compliance
with Celtic Environmental Permits.
6.20.2. To the Knowledge of Celtic neither Celtic nor any of its
predecessors, or their respective subsidiaries or joint ventures have any
material Environmental Liabilities, and none of such entities have had within
the five (5) years preceding the date hereof a material release of Hazardous
Substances into the environment in violation of any Environmental Law or
Environmental Permit.
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6.20.3. For the purposes of this Section 6.19, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all Federal, state and local
laws (including case law), regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions relating to
(i) human health, the environment or to emissions, discharges or releases
of pollutants, contaminants, Hazardous Substances or wastes into the
environment; (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof; or (iii) the pollution of the environment or the
protection of human health.
"Environmental Liabilities" shall mean all liabilities, whether
vested or unvested, contingent or fixed, which (i) arise under or relate
to Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the Effective Time.
"Hazardous Substances" shall mean (i) those substances defined in or
regulated under the following federal statues and their state
counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act, the
Resources Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Air Act, the Safe
Drinking Water Act (Clean Water Act), the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act and the Substances Control
Act; (ii) petroleum and petroleum products including crude oil and any
fractions thereof; (iii) natural gas, synthetic gas, natural gas liquids
and any mixtures thereof; (iv) radon; (v) any other contaminant; and (vi)
any substance with respect to which a Governmental Authority requires
environmental investigation, monitoring, reporting or remediation.
6.21. Employees. Schedule 6.21 contains a complete and accurate list of
the following information for each employee, consultant, representative
(excluding non-affiliated brokers or agents) or director of Celtic, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
December 31, 1995; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under any pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment credit or
payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other employee pension benefit plan or employee welfare benefit
plan, or any other employee benefit plan or any director plan.
6.21.1. No employee, consultant, representative or director of
Celtic is a party to, or is otherwise bound by, any agreement or arrangement,
including any confidentiality, non-competition, or proprietary rights agreement,
between such employee, consultant, representative or director and any other
Person ("Proprietary Rights Agreement") that in any way materially adversely
affects or could reasonably be expected to materially adversely affect (i) the
performance of his duties as an employee or director of Celtic, or (ii) the
ability of Celtic to conduct its business.
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To the Knowledge of Celtic, no director, officer, or other key employee of
Celtic intends to terminate his employment with Celtic; provided, however, that
for purposes of this Section 6.21.1, Celtic shall not be deemed to be obligated
to make any inquiry of any director, officer or key employee concerning their
intention to terminate their employment with Celtic.
6.22. Relationships with Affiliates or Associates . Except as set forth in
the Celtic SEC Reports or in Schedule 6.22, no Affiliate or Associate of Celtic
has, or since January 1, 1994 has had, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used in or
pertaining to Celtic. No Affiliate or Associate of Celtic is, or since January
1, 1994 has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in, a Person that has (i) had business
dealings or a material financial interest in any transaction with Celtic, other
than business dealings or transactions conducted in the Ordinary Course of
Business at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with Celtic with respect
to any line of the products or services of Celtic (a "Competing Business") in
any market presently served by Celtic. Except as set forth in Schedule 6.22, no
Affiliate or Associate of Celtic is a party to any Contract with, or has any
claim or right against, Celtic.
6.23. Brokers. Celtic has not incurred nor will it incur any brokerage,
finder's, or similar fee in connection with the Transaction.
6.24. Celtic Schedules. Within seven (7) days from the date hereof, Celtic
shall deliver to the Shareholders the following schedules (collectively "Celtic
Schedules") which consist of separate schedules dated as of the date of
execution of this Agreement and instruments and data as of such date, all
certified by the chief executive officer of Celtic as complete, true, and
correct in all material respects:
(a) A Schedule describing any and all options, warrants or other
rights to purchase the securities of Celtic, together with copies of any
documents relating thereto; and all registration rights and preemptive
rights relating to any security of Celtic (Schedule 6.2);
(b) A Schedule containing complete and correct copies of the
Articles of Incorporation and Bylaws, as amended, of Celtic and each
Celtic Subsidiary in effect as of the date of this Agreement and all Board
of Director and shareholder minutes and resolutions adopted since their
respective incorporations. (Schedule 6.6);
(c) A Schedule including Celtic Financial Statements (Schedule 6.7);
(d) A Schedule of all liabilities (exceeding $50,000) included on
the Celtic Financial Statements or arising thereafter. This Schedule shall
be updated as of Effective Date and such updated Schedule shall be
delivered to Shareholders immediately prior to the Effective Time
(Schedule 6.8);
(e) A Schedule setting forth a description of any material adverse
change in the business, operations, property, inventory, assets, or
condition of Celtic since the date of Celtic Financial Statements
(Schedule 6.9);
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(f) A Schedule containing a description of any litigation pending or
Threatened (Schedule 6.10);
(g) A Schedule containing a description of all leases and Material
Contracts of Celtic (Schedule 6.12);
(h) A Schedule containing copies of all Tax Returns of Celtic (Schedule
6.14);
(i) A Schedule listing all Celtic Subsidiaries and a description of the
capitalization of each Celtic Subsidiary (Schedule 6.15);
(j) A Schedule of all intellectual property owned by Celtic (Schedule
6.17);
(k) A Schedule describing all employee advances (Schedule 6.18);
(l) A Schedule of all insurance maintained by Celtic (Schedule 6.19);
(m) A Schedule containing copies of all contracts for employment of
any officer or employee that is not terminable on 30 days (or less) notice
(Schedule 6.21);
(n) A Schedule describing transactions with Shareholders, Associates or
Affiliates (Schedule 6.22);
(o) A Schedule of all other documents, disclosures, or
representations required to be disclosed by this Agreement or required to
be disclosed in order to set forth all material facts regarding Celtic.
6.24.1. The Celtic Schedules delivered pursuant this Agreement are
qualified in their entirety by reference to specific provisions of this
Agreement, and are not intended to constitute, and shall not be construed as
constituting, independent representations and warranties of Celtic to any
extent. The Celtic Schedules may include items or information which Celtic is
not required to disclose under this Agreement; disclosure of such items or
information shall not affect (directly or indirectly) the interpretation of the
Agreement or the scope of the disclosure obligation under this Agreement,
including, without limitation, any assessment of whether any matter arose or any
agreement was entered into in the Ordinary Course of Business. Inclusion of
information herein shall not be construed to establish a specific definition or
level of what is material to the business, assets, financial position,
operations or results of operations of Celtic other than what is provided in the
representations or warranties themselves.
6.24.2. Celtic may provide additional schedules to qualify one or
more of the representations and warranties of Celtic in whole or in part and any
such Schedule so delivered in accordance with Section 6.24 shall constitute a
Celtic Schedule and qualify and limit the representations and warranties of
Celtic for all purposes of this Agreement to the same extent as if such Schedule
were referred to in this Agreement. The descriptions of the Celtic Schedules set
out in this Section 6.24 are for convenience of reference only and not intended
to modify, or to constitute additional, representations or warranties to any
extent or for any purpose. In the event of any discrepancy or conflict between
the description of a Celtic Schedule as set out in this Section
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6.24 and the actual language of the representation or warranty, the actual
language of the representation or warranty shall control for all purposes and
this Section 6.24 shall not be used to interpret their meaning to any extent or
for any purpose.
6.25. Information. Celtic represents that it has not failed to disclose
any information known to it relating to it that is material to a decision to
purchase the Celtic Shares. To the Knowledge of Celtic, none of the
representations or warranties contained in Article VI of this Agreement contain
any untrue statement of material fact or omits to state a material fact required
to make the statements contained therein not misleading in light of the
circumstances under which they were made.
6.26. Additional Information Available. Celtic will make available to each
Shareholder the opportunity to ask questions and receive answers concerning the
acquisition of Celtic Common Stock in the Transaction, and to obtain any
additional information which Celtic possesses or can acquire without
unreasonable effort or expense.
6.27. Limitation on Liability. Notwithstanding anything to the contrary
contained in this Agreement, Celtic shall have any liability for any
misrepresentation or breach of any representation or warranty contained in this
Article VI if SLM or either of the Shareholders has actual knowledge (rather
than Knowledge) of such misrepresentation or breach.
Article VII
Conduct Prior to Closing
7.1. Conduct of Business. Prior to the Effective Time, SLM and Celtic shall
conduct their business only in the Ordinary Course of Business.
7.2. Additional Covenants by SLM and SLM Shareholders and Celtic. Between
the date hereof and the Effective Time, except as contemplated by this Agreement
or with the prior written consent of the other parties, which consent shall not
unreasonably be withheld, neither Celtic nor SLM shall:
(a) make any change in its Articles of Incorporation or Bylaws;
(b) make any change in the authorized or issued shares except as
contemplated by this Agreement;
(c) make any payment or distribution to shareholders (with respect to their
stock) or purchase or redeem any shares of capital stock;
(d) except in the Ordinary Course of Business, mortgage, pledge, or subject
to lien or encumbrance any of assets, tangible or intangible;
(e) except in the Ordinary Course of Business, cancel any debts or claims
or waive any rights of value;
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(f) except in the Ordinary Course of Business, incur any
indebtedness or guarantees or enter into any commitment or make any
material capital expenditures or investments;
(g) make any loan, accrual or arrangement for or payment of bonuses
or special compensation of any kind or any severance or termination pay
to, any of its present or former officers or employees;
(h) make any material change in its method of management, operation, or
accounting;
(i) enter into any other material transactions;
(j) except in the Ordinary Course of Business, hire any Person as an
employee;
(k) adopt any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment,
or arrangement made to, for, or with its officers, directors, or
employees;
(l) grant or agree to grant any options, warrants, or other rights
for its stocks, bonds, or other corporate securities calling for the
issuance thereof;
(m) except in the Ordinary Course of Business, sell or transfer, or
agree to sell or transfer, any of its assets, property, or rights or
cancel or agree to cancel, any debts or claims;
(n) make or permit any amendment or termination (other than in
accordance with its terms) of any material Contract, agreement, or license
to which it is a party; or
(o) agree to do any of the foregoing.
7.3. Access. SLM shall give access to Celtic (and its auditors, counsel
and other authorized representatives), and Celtic shall give access to the
Shareholders (and their accountants, counsel and other authorized
representatives) to (i) their respective premises, books and records, including
minute books and stock transfer records, and (ii) all contracts, agreements and
documents whether or not listed in the Schedules hereto; provided, however, that
any such investigation shall not affect any of the representations and
warranties hereunder or the right of any party hereto to rely thereon; and
provided further, that any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of the business of
SLM and Celtic. In the event of termination of this Agreement for any reason
Celtic, on the one hand, and SLM and the Shareholders, on the other hand, will
promptly return, or cause to be returned, to the other, all non-public documents
obtained from the other party, and any copies of such documents.
7.3.1. Celtic, SLM and Shareholders agree to keep confidential any
information obtained pursuant to their respective inspections under this
Agreement unless (i) such information is ascertainable from public sources or is
or becomes public other than through the inspecting party or its
representatives, or (ii) disclosure of such information is required by
applicable securities or
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other laws. In the event of the termination of this Agreement, each of Celtic,
SLM, and the Shareholders agree that they will not disclose, utilize or exploit
to their advantage any information obtained from the other pursuant to its
examinations under this Agreement, unless necessary to comply with applicable
law (with prior notice to the other) or to enforce its rights hereunder.
The parties agree that a breach of the provisions of Section 7.3.1 of this
Agreement could cause irreparable damage to the other parties. Consequently,
each agrees that in the event of any breach of any provision of this Section
7.3.1 of this Agreement, a nonbreaching party, at its option, in addition to any
other remedies provided by law or otherwise, may apply to any court of competent
jurisdiction for the entry of an immediate Order to restrain or enjoin the
breach of these provisions and to otherwise specifically enforce the provisions
of Section 7.3.1 of this Agreement. Each party hereby expressly waives the claim
or defense in any such action that the aggrieved party has an adequate remedy at
law or in damages.
7.4. Compliance with Blue Sky Law. The parties shall jointly take such
action, make such filings and pay such filing fees as may be reasonably
necessary to comply with all applicable state blue sky laws, rules and
regulations relating to the issuance of securities in the Transaction.
7.5. Disclosure Supplements, Etc.. Celtic will promptly notify SLM of any
material event or change in the business or operation of Celtic or any Celtic
Subsidiary. From time to time prior to the Effective Time, Celtic will
supplement or amend the Celtic Schedules with respect to any matter hereafter
arising which, if existing or occurring at or prior to the date of this
Agreement would have been required to be set forth or described in a Celtic
Schedule or which is necessary to complete or correct any information in the
Celtic Schedules or in any representation or warranty of Celtic which has been
rendered inaccurate thereby. For purposes of Articles VIII and IX hereof no such
supplement or amendment to the Celtic Schedules or additional schedules shall be
given effect but such supplement, amendment or additional schedule shall be
given effect for purposes of claims with respect to breaches of representations
and warranties pursuant to Article X of this Agreement.
SLM and the Shareholders will promptly notify Celtic of any material
event or change in the business or operation of SLM or any SLM Subsidiary. From
time to time prior to the Effective Time, SLM and the Shareholders will
supplement or amend the SLM Schedules with respect to any matter hereafter
arising which, if existing or occurring at or prior to the date of this
Agreement would have been required to be set forth or described in an SLM
Schedule or which is necessary to complete or correct any information in the SLM
Schedules or in any representation or warranty of SLM which has been rendered
inaccurate thereby. For purposes of Articles VIII and IX hereof no such
supplement or amendment to the SLM Schedules or additional schedules shall be
given effect but such supplement, amendment or additional schedule shall be
given effect for purposes of claims with respect to breaches of representations
and warranties pursuant to Article X of this Agreement.
7.6. Reasonable Efforts. Subject to the provisions hereof, the parties
hereto shall use their reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing sentence,
Celtic shall use its
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reasonable efforts to insure that the conditions set forth in Article VIII
hereof are satisfied insofar as such matters are within the control of Celtic
and SLM and the Shareholders will use their reasonable efforts to insure that
the conditions set forth in Article IX hereof are satisfied, insofar as such
matters are within their control.
7.7. Public Announcements. Prior to the Effective Time, no announcement or
disclosure of the Transaction will be made by any party without the consent of
all other parties, which shall not be unreasonably withheld; provided that
Celtic may make an announcement if, on the advice of counsel and after
reasonable notice to SLM and to the Shareholders it is required to do so under
relevant securities laws or NASDAQ rules.
Article VIII
Conditions of Shareholders
The obligation of SLM and the Shareholders to consummate the Transaction
is subject to the fulfillment by Celtic prior to or as of the Effective Time, of
each of the following conditions, any of which may, at the sole option of SLM
and the Shareholders, be waived:
8.1. Representations. The representations and warranties by or on behalf
of Celtic contained in this Agreement or in any certificate or documents
delivered to the Shareholders or to SLM pursuant to the provisions hereof, shall
be true in all material respects when made and at the Effective Time as though
such representations and warranties were made at and as of such time.
8.2. Compliance. Celtic and Celtic Merger Sub shall have performed and
complied in all material respects with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Effective Time.
8.3. No Material Adverse Change. There shall not have occurred (i) any
material adverse change since November 30, 1996 in the business, Prospects,
properties, results of operations or financial condition of Celtic and the
Celtic Subsidiaries taken as a whole; or (ii) any loss or damage to any of the
Prospects, properties of or assets of Celtic and the Celtic Subsidiaries taken
as a whole which could reasonably be expected to materially adversely affect or
impair their ability to conduct after the Transaction the business now being
conducted by them.
8.4. Certificate of Celtic. Celtic shall have delivered to Shareholders, a
certificate of Celtic, dated the Effective Time, and signed by its President to
the effect that (i) each of the representations and warranties of Celtic
contained herein is true in all material respects as of the Effective Time; and
(ii) Celtic and Celtic Merger Sub have performed, in all material respects, all
obligations and complied with all covenants required by this Agreement to be
performed and complied with by them prior to the Effective Date.
8.5. Absence of Litigation. There shall not be any material litigation,
proceeding or governmental investigation pending, Threatened or reasonably
believed by Shareholders to be in prospect pertaining to Celtic any Celtic
Subsidiary or the Transaction.
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8.6. Good Standing. Each of Celtic and Celtic Merger Sub will be in good
standing in their states of organization at the Effective Time and each shall
deliver a Certificate of Good Standing to the Shareholders at the Effective
Time.
8.7. Employment Agreements. SLM and Celtic shall have executed and
delivered to Reese Howell, Jr. and Roger Davis employment agreements in the form
of Exhibits E-1 and E-2 hereto, respectively and Celtic shall have executed and
delivered to Reese Howell, Jr. and Roger Davis option agreements in the form of
Exhibits F-1 and F-2 respectively.
8.8. Consents. Any notices, filings, consents or approvals identified on
the Celtic Schedules or on the SLM Schedules shall have been filed, made or
obtained and any waiting periods thereunder shall have lapsed. The Shareholders
shall have approved the Merger pursuant to the Utah Revised Business
Corporations Act.
8.9. Advantage. Reese Howell, Jr. shall have transferred to SLM all of the
outstanding capital stock of SLM Holdings, Inc. as a capital contribution, and
SLM shall have acquired all of the outstanding capital stock of Advantage
Realty, Inc. for consideration consisting solely of shares of SLM Common Stock.
8.10. Escrow Agreement. Celtic shall have executed and delivered to the
Shareholders an Escrow Agreement in the form of Exhibit C hereto.
8.11. Certificate. All of the certificates and documents referred to in
Article IV shall have been delivered to the Shareholders by Celtic.
Article IX
Conditions of Celtic
The obligation of Celtic to consummate the Transaction is subject to the
fulfillment, by Shareholders and SLM, prior to or as of the Effective Time, of
each of the following conditions, any of which may, at the sole option of
Celtic, be waived:
9.1. Representations. The representations and warranties by or on behalf
of SLM and Shareholders contained in this Agreement or in any certificate or
documents delivered pursuant to the provisions hereof shall be true in all
material respects when made and at the Effective Time as though such
representations and warranties were made at and as of such time.
9.2. Compliance. Shareholders and SLM shall have performed and complied in
all material respects with all covenants, agreements, and conditions required by
this Agreement to be performed or complied with by it prior to or at the Closing
at the Effective Time.
9.3. No Material Adverse Change. There shall not have occurred (i) any
material adverse change since August 31, 1996 in the business, Prospects,
properties, results of operations or financial condition of SLM and the SLM
Subsidiaries taken as a whole; or (ii) any loss or damage to any of the
properties of or assets of SLM and the SLM Subsidiaries taken as a whole which
could reasonably be expected to materially adversely affect or impair their
ability to conduct after the Transaction the business now being conducted by
them.
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9.4 Certificates of Shareholders and SLM. SLM and each Shareholder shall
have delivered to Celtic a certificate of each of them dated the Effective Time,
signed by the President of SLM and by each of the shareholders to the effect
that (i) each of the representations and warranties of shareholders and SLM
contained herein is true in all material respects as of the Effective Time; and
(ii) SLM has in all material respects performed all obligations and complied
with all covenants required by this Agreement to be performed and complied with
by it prior to the Effective Date.
9.5. Absence of Litigation. There shall not be any material litigation,
proceeding or governmental investigation pending, Threatened or reasonably
believed by Celtic to be in prospect pertaining to the Shareholders, SLM, any
SLM Subsidiary or the Transaction except as disclosed in the SLM Schedules.
9.6 Good Standing. SLM will be in good standing in the State of Utah at the
Effective Time and shall deliver a Certificate of Good Standing to Celtic at the
Effective Time.
9.7. Investment Letters. The Shareholders shall deliver to Celtic an
Investment Letter in the Form of Exhibit "D".
9.8. Form 8-K Financial Statements. SLM shall deliver to Celtic its
financial statements which meet the requirements of Form 8-K as promulgated
under the Securities Exchange Act.
9.9. Employment Agreements. Reese Howell, Jr. and Roger Davis shall have
executed and delivered to Celtic employment agreements in the form of Exhibits
E-1 and E-2 hereto, respectively.
9.10. Consents. Any notices, filings, consents or approvals identified on
the Celtic Schedules or on the SLM Schedules shall have been filed, made or
obtained and any waiting periods thereunder shall have lapsed.
9.11. Advantage. Reese Howell, Jr. shall have transferred to SLM all of the
outstanding capital stock of SLM Holdings, Inc. as a capital contribution, and
SLM shall have acquired all of the outstanding capital stock of Advantage
Realty, Inc. for consideration consisting solely of shares of SLM Common Stock.
9.12. Escrow Agreement. Reese Howell, Jr. and Roger Davis shall have
executed and delivered to the Celtic an Escrow Agreement in the form of Exhibit
C hereto.
9.13. Certificate. All of the certificates and documents referred to in
Article IV shall have been delivered to the Celtic by SLM and the Shareholders.
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Article X
Indemnification, Survival, Termination And Expenses
10.1. Nature and Survival of Representations. All representations and
warranties made by any party to this Agreement shall survive the Effective Time
for three (3) years and the covenants and agreements herein shall survive the
closing. All of the parties hereto are executing and carrying out the provisions
of this Agreement in reliance solely on the representations, warranties, and
covenants and agreements contained in this Agreement and on the information
contained in the Schedules and Exhibits attached hereto and not upon any
investigation which it or he might have made or any representations, warrants,
agreement, promise, or information, written or oral, made by another party or
another Person other than as specifically set forth herein.
10.2. Indemnification and Payment of Damages by Shareholders. Each
Shareholder, individually and not jointly and severally, will indemnify and hold
harmless Celtic and its officers and directors (collectively, the "Indemnified
Persons"), and will pay to the Indemnified Persons the amount of, any loss,
liability, claim, damage (including incidental and consequential damages),
expense (including costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third-party claim
(collectively, "Damages"), arising, directly or indirectly, from or in
connect(a) any breach of any representation or warranty made by such Shareholder
in this Agreement or in any certificate delivered by such Shareholder pursuant
to this Agreement; or (b) any breach by such Shareholder of any covenant or
obligation of such Shareholder in this Agreement; provided, however, that if any
Shareholder has "Knowledge" of a matter giving rise to a breach of a
representation or warranty and the other Shareholder does not have Knowledge of
such matter, then the Shareholder without such Knowledge shall not be liable to
any extent to any party on account of such breach of representation or warranty.
10.3. Indemnification and Payment of Damages by Celtic. Celtic will
indemnify and hold harmless Shareholders (collectively the "Indemnified
Persons"), and will pay to the Indemnified Persons the amount of any Damages
arising, directly or indirectly, from or in connection with (a) any breach of
any representation or warranty made by Celtic in this Agreement or in any
certificate delivered by Celtic pursuant to this Agreement or (b) any breach by
Celtic of any covenant or obligation of Celtic in this Agreement.
10.4. Limitations on Amount--Shareholder. The Shareholders are
individually, and not jointly or severally, liable for damages with respect to
breaches of representations, warranties or covenants. The breach of a particular
representation, warranty or covenant by one of the Shareholders will not
necessarily be a breach by the other unless the other Shareholder has
independently breached such representation, warranty or covenant. A Shareholder
will not have liability (for indemnification or otherwise) with respect to the
matters described in Section 10.2 until the total of all Damages attributed to a
such Shareholder's breach with respect to such matters exceeds $20,000, and then
only for the amount by which such Damages exceed $20,000; provided, however,
subject to Section 10.4.1, the maximum amount a Shareholder shall be required to
pay hereunder for any and all breaches of representations and warranties under
this Agreement is One Hundred Fifty Thousand Dollars ($150,000.00).
10.4.1. The liability limit of $150,000 agreed to in Section 10.4 shall be
increased to $250,000 with respect to, and only to the extent of, Damages
resulting from breaches of
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representations and warranties of which a Shareholder had actual knowledge at
the time of Closing (rather than "Knowledge"); provided, however that such limit
of $250,000 shall not be applicable to Damages resulting from breaches of
representations and warranties which constitute fraud as defined at common law
(but with a standard of actual knowledge at the time of Closing).
Notwithstanding the foregoing, in no event shall the aggregate liability of any
Shareholder for all breaches of representations, warranties and covenants and
agreements contained in this Agreement exceed the value of the Celtic Common
Stock received by such Shareholder in connection with the Merger. In the event
of any assessment of Damages against any Shareholder, such Shareholder may
deliver to Celtic shares of Celtic Common Stock owned by such Shareholder in the
amount of such Damages and thereafter shall be released from any and all further
liability in connection with such Damages. For purposes of this Section 10.4.1,
shares of Celtic common stock delivered to Celtic by a Shareholder under this
Section 10.4.1. shall be valued at a price which is seventy five percent (75%)
of the average closing price of Celtic common stock, as reported by NASDAQ (or
the American Stock Exchange or the New York Stock Exchange if the Celtic common
stock is trade on either such Exchanges) for the seven business days immediately
prior to the date such additional Celtic shares are delivered to Shareholders.
In the event of an assessment of Damages against a Shareholder exceeds the value
of the Celtic Common Stock which such Shareholder was issued in the Merger, such
Shareholder may deliver to Celtic all of the Celtic Common Stock acquired by him
pursuant to the Merger and thereafter shall be released from any all further
liability under this Agreement and the Transaction, including to any other
Shareholder for contribution and indemnify.
10.5. Limitations on Amount--Celtic. Celtic will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or (b) of Section 10.3 until the total of all Damages with respect to such
matters exceeds $20,000, and then only for the amount by which such Damages
exceed $20,000; provided, however, that subject to Section 10.5.1, the maximum
amount Celtic shall be required to pay hereunder is One Hundred Fifty Thousand
Dollars ($150,000.00).
10.5.1. The liability limit of $150,000 agreed to in Section 10.5
shall be increased to $250,000 with respect to, and only to the extent of,
Damages resulting from breaches of representations and warranties of which
Celtic had actual knowledge at the time of Closing (rather than "Knowledge");
provided, however, that such limit of $250,000 shall not be applicable to
Damages resulting from breaches of representations and warranties which
constitute fraud as defined at common law (but with a standard of actual
knowledge at the time of Closing). Notwithstanding the foregoing, in no event
shall the aggregate liability of Celtic for all breaches of representations,
warranties and covenants and agreements contained in this Agreement exceed the
value of the SLM Common Stock received by Celtic in connection with the Merger
(which shall be deemed to be the value of the Celtic Common Stock issued to the
Shareholders in the Merger). In the event of any assessment of Damages against
Celtic, Celtic may deliver to each of the Shareholders additional shares of
Celtic Common Stock in the amount of such Damages and thereafter shall be
released from any and all further liability under this Agreement and the
Transaction. For purposes of this Section 10.5.1, additional shares of Celtic
common stock issued to the Shareholders hereunder, shall be valued at a price
which is seventy five percent (75%) of the average closing price of Celtic
common stock, as reported by NASDAQ (or the American Stock Exchange or the New
York Stock Exchange if the Celtic common stock is trade on either such
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Exchanges) for the seven business days immediately prior to the date such
additional Celtic shares are delivered to Shareholders.
10.6. Procedure for Indemnification--Third Party Claims.
10.6.1. Promptly after receipt by an Indemnified Person under
Sections 10.2 or 10.3, of notice of the commencement of any Proceeding against
it, such Indemnified Person will, if a claim is to be made by it against an
indemnifying party under such Section, give notice to the indemnifying party of
the commencement of such claim, and with such notice provide a copy of any
demand letter, summons or applicable correspondence, and any information with
respect to insurance which may cover such claim and information with respect to
any third party who may be liable to in connection therewith. The failure to
notify the indemnifying party will not relieve the indemnifying party of any
liability that it may have to any Indemnified Person, except to the extent that
the indemnifying party demonstrates that it is prejudiced by the indemnifying
party's failure to give such notice.
10.6.2. If any Proceeding referred to in Section 10.6.1 is brought
against an Indemnified Person and it or he gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the Indemnified Person determines in good faith
that joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the Indemnified Person of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
reasonably satisfactory to the Indemnified Person and, after notice from the
indemnifying party to the Indemnified Person of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the Indemnified Person under this
Section 10 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
Indemnified Person in connection with the defense of such Proceeding, other than
reasonable out of pocket costs of investigation. If the indemnifying party
assumes the defense of a Proceeding, (i) it will be conclusively established for
purposes of this Agreement that the claims made in that Proceeding are within
the scope of and subject to indemnification; (ii) no compromise or settlement of
such claims may be effected by the indemnifying party without the Indemnified
Person's consent unless (A) there is no finding or admission of any violation of
Legal Requirements or any violation of the rights of any Person and no effect on
any other claims that may be made against the Indemnified Person, and (B) the
sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the Indemnified Person will have no liability with
respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after the
Indemnified Person's notice is given, give notice to the Indemnified Person of
its election to assume the defense of such Proceeding, the indemnifying party
will be bound by any determination made in such Proceeding or any compromise or
settlement effected by the Indemnified Person except that the Indemnified Person
shall give the indemnifying party seven days prior notice of the terms of any
proposed settlement and the Indemnified Person shall not be liable to the extent
that any Proceeding is conducted in, or the compromise or settlement is entered
into in bad faith.
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10.6.3. Notwithstanding the foregoing, if an Indemnified Person
determines in good faith that there is a reasonable probability that a
Proceeding is reasonably likely to materially adversely affect it or its
Affiliates other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the Indemnified Person may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will not be
bound by any determination of a Proceeding so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld). The Indemnified Person shall give the indemnifying party seven days
prior notice of the terms of any proposed settlement and the Indemnified Person
shall not be liable to the extent that any Proceeding is conducted in, or the
compromise or settlement is entered into in bad faith.
10.6.4. Shareholders hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Shareholders with respect to
such a claim anywhere in the world.
10.7. Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice and with such notice provide a copy of any demand letter, summons or
applicable correspondence, and any information with respect to insurance which
may cover such claim and information with respect to any third party who may be
liable to an Indemnified Person in connection therewith. to the party from whom
indemnification is sought.
10.8. Arbitration.
10.8.1. All disputes arising out of this and any other controversy,
claim or dispute arising out of or relating to this Agreement or the breach,
termination, enforceability or validity hereof, including the determination of
the scope or applicability of the Agreement to arbitrate set forth in this
Agreement) shall be submitted to binding arbitration under Section 10.8.2) upon
the written demand of Celtic or either Shareholder.
10.8.2. The Shareholder or Shareholders involved in the arbitration
and Celtic (the "Arbitrating Parties") shall each select one qualified
arbitrator within 10 days of the date of the demand for arbitration. The
arbitration shall be governed by the American Arbitration Association (the
"AAA") under its commercial Arbitration Rules and its Supplementary Procedures
for Large, Complex Disputes, provided that persons eligible to be selected as
arbitrators shall be limited to attorneys-at-law who (a) are on the AAA's Large,
Complex Case Panel or a Center for Public Resources ("CPR") Panel of
Distinguished Neutrals, or who have professional credentials similar to the
attorneys listed on such AAA and CPR Panels, and (b) who have practiced law for
at least 10 years as an attorney specializing in either general commercial
litigation or general corporate and commercial matters. The two arbitrators so
chosen shall select a neutral arbitrator who shall reside in (or be employed
within) the State of Utah. If the named arbitrators cannot agree on a neutral
arbitrator, the arbitrators shall make application to the AAA Office in the
State of Utah with a copy to the Arbitrating Parties, requesting that the AAA
select and appoint the third arbitrator, who shall not reside or work in the
State of Utah. This selection shall be final and binding. Immediately upon
appointment of the third arbitrator, the arbitrating parties shall present in
writing to the panel of
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three arbitrators (with a copy to the other) their statement of the issues in
dispute. Any questions of whether a dispute should be arbitrated under this
Section shall be decided by the arbitrators. In the event of conflict between
the provisions of this Agreement and the provisions of the commercial
arbitration rules of the AAA, the provisions of this Agreement shall prevail.
The arbitrators, as soon as possible, shall meet in Salt Lake City,
at a time and place reasonably convenient for the participants, after giving
each of the Arbitrating Parties at least 10 days' notice. The failure of an
Arbitrating Party to appear at a hearing shall not operate as a default, and the
attendance of all arbitrators shall not be required at all hearings. Actions of
the arbitrators shall be by majority vote. After the hearing, the Arbitrating
Parties in regard to the matter in dispute, taking such evidence and making such
other investigation as justice requires and as the arbitrators deem necessary,
they shall decide the issues submitted to them as promptly as possible and serve
a written and signed copy of the award upon each of the Arbitrating Parties. To
assure the Arbitrating Parties that disputes and controversies will be resolved
expeditiously, the final arbitration hearing will occur within 60 days after the
arbitration is initiated and there will be limited discovery (including no more
than two depositions per party) prior to the arbitration hearing. If the
participants in the arbitration settle the dispute in the course of the
arbitration, such settlement shall be approved by the arbitrators on request any
of the Arbitrating Parties and become the award.
10.8.3. No provision of, nor the exercise of any rights under, this
Section 10.8, shall limit the right of any party to request and obtain from a
court of competent jurisdiction in the State of Utah (which shall have exclusive
jurisdiction for purposes of this Agreement before, during or after the pendency
of any arbitration) provisional or ancillary remedies and relief including, but
not limited to, injunctive or mandatory relief or the appointment of a receiver.
The institution and maintenance of an action or judicial proceeding for, or
pursuit of, provisional or ancillary remedies shall not constitute a waiver of
the right of any party, even if it is the plaintiff, to submit the dispute to
arbitration if such party would otherwise have such right. Each of the parties
hereby submits unconditionally to the exclusive jurisdiction of the state and
federal courts located in the State of Utah for purposes of this provision,
waives objection to the venue of any proceeding in any such court or that any
such court provides an inconvenient forum and consents to the service of process
upon it in connection with any proceeding instituted under this Section 10.8 in
the same manner as provided for the giving of notice hereunder.
10.8.4. Judgment upon the award rendered may be entered in any court
having jurisdiction. The Arbitrating Parties hereby expressly consent to the
nonexclusive jurisdiction of the state and federal courts situated in the State
of Utah for this purpose and waive objection to the venue of any proceeding in
such court or that such court provides an inconvenient forum.
10.8.5. Each of the parties shall, subject to the award of the
arbitrators, pay an equal share of the arbitrators' fees except the arbitrators
shall have the power to award recovery of all costs (including attorneys' fees,
administrative fees, arbitrators' fees and court costs) to the prevailing party,
as determined by the arbitrators.
10.9. Exclusive Remedies. The indemnification provisions set forth in this
Article 10 are the sole and exclusive remedies that any party may have for
breach of any representation, warranty or covenant.
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10.10. Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by the mutual consent of the Shareholders and Celtic;
(b) by either the Shareholders or Celtic if the Effective Time has
not occurred by January 31, 1997, or such other date, if any, as the
parties may agree to in writing;
(c) by the Shareholders or Celtic if any other party refuses or
fails to perform any covenant or agreement required to be performed by it
under this Agreement or if any representation or warranty of any other
party proves to have been inaccurate or misleading in any material respect
at the time it was made or at the Effective Time and the other party
refuses or fails after notice to correct or make not misleading any such
misrepresentation or warranty;
(d) by Celtic for any reason within ten (10) days after it has received all
of the SLM Schedules; and
(e) by Shareholders for any reason within ten (10) days after they
has received all of the Celtic Schedules.
10.11. Effect of Termination. If this Agreement is terminated as permitted
by Section 10.10 of this Agreement, such termination will be without liability
of any party (or any shareholder, director, officer, employee, agent,
consultant, or representative of such party) to the other parties to this
Agreement; provided, that if such termination results from the failure of a
party to use its or his best efforts to fulfill a condition to the performance
of the obligations of the other parties or to perform a covenant of this
Agreement or from a breach by any party to this Agreement, such party will be
fully liable up to a maximum of $20,000 for any and all damages, costs, and
expenses (including, but not limited to, reasonable counsel fees) sustained or
incurred by the other parties as a result of such failure or breach.
Article XI
Miscellaneous
11.1. Notices. Any notice provided for by this Agreement and any other
notice, demand, or communication that any party may wish to send another will be
in writing and either delivered in Person, transmitted by telecopier with
receipt appropriately confirmed, or sent by registered or certified United
States mail, first class postage prepaid, return receipt requested, in a
properly sealed envelope, and addressed as follows:
If to Celtic:
Douglas P. Morris
330 East Main Street, Suite 206
Barrington, IL 60010
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with a copy to: A. O. Headman, Jr.
Cohne, Rappaport & Segal
525 East 100 South, Fifth Floor
Salt Lake City, UT 84102
If to SLM or the Shareholders:
Reese Howell, Jr.
1567 East Laird Avenue
Salt Lake City, Utah 84105
Roger Davis and SLM
102 West 500 South, Suite 300
Salt Lake City, UT 84101
with a copy to: George M. Flint, III
Parsons, Behle & Latimer
200 South Main Street, Suite 1800
Salt Lake City, UT 84111
The parties to this Agreement may change their addresses for notice by
notice given in the manner provided above. Any notice, demand, or other
communication will be deemed given and effective as of the date of delivery in
Person or upon receipt as set forth on the return receipt. The inability to
deliver because of changed address of which no notice was given or the rejection
or other refusal to accept any notice, demand, or other communication, will be
deemed to be the receipt of the notice, demand, or other communication as of the
date of such inability to deliver or the rejection or refusal to accept.
11.2. Entire Agreement. This Agreement, together with all Schedules and
Exhibits attached to this Agreement or referenced herein, constitutes the entire
agreement between the parties pertaining to the subject matter of this Agreement
and supersedes all prior agreements, understandings, negotiations, and
discussions, whether oral or written, of the parties, including but not limited
to the Letter of Intent heretofore entered into by the parties and there are no
warranties, representations, or other agreements between the parties in
connection with the subject matter of this Agreement except as specifically set
forth in this Agreement.
11.3. Effect; Assignment. This Agreement and all of the provisions of this
Agreement will be binding and inure to the benefit of the parties to this
Agreement and their respective successors and permitted assigns, but, except as
expressly provided in this Agreement neither this Agreement nor any of the
rights, interests, or obligations under this Agreement will be assigned by
operation of law (excluding mergers, changes of domicile or other corporate
reorganizations) or otherwise, by any party to this Agreement without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than the parties to this
Agreement and their respective successors and permitted assigns, any rights,
remedies, or obligations under or by reason of this Agreement. Notwithstanding
anything else contained in this Agreement to the contrary, this Agreement and
the rights, interests or obligations of Celtic, Celtic
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Merger Sub, SLM and of each Shareholder under this Agreement, shall survive any
merger, change of domicile or other corporate reorganization and this Agreement
shall continue in full force and effect as though such merger, change of
domicile or other corporate reorganization had not occurred, and in such event,
the rights, interests or obligations of Celtic, Celtic Merger Sub, SLM and of
each Shareholder under this Agreement shall be the rights, interests or
obligations of their respective successors.
11.4. Amendments; Waivers. No supplement, modification, or amendment of
this Agreement will be binding unless executed in writing by all parties to this
Agreement. No waiver of any of the provisions of this Agreement will be deemed
or will constitute a waiver of any other provision of this Agreement (regardless
of whether similar), nor will any such waiver constitute a continuing waiver
unless otherwise expressly provided.
11.5. Further Assurances. At any time and from time to time, after the
Effective Date, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement.
11.6. Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.7. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.8. Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full force and
effect.
11.9. Governing Law. This Agreement shall be governed for all purposes by
the laws of the State of Utah applicable to agreements executed and to be
wholly-performed in the State of Utah.
11.10. Legal Fees and Expenses. The prevailing party in any proceeding
brought to enforce or interpret any provision of this Agreement shall be
entitled to recover its reasonable attorney's fees, costs and disbursements
incurred in connection with such proceeding, including, but not limited to the
costs of experts, accountants and consultants and all other costs and services
reasonably related to the proceeding, including those incurred in any bankruptcy
or appeal, from the non-prevailing party or parties.
11.11. Schedules, Exhibits and Amendments. Disclosure in any Schedule of
any allegations with respect to any alleged failure to perform, or breach or
default of a contractual or other duty or obligation shall not be deemed an
admission to any party other than a party hereto that such has in fact occurred,
but shall be effective for the purposes for which such Schedule is intended as
if such had in fact occurred.
11.11.1. Descriptions of agreements, instruments and other matters herein
not required by the Agreement to be included herein are provided for reference
only and are not
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intended to be complete and are not represented as such and each party is hereby
referred to the actual agreement or instrument for a description thereof.
References to the agreements and instruments herein include the Schedules,
Exhibits and amendments thereto.
11.11.2. Headings have been inserted in the Schedules for
convenience of reference only and shall to no extent have the effect of amending
or changing the express description of the materials to be disclosed thereon as
set forth in the Agreements or other information contained in such Schedules.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
CELTIC INVESTMENT, INC,
a Delaware corporation
Dated: January 15, 1997 By /s/ Douglas P. Morris
---------------------
Douglas P. Morris, President
SALT LAKE MORTGAGE CORP.
a Utah corporation
Dated: January 15, 1997 By /s/ Reese Howell, Jr.
-----------------------
Reese Howell, Jr., President
SLM SHAREHOLDERS
Dated: January 15, 1997 By /s/ Reese Howell, Jr.
----------------------
Reese Howell, Jr.
Dated: January 15, 1997 By /s/ Roger D. Davis
----------------------
Roger D. Davis
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ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into as of January 31, 1997
("Escrow Agreement") by and among Security Title Insurance Agency of Utah, Inc.
(the "Escrow Agent"), Celtic Investment, Inc., a Delaware corporation
("Celtic"), Reese Howell Jr. ("Howell") and Roger Davis ("Davis", and, together
with Howell, the "Shareholders").
WHEREAS, Celtic, Celtic Merger Sub, Inc., a Utah corporation, Salt Lake
Mortgage Corp., a Utah corporation ("SLM"), and the Shareholders are parties to
an Agreement and Plan of Merger of even date herewith (the "Merger Agreement")
pursuant to which Celtic has agreed to acquire SLM, upon the terms and subject
to the conditions in the Merger Agreement;
WHEREAS, the parties have agreed in the Merger Agreement that the value of
SLM is dependent upon, among other things, the financial performance of SLM on a
near term basis;
WHEREAS, the financial performance of SLM, and therefore its value, is
dependent upon additional capital made available for use by SLM in its
operations;
WHEREAS, Celtic has agreed to use its best efforts to obtain such
additional capital for use in SLM's operations;
WHEREAS, the parties have agreed that in the event such additional capital
is made available to SLM and, if thereafter, SLM does not achieve certain
financial performance criteria then the value of SLM was not as great as
originally agreed to by the parties and in such event some of the Escrow Shares
(as hereafter defined) issued to the Shareholders should be returned to Celtic;
WHEREAS, if the financial performance criteria are achieved by SLM or if
Celtic does not make additional capital available to SLM, then all of the Celtic
Common Stock issued to the Shareholders pursuant to the Merger Agreement shall
be retained by Shareholders;
WHEREAS, Section 2.8 of the Merger Agreement provides for the Shareholders
to deposit into escrow 500,000 shares (the "Escrow Shares" or "Escrowed Shares")
of the common stock, par value $.001 per share, of Celtic ("Celtic Common
Stock");
WHEREAS, each of the Shareholders shall, simultaneously with the execution
and delivery of this Agreement, deliver 250,000 shares of Celtic Common Stock to
the Escrow Agent; and
WHEREAS, Celtic and the Shareholders wish to enter into this Escrow
Agreement providing for the terms and conditions upon which the Escrow Shares
will be held and released by the Escrow Agent and the Escrow Agent wishes to act
as Escrow Agent pursuant to the terms and conditions of this Escrow Agreement.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
Section 1. Appointment of Escrow Agent; Deposits into Escrow Account. The
parties hereto designate Security Title Insurance Agency of Utah, Inc. to act as
Escrow Agent hereunder, and Security
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Title Insurance Agency of Utah, Inc. hereby accepts such appointment and agrees
to act as Escrow Agent hereunder upon the terms and subject to the conditions
hereinafter set forth. On the date of this Escrow Agreement each Shareholder is
transferring 250,000 shares of Celtic Common Stock to the Escrow Agent, together
with stock powers endorsed in blank by such Shareholder.
Section 2. Rights as Shareholders. Until an Escrow Share is delivered to
Celtic in accordance with the terms hereof, each Shareholder shall have all
rights of ownership of such Escrow Share, except as otherwise specifically
provided herein and subject to the lien created hereby, including the right to
receive dividends thereon and the right to vote such shares. The Escrow Agent
shall have no responsibility for either the payment of dividends with respect to
the Escrow Shares or the voting of such shares.
Section 3. Release of Escrow Shares and Delivery.
a. Definitions.
"ACI" For any measuring period shall be equal to
the quotient obtained by dividing (i) the
sum of the amount of the "Capital Infusion"
at the close of business on each day of the
relevant measuring period by (ii) the number
of calendar days in the relevant measuring
period.
"API" Means for any period all amounts which, in
conformity with GAAP, would be included in
the pre-tax net income on a consolidated
income statement of the SLM Group for such
period plus an amount equal to the sum of:
(i) adjustments required pursuant to Accounting Procedures Bulletin 16 and 17
(including without limitation, goodwill amortization and transactional
expense amortization);
(ii) adjustments resulting from the costs (including attorneys' fees and other
out- of-pocket costs) of obtaining a debt based Capital Infusion or any
other debt financing of the SLM Group to the extent they exceed in
connection with any such financing a one time origination fee of 3% and a
commitment fee on the unused portion of the facility of up to 1/4%;
(iii)any interest included in determining Net Income to the extent that such
interest
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resulted from an applicable interest rate in excess of either the prime interest
rate of Citibank N.A. as in effect from time to time, or, if the relevant
credit facility is priced off the London Interbank Offering Rate, then such
rate plus 1-1/2%;
(iv) adjustments resulting from the costs (including attorneys' fees and other
out- of-pocket costs) of obtaining any equity based Capital Infusion or any
other equity financing of the SLM Group to the extent they exceed in the
connection with any such financing a one time cost, including underwriting
fees, of 8%;
(v) any salary or other compensation which the Shareholders voluntarily elect
to forego (prior to paying any bonus to the Shareholders, Celtic and SLM
shall consult with them and allow one or both of them to defer receipt of
(prior to a final decision to forgo) all or part of any such bonus in order
to facilitate the use of this Section by them); and
(vi) with respect to the Second Measuring Period only, API shall also include
all revenue with respect to any business which has been booked or committed
to by the SLM Group as of the last day of such period to the extent that
such booked or committed business is actually completed.
"Capital Infusion"The cash proceeds of any new debt financing provided by Celtic
or a third party to SLM or any preferred or common equity financing
provided to SLM by Celtic Parent, or any combination thereof.
"Cause" Shall have the meaning assigned to it in the Employment Agreement (the
"Howell Employment Agreement") dated as of the date of
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this Agreement between Howell, Celtic and SLM.
"Celtic Parent" Means Celtic and any Subsidiary of Celtic other than a member of
the SLM Group.
"First Measuring Period" The period of 13 consecutive calendar months commencing
on the date that Celtic delivers the Initial Capital Notice.
"Initial Capital Notice" Means a notice to the Shareholders delivered by ------
Celtic to the effect that the SLM Group received a Capital Infusion in an
amount greater than or equal to $1.0 million. Such funds may be used,
subject to the approval of the Board of Directors of SLM, by the SLM Group
without restriction in connection with the origination, funding, purchase
and sale of real estate mortgages.
"Second Capital Notice" Means a notice to the Shareholders delivered by ------
Celtic to the effect that SLM has received a Capital Infusion in an amount
greater than or equal to $1.0 million. Such funds may be used, subject to
the approval of the Board of Directors of SLM, by the SLM Group without
restriction in connection with the origination, funding, purchase and sale
of real estate mortgages.
"Second Measuring Period" The period of 12 consecutive calendar months ------
commencing on the first day after the last day of the First Measuring
Period, or if Escrow Shares have been released pursuant to Section 3(c)(i)
or 3(c)(ii), the period of 12 consecutive calendar months commencing on the
date that Celtic delivers the Second Capital Notice.
"SLM Group" Means SLM, any Subsidiary of SLM, and Advantage and, solely for the
purposes of the definition of API, any such person and any entity which is
a part of Celtic Parent but only to the extent such entity is engaged in
the business of mortgage brokerage, real estate brokerage,
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real estate development and sales and construction financing.
"Voluntary Termination"Shall have the meaning assigned to it in the Howell
Employment Agreement.
b. General ProvisionsAny investment in or loan or advance by
any member of the SLM Group to any member of Celtic Parent and the
purchase price of any assets purchased by any member of the SLM Group from
any member of Celtic Parent shall be deemed to be a reduction of the
amount of the Capital Infusion. If a Capital Infusion or other debt or
equity financing is provided by Celtic Parent to the SLM Group and such
funds were obtained by Celtic Parent from an external financing source
then Celtic shall not charge any incremental fee, expense, charge or other
mark-up to the SLM Group with respect to such funds.
c. Release for Failure to Provide Capital Infusion
(i) If the Initial Capital Notice is not delivered
prior to the six-month anniversary of this
Agreement or a purported Initial Capital Notice is
delivered during such period but is determined not
to have been validly delivered then 250,000 of the
Escrow shares shall immediately be released to the
Shareholders and there shall be no First Measuring
Period.
(ii) If the ACI is less than $1.0 million during the
First Measuring Period then 250,000 of the Escrow
Shares shall immediately be released to the
Shareholders and there shall be no First Measuring
Period.
(iii) If shares are released pursuant to either Section
3(c)(i) or 3(c)(ii) then a Second Capital Notice
may be delivered; and, if a Second Capital Notice
may be delivered but no such notice is delivered
prior to the eighteen month anniversary of this
Agreement, or a purported Second Capital Notice is
delivered prior to such date but is determined not
to have been validly delivered, then 250,000 of
the Escrow Shares shall immediately be released to
the Shareholders and there shall be no Second
Measuring Period.
(iv) If the ACI for the Second Measuring Period is less
than $1.0 million, then all of the then escrowed
Escrow Shares shall immediately be released to the
Shareholders and there shall be no Second
Measuring Period.
d. Release Based on Celtic StatusIf the SLM Group shall lose any
qualification, license or franchise it then holds as a result of (i) any actions
or failures to act by
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Celtic Parent or any officer, director, employee, agent or consultant of
Celtic Parent or (ii) the status, background or any prior action or
failure to act of or by Celtic Parent or any officer, director, employee,
agent or consultant of Celtic Parent, then all then Escrowed Shares shall
immediately be released to the Shareholders.
e. Release Based on Celtic Activities. If any mortgage
brokerage, real estate brokerage, real estate development or sales or
construction financing activity is engaged in by any member of Celtic
Parent and such activities shall not be under the operational control and
authority of the Board of Directors of SLM then all then Escrowed Shares
shall immediately be released to the Shareholders. For the avoidance of
doubt the parties agree that the taking of, administration of and exercise
of rights under mortgages and deeds of trust as part of a collateral
package incidental to the factoring business engaged in by Celtic Parent
shall not constitute mortgage brokerage or real estate brokerage for
purposes of the preceding sentence.
f. Release Based on Celtic InterferenceIf Howell shall cease
for any reason to be Chairman, President and CEO of SLM (other than as a
result of (x) a Voluntary Termination by Howell of his employment or (y) a
termination by SLM of Howell's employment for Cause) or if the business
plan of SLM as proposed by Howell is rejected or thwarted by the Board of
Directors of SLM or Celtic (other than with the written consent of Howell)
or either such board interferes with the execution of such business plan
to any extent then in any such case all then Escrowed Shares shall
immediately be released to the Shareholders.
g. Release Based on SLM Group Financial Performance.
(i) A number of Escrowed Shares equal to quotient obtained by dividing (i) API
during the First Measuring Period minus $600,000, minus, but only if the
ACI is greater than $1.0 million, one tenth of the amount by which ACI
during the First Measuring Period exceeds $1.0 million, and (ii) 2; shall
be released to the Shareholders pursuant to Sections 3(g)(iv) and 3(i)
hereof. If there is no First Measuring Period then this paragraph shall
have no effect.
(ii) A number of Escrowed Shares equal to quotient obtained by dividing (i) API
during the Second Measuring Period minus $600,000 minus, but only if the
ACI is greater than $1.0 million, one tenth of the amount by which ACI
during the Second Measuring Period exceeds $1.0 million, and (ii) 2; shall
be released to the Shareholders pursuant to Section 3(g)(iv) and 3(i)
hereof. If there is no Second Measuring Period then this paragraph shall
have no effect.
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(iii)For clarification purposes the formula set out in the foregoing Sections
3(g)(i) and 3(g)(ii) may alternatively be expressed as follows:
(A) If ACI is equal to 1.0 million:
{ API - $600,000 } OVER 2 ~ = ~ Number ~ of ~ Shares ~ Released
(B) If ACI is greater than $1.0 million:
{ API - $600,000 - (.10 * (ACI - $1,000,000)) } OVER 2 ~ = ~ Number ~ of ~
Shares ~ Released
For further clarification an example of the
application of the second formula is set out
below:
API = $1.2 million
ACI = $3.0 million
{ $1,200,000 - $600,000 - (.10 * (3,000,000 - 1,000,000)) }
OVER 2 ~ = ~ 200,000 ~ Shares ~ Released
(iv) All Escrowed Shares required to be released under
this Section 3(g) shall be released immediately
following such time as the Release Calculation has
been determined to be in effect. Any Escrow Shares
not required to be released following the Second
Measuring Period shall be delivered to Celtic.
h. Determination of API and ACI. No later than 45 days after
the last day of each of the First Measuring Period and the Second
Measuring Period SLM shall provide to the Shareholders a statement (the
"Preliminary Release Calculation") signed by its Chief Executive Officer
or another person designated by the Board of Directors of Celtic setting
out in detail the calculation of API, ACI and the number of Escrow Shares
to be released. The Preliminary Release Calculation shall be based on
financial information calculated in accordance with GAAP consistently
applied and shall, unless otherwise agreed by the Shareholders and Celtic,
be based on audited financial information.
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Upon receipt of a Preliminary Release Calculation the
Shareholders and their accountants shall have the right during the
succeeding 30-day period to examine the Preliminary Release Calculation
and all books and records used to prepare such Preliminary Release
Calculation. In connection with the Shareholders' examination of the
Preliminary Release Calculation Celtic shall (and shall cause its
subsidiaries to) provide full cooperation to the Shareholders and their
accountants. Without limiting the generality of the foregoing, Celtic
shall permit, and shall cause each of its subsidiaries to permit, the
Shareholders and their accountants to have access during normal business
hours to the books and records of Celtic and its subsidiaries, including
without limitation work papers of its accountants.
The Shareholders shall notify Celtic in writing (the "Notice
of Objection"), on or before the last day of such 30-day period, of any
objections to the calculation of the Preliminary Release Calculation,
setting forth a reasonably specific and detailed description of the
Shareholders' objections and the dollar amount of each objection. If the
Shareholders do not deliver the Notice of Objection within such 30-day
period, the Preliminary Release Calculation shall be deemed to have been
accepted by the Shareholders.
If the Shareholders object to the Preliminary Release
Calculation, Celtic and the Shareholders shall attempt to resolve any such
objections within 15-days of the receipt of the Notice of Objection. Any
such resolution shall be conclusive and binding on Celtic and the
Shareholders. If Celtic and the Shareholders are unable to resolve the
matter within such 15-day period, they shall jointly appoint a mutually
acceptable firm of independent accountants of national reputation (or, if
they cannot agree on a mutually acceptable firm, they shall cause their
respective accounting firms to select such firm) within five days of the
end of such 15-day period. Celtic shall (and shall cause its subsidiaries
to) provide full cooperation to such firm. Such firm shall be instructed
to reach its conclusion regarding the dispute within 30-days. Such firms'
resolution of the dispute shall be conclusive and binding on Celtic and
the Shareholders. The Preliminary Release Calculation, after the
acceptance thereof by the Shareholders or the resolution of all disputes
in connection therewith, is referred to herein as the "Release
Calculation."
Each of Celtic and the Shareholders shall pay one-half of all
fees and expenses of any independent public accountants appointed under
this paragraph.
i. Allocation Among Shareholders. One-half of any Escrow
Shares released pursuant to this Escrow Agreement shall be delivered to
Howell and the other half shall be delivered to Davis unless otherwise
agreed pursuant to Section 4(i) or 4(ii) hereof by Howell or Davis or
resulting from an award pursuant to Section 4(iii) hereof.
Section 4. Timing of Release.It is understood and agreed that should any
dispute arise with respect to the payment and/or ownership or right of
possession of the Escrow Shares, the Escrow Agent is authorized and directed to
retain in its possession the Escrow Shares until either (i) the relevant
Shareholder delivers instructions directing the application of the Escrow Shares
(which refers to this Escrow Agreement) to each of the Escrow Agent, Celtic and
the other Shareholder; provided, however, that if Celtic shall deliver to the
Escrow Agent and the other Shareholder contrary instructions within
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ten (10) calendar days, then such original instructions shall be void; (ii) the
relevant Shareholder and Celtic direct the application of such Shareholder's
Escrow Shares by delivering a joint writing referring to this Escrow Agreement
to that effect to the Escrow Agent; or (iii) the Escrow Agent shall receive a
certified copy of an arbitrators award with respect to a claim on the relevant
Escrow Shares. Upon receipt of such written direction from Celtic and the
relevant Shareholder or not later than five days after receipt of such certified
copy of an arbitrators award, the Escrow Agent shall take action with respect to
the Escrow Shares as required by such direction or such award, as the case may
be.
Section 5. Interpleader Provision. Nothing contained in this Escrow
Agreement shall preclude the right of the Escrow Agent to seek an adjudication
in a court of competent jurisdiction as to the rights of the parties under this
agreement, and the Escrow Agent shall not be liable for any delay occasioned
because of such resort to court; provided, however, that any dispute concerning
the application, interpretation or any other matter concerning Section 3 shall,
in accordance with Section 16 hereof, be submitted to binding arbitration
pursuant to the procedures set out in Section 10.8 of the Merger Agreement.
Section 6. Termination. This Escrow Agreement shall terminate upon the
distribution of the last of the Escrow Shares held by the Escrow Agent pursuant
to this Escrow Agreement.
Section 7. Compensation of Escrow Agent. The Escrow Agent shall be
entitled to a fee for its escrow services in an amount calculated at a rate of
$100.00 per annum, to be paid annually in arrears by Celtic. The Escrow Agent
will be reimbursed for expenses, including counsel fees, in connection with the
performance of the Escrow Agent's duties under this Agreement.
Section 8. Escrow Agent.
a. The Escrow Agent is hereby authorized and directed to hold
the Escrow Shares as agent for Celtic and the Shareholders and to deliver
the same in accordance with the provisions of this Agreement.
b. The Escrow Agent may resign and be discharged from its
duties hereunder at any time by giving notice of such resignation to
Celtic and the Shareholders, which shall specify a date (not less than 30
days following the date of such notice) when such resignation shall take
effect. Upon such notice, a successor escrow agent shall be selected by
Celtic and the Shareholders, such successor escrow agent to become the
Escrow Agent hereunder upon the resignation date specified in such notice.
If Celtic and the Shareholders are unable to agree upon a successor escrow
agent within 30 days after the date of such notice, the Escrow Agent shall
be entitled to appoint its successor. The Escrow Agent shall continue to
serve hereunder until its successor accepts the escrow and acknowledges
receipt of the Escrow Shares. Celtic and the Shareholders may at any time
substitute a new Escrow Agent by jointly giving notice thereof to the
existing Escrow Agent, provided that any such new Escrow Agent agrees to
serve as Escrow Agent in accordance with the terms and provisions of an
escrow agreement substantially identical to this Escrow Agreement (except
as to the name of the Escrow Agent).
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c. Celtic and the Shareholders agree to release and hold the
Escrow Agent harmless and indemnify it from any loss or claim whatsoever
in conjunction with the performance of the duties of the Escrow Agent
(including attorney's fees) as long as the Escrow Agent has complied with
the provisions of this Escrow Agreement. Said indemnification shall be
borne 50% by Celtic, 25% by Howell and 25% by Davis (unless otherwise
determined pursuant to an arbitrator's award) and survive the termination
of this Escrow Agreement.
Section 9. Notices. Any notices or other communications required or
permitted hereunder shall be given in writing and shall be delivered by hand or
air courier or sent by certified or registered mail, postage prepaid, addressed
as follows:
If to Celtic, to:
Celtic Investment, Inc.
515 Red Cypress Drive
Cary, IL 60013
Attention: Douglas P. Morris.
With a copy to:
A.O. Headman, Jr.
Cohne, Rappaport & Segal
525 East 100 South, Fifth Floor
Salt Lake City, UT 84102
or:
If to the Escrow Agent, to:
Security Title Insurance Agency of Utah, Inc.
376 East 400 South
Suite 306
Salt Lake City, UT 84111
Attention: Reese Howell, Sr.
or:
If to the Shareholders, to:
Reese Howell, Jr.
c/o Salt Lake Mortgage Corp.
102 West 500 South
Suite 300
Salt Lake City, UT 84101
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with a copy to:
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84145-0898
Attn: George M. Flint III
and to:
Roger Davis
c/o Salt Lake Mortgage Corp.
102 West 500 South
Suite 300
Salt Lake City, UT 84101
or to such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date delivered if by hand, the day after delivery to the air courier
service if sent by overnight mail, and five days following the date of mailing
if mailed.
Section 10. Entire Agreement. This Escrow Agreement is the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
Section 11. Amendments; Waiver. This Escrow Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived only by written instrument signed by the parties
hereto or, in the case of a waiver, the party waiving compliance.
Section 12. Assignment. No assignment of any rights or delegations of any
obligations provided for herein may be made by any party without the express
written consent of all the other parties hereto.
Section 13. Counterparts. This Escrow Agreement may be executed in two more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 14. Governing Law. This Escrow Agreement shall be construed in
accordance with
the governed by the internal laws of the State of Utah.
Section 15. Benefit. This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Nothing contained in this Escrow
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, personal representative, and
successors and assigns as aforesaid, any rights or remedies under or by reason
of this Agreement.
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Section 16. Arbitration. All disputes at law or equity arising under, or
as a result of, or in any way in connection with any provision of this Agreement
shall, except as provided in Section 3(h) hereof, be resolved only in accordance
with the provisions of Section 10.8 of the Merger Agreement.
Section 17. Certain Disclosures. Davis and Celtic acknowledge that they
understand that a substantial shareholder of the Escrow Agent is Reese Howell,
Sr., who is Howell's father. The Escrow Agent acknowledges that it has relied on
its own separate counsel in connection with the preparation, negotiation, and
execution and delivery of this Agreement and not on counsel to Howell, Davis or
Celtic.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures to
this Escrow Agreement upon the date first set forth above.
CELTIC INVESTMENT, INC.
By: /s/ Douglas P. Morris
/s/ Reese Howell, Jr.
REESE HOWELL JR.
/s/ Roger Davis
ROGER DAVIS
SECURITY TITLE INSURANCE AGENCY
OF UTAH, INC.
as Escrow Agent
By: /s/ Reese Howell, Jr.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 31st day of January, 1997, by and between
Salt Lake Mortgage Corp., a Utah Corporation ("SLM"), Celtic Investment, Inc., a
Delaware Corporation ("Parent") and Reese Howell, Jr. ("Employee").
RECITALS
WHEREAS, SLM and Parent (hereafter jointly referred to as "Employer") and
Employee desire and agree to enter into an employment relationship by means of
this agreement ("Employment Agreement"); and
WHEREAS, SLM desires to employ Employee as its President and Employee is
willing to accept such employment by SLM on the terms and subject to the
conditions set forth in this Employment Agreement; and
WHEREAS, the Parent desires to employ Employee as its Senior Vice
President and Employee is willing to accept such employment by the Parent on the
terms and subject to the conditions set forth in this Employment Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
1. Employment and Duties. Upon the effective date of the employment
defined herein ("Effective Date"), Employer shall, and hereby does, employ the
Employee and Employee shall, and hereby does, accept employment as President and
Chief Executive Officer of SLM and as Senior Vice President of the Parent.
Employee agrees to devote in good faith his full time and best effort to the
services that he is required to render to Employer hereunder. Employee shall
report to SLM's Board of Directors and to the Parent's President and at all
times during the term of this Agreement shall have powers and duties at least
commensurate with his position in SLM and Parent. Employee's duties with SLM
shall be consistent with those historically held by Employee as President of
SLM.
1.1. Disclosure and Acceptance of Other Activities. Employer
acknowledges that Employee is currently involved, for his own account, in land
development, real estate acquisitions and the ownership, purchase and sale of
real estate contracts, mortgage notes and trust deed notes. Employer also
acknowledges that Employee is also engaged in the purchase of passive
investments in various businesses. Employer also acknowledges that Employee is
an owner of Pratt & Howell Enterprises, a privately-held company engaged in a
land development project in Tooele County, Utah. Employee acknowledges that he
will not enter into any future investments in any SLM related business sectors
without first obtaining an approval from the Board of Directors of SLM.
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1.2. American Funds & Trust. The parties acknowledge that Employee
intends to attempt to acquire, either individually, or through an affiliated
company, American Funds &Trust or the right to purchase American Funds & Trust.
In the event such acquisition is effected, Employee, or such affiliate, shall
give Employer the right to purchase American Funds & Trust (or Employee's or
such affiliates right to purchase American Funds & Trust) on such terms and
conditions as the Employer and the Employee may agree to. In the event Employer
does not purchase American Funds & Trust, then Employee (and any affiliate of
Employee) shall sell all of his or its interest in American Funds & Trust as
soon as possible. In such a sale event transaction wherein employee receives
compensation, employee agrees to reimburse SLM for the actual time spent in
relation to the project. The amount of reimbursement will be based on employee's
hourly annual salary rate, not to exceed 250 hours. If Employer elects not to
purchase American Funds & Trust, and if thereafter Employee is, in the opinion
of Employer, devoting excessive time to American Funds & Trust, Employer may
require Employee to discontinue such excessive time involvement with American
Funds & Trust. Any demand by Employer to Employee that Employee discontinue such
excessive time involvement with American Funds & Trust shall be made in writing
to Employee and shall be hand delivered directly to Employee. In the event
Employee does not discontinue such excessive time involvement with American
Funds & Trust within twenty (20) days after receipt of such notice, Employer may
terminate this Employment Agreement immediately thereafter. Such termination
shall be deemed to be Termination for Cause as defined in paragraph 2.1.4 below.
Any determination by Employer that Employee is devoting excessive time to
American Funds & Trust shall be reasonable and made in good faith.
1.3. Consent by Employer. Employer consents to the continued
participation by Employee in the activities described in paragraphs 1.1 and 1.2
subject to his fulfillment of any and all fiduciary duties he will have as an
officer and director of SLM and an officer and director of Parent including
those fiduciary duties relating to corporate opportunities.
2. Term of Employment.
2.1 Definitions. For the purposes of this Employment Agreement, the
following terms shall have the following meanings:
2.1.1.Adjusted Pretax Profits. For purposes of this Agreement, the
term "Adjusted Pretax Profits" shall have the same meaning as "API" has in
the Escrow Agreement (hereafter defined) and shall be calculated in the
same manner it is calculated in the Escrow Agreement.
2.1.2. Agreement and Plan of Merger. "Agreement and Plan of Merger" shall
mean the Agreement and Plan of Merger dated the date hereof, entered into by
Parent, Celtic Investment Merger Sub, Inc., SLM, Reese Howell, Jr. and Roger
Davis, which provides for the acquisition SLM by Parent by way of reverse
triangular merger of Celtic Merger Sub, Inc. into SLM.
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2.1.3.Bonus Period. "Bonus Period" shall mean (i) the six separate
periods which are provided for in Section 4.1.2 of this Employment
Agreement for the purpose of calculating the amount of cash bonuses due
hereunder to Employee; and (ii) the four separate periods which are
provided for in the Stock Option Agreement (as hereafter defined) for the
purpose of calculating the number of Performance Based Option Shares (as
hereafter defined) Employee shall be entitled to purchase under the Stock
Option Agreement.
2.1.4 Escrow Agreement. "Escrow Agreement" shall mean the Escrow
Agreement dated the date hereof , entered into by Celtic Investment, Inc.,
Reese Howell, Jr., Roger Davis and Security Title Insurance Agency of
Utah, Inc. as Escrow Agent, which provides for the deposit into escrow of
500,000 shares of Celtic $.001 par value common stock ("Celtic Common
Stock") owned by Reese Howell, Jr. and Roger Davis and for the release of
such shares based upon the terms and conditions of such Escrow Agreement.
2.1.5.Stock Option Agreement. "Stock Option Agreement" shall mean
the Stock Option Agreement dated the date hereof, entered into by Celtic
Investment, Inc. and Employee whereby Employee is granted (i) options to
purchase 150,000 shares of Celtic Common Stock, which options vest over a
period of time as provided for in the Stock Option Agreement and (ii)
options to purchase 350,000 shares of Celtic Common Stock, which options
vest on the basis of the achievement of certain operating results as
agreed to in the Stock Option Agreement.
2.1.6. Termination for Cause. "Termination For Cause" shall mean
termination by Employer of Employee's employment by the Employer by reason
of Employee's willful dishonesty towards, fraud upon, or deliberate injury
or attempted injury to Employer, or by reason of Employee's willful
material breach of this Employment Agreement which has resulted in
material injury to the Employer and any termination of employment by
Employer pursuant to notice under paragraph 1.2 above.
2.1.7 Termination Without Cause. "Termination Without Cause" shall mean any
termination of employee's employment by Employer other than for cause by Reason
of Disability or by Reason of Death.
2.1.8.Voluntary Termination. "Voluntary Termination" shall mean termination
by Employee of Employee's employment by Employer other than (i) as described in
paragraph 2.1.8 or (ii) termination by reason of Employee's death or disability
as described in paragraphs 2. 5. and 2.6.
2.1.9.Good Reason Resignation. "Good Reason Resignation" shall mean
termination by Employee of Employee's employment by Employer following the
occurrence of any of the events set out below unless such event is fully
corrected by the Employer within 30 days following written notification by
Employee to Employer
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that Employee intends to terminate his employment for one or more of the
reasons set out below:
(a) removal of Employee from, or a failure to appoint or reappoint Employee
to, any of his offices or the assignment of Employee to any duties inconsistent
with Employee's status as Chairman, President and Chief Executive Officer of SLM
and as Senior Vice President of Parent or a material alteration in the nature or
status of Employee's responsibilities or conditions of employment from those in
effect prior to the date of this Employment Agreement except as contemplated by
this Employment Agreement;
(b) any failure to elect or reelect Employee or his designee to
the Board of Directors of SLM or Parent pursuant to provisisions of
Sections 3.4 and 3.7 of the Agreement and Plan of Merger;
(c) the relocation, without Employee's consent, of SLM's
principal executive offices to a location outside of Salt Lake
County or the imposition of a requirement, without Employee's
consent, that Employee be based anywhere other than Salt Lake
County, except for required travel on Employer's business;
(d) failure by Employer without Employee's consent to pay to
Employee any portion of Employee's current compensation, including
bonuses, the vesting of stock options and the issuance of shares
upon exercise of stock options;
(e) the failure to obtain the specific assumption of this
Employment Agreement by any successor or assign of the Employer or
any person acquiring a substantial portion of the assets of either
SLM or Parent or, following any such assumption, assignment or
acquisition by an entity other than an affiliate of SLM or Parent;
(f) any material breach by Employer of any provision of this Employment
Agreement; or
(g) the failure of the Capital Infusion (as defined in Section
3 of the Escrow Agreement) to be made into SLM within the time
agreed to in the Escrow Agreement.
2.2. Initial Term. The term of employment of Employee by Employer under
this Employment Agreement shall be for a period of five (5) years beginning with
Effective Date ("Initial Term"), unless terminated earlier pursuant to this
Section. At any time prior to the expiration of the Initial Term, Employer and
Employee may, by mutual written agreement, extend Employee's employment under
the terms of this Employment Agreement for such additional periods as they may
agree.
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2.3. Termination For Cause. Termination for Cause may be effected
immediately by Employer during the term of this Agreement by written
notification to Employee. Upon Termination For Cause, the following shall
promptly occur:
(a) Employer shall pay Employee all accrued salary earned at the date of
Termination for Cause;
(b) Employer shall pay Employee all vacation pay which is accrued at the
date of Termination for Cause;
(c) Employer shall pay all business expenses incurred by Employee in
connection with his duties hereunder which are unpaid at the date of
Termination for Cause;
(d) Employer shall pay to Employee all compensation or benefits due
to Employee at the date of Termination for Cause under any agreement or
plans, excluding stock options or cash bonuses which are specifically
provided for in paragraphs 2.3 (e)(f)and (g) below;
(e) The compensation payable to Employee under paragraph 4.1.2.
hereunder is calculated on the basis of June 30 fiscal year end results
and any bonus payable thereunder will be payable in six Bonus Periods
which are described in paragraph 4.1.2. If Employee is Terminated for
Cause, the amount of bonus due to Employee under paragraph 4.1.2 shall be
prorated on the basis of the percentage of the Bonus Period which has been
completed as of the date of Termination for Cause. The bonus compensation
due to Employee under this paragraph 2.3(e) will not be determinable until
the completion of the Employer's consolidated audited financial statements
for the Bonus Period in which Employee is Terminated for Cause. The bonus
compensation will be paid to Employee within twenty (20) days from the
date such audited financial statements are available. An example of this
provision is as follows:
If, under paragraph 4.1.2 of this Agreement, the Employee would
have been entitled to bonus compensation of $50,000 if Employee had
worked for the entire Bonus Period, and if Employee's employment was
Terminated for Cause after sixty percent (60%) of the Bonus Period
had been completed, then Employee shall be entitled to a bonus of
$30,000 (60% of the total bonus compensation due for such Bonus
Period).
(f) Employee has been granted incentive stock options to purchase
150,000 shares of Celtic Common Stock pursuant to the Stock Option
Agreement which options vest solely on the basis of time of employment
("Time Based Options" and "Time Based Option Shares"). In the event the
Employee is Terminated for Cause, the Time Based Options shall be
accelerated and shall vest immediately, on a prorated basis, through the
date of Termination for Cause but shall be prorated. The number of Time
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Based Option Shares which Employee shall be entitled to purchase shall be
prorated on the basis of the percentage of the Vesting Period which has
been completed as of the date of Termination for Cause. An example of this
provision, is as follows:
In the event Employee has a Time Based Option to purchase
75,000 Time Based Option Shares which option vests on the first
anniversary date of this Employment Agreement, and if Employee is
Terminated for Cause eight months after the date of this Employment
Agreement, then Employee shall have the right to purchase 50,000
Time Based Option Shares immediately after the date of Termination
for Cause pursuant to the applicable terms and conditions of the
Stock Option Agreement. The right to purchase the remaining 25,000
Time Based Option Shares shall be terminated immediately as of the
date of Termination for Cause. Employee shall have no right to
purchase Time Based Option Shares for any vesting period which is
subsequent to the vesting period in which Termination for Cause
occurred.
(g) Employee has been granted incentive stock options to purchase
350,000 shares of Celtic Common Stock pursuant to the Stock Option
Agreement which options vest solely on the basis of the achievement of
certain operating results ("Performance Based Options" and "Performance
Based Option Shares"). In the event that Employee's employment is
Terminated for Cause, the vesting of Performance Based Options relating to
the Bonus Period in which Termination for Cause occurs, shall be
accelerated. The number of Performance Based Option Shares which Employee
shall be entitled to purchase shall be prorated on the basis of the
percentage of the Bonus Period which has been completed as of the date of
Termination for Cause. The Performance Based Option Shares which may be
purchased under this paragraph 2.3(g) will not be determinable until the
completion of the Employer's consolidated audited financial statements for
the Bonus Period in which Employee is Terminated for Cause. An example of
this provision is as follows:
If, under the Stock Option Agreement, Employee would have been
entitled to purchase 116,666 Performance Based Option Shares had he
worked for the entire Bonus Period, and if Employee's employment was
Terminated for Cause immediately after sixty percent (60%) of the
Bonus Period had been completed, then Employee shall be entitled to
purchase, under the Stock Option Agreement, 70,000 of the
Performance Based Option Shares attributed to such Bonus Period).
Employee shall not be entitled to purchase any Performance Based
Option Shares which underlie Performance Based Options for Bonus
Periods which are subsequent to the Bonus Period in which
Termination for Cause occurred.
2.4. Termination Without Cause. Employer may terminate Employee's
employment for any reason and without cause at any time upon thirty (30) days
written notice to Employee.
Upon Termination without Cause, the following shall promptly occur:
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(a) Employer shall pay Employee all salary compensation for a period
of one year from the date of Termination Without Cause.
(b) Employer shall pay Employee all vacation pay which is accrued at the
date of Termination without Cause;
(c) Employer shall pay all business expenses incurred by Employee in
the connection with his duties hereunder which are unpaid at the date of
Termination without Cause;
(d) Employer shall pay or deliver to Employee all compensation or
benefits due to Employee at the date of Termination without Cause under
any agreement or plans excluding stock options or cash bonuses which are
specifically provided for in paragraphs 2.4 (e)(f)and (g) below;
(e) The compensation payable to Employee under paragraph 4.1.2.
hereunder is calculated on the basis of June 30 fiscal year end results
and any bonus payable thereunder will be payable in six Bonus Periods
which are described in paragraph 4.1.2. If Employee is Terminated without
Cause, the amount of bonus due to Employee under paragraph 4.1.2 shall be
the amount of bonus compensation which would be due to Employee if
Employee had been employed for the entire Bonus Period in which
Termination without Cause occurred. The bonus compensation due to Employee
under this paragraph 2.4(e) will not be determinable until the completion
of the Employer's consolidated audited financial statements for the Bonus
Period in which Employee is Terminated without Cause. The bonus
compensation will be paid to Employee within twenty (20) days from the
date such audited financial statements are available. An example of this
provision is as follows:
If, under paragraph 4.1.2 of this Agreement, the Employee would
have been entitled to bonus compensation of $50,000 if Employee had
worked for the entire Bonus Period, and if Employee's employment was
Terminated without Cause immediately after sixty percent (60%) of
the Bonus Period had been completed, then Employee shall be entitled
to the entire bonus of $50,000.
(f) Employee has been granted incentive stock options to purchase
150,000 Time Based Option Shares which vest solely on the basis of time of
employment. In the event the Employee is Terminated without Cause, all
Time Based Options for the vesting period in which Termination without
Cause occurred, shall be accelerated and shall vest immediately. An
example of this provision, is as follows:
In the event Employee has a Time Based Option to purchase
75,000 shares of Employers common stock which vests on the first
anniversary date of this Agreement, and if Employee is Terminated
without Cause nine months after the date of this Employment
Agreement, then Employee shall have the
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right to purchase all 75,000 shares of Employer's common stock
immediately after the date of Termination without Cause pursuant to
the applicable terms and conditions of the stock option agreement.
Employee shall have no right to purchase Time Based Option Shares
for any vesting period which is subsequent to the vesting period in
which Termination without Cause occurred.
(g) Employee has been granted incentive stock options to purchase
350,000 shares of Celtic Common Stock pursuant to the Stock Option
Agreement which vest solely on the basis of the achievement of certain
operating results. In the event that Employee's employment is Terminated
without Cause, the vesting of such Performance Based Options shall be
accelerated and the number of Performance Based Option shares which
Employee is entitled to purchase shall be that number of Performance Based
Option Shares which Employee would have been entitled to purchase if he
had been employed during the entire Bonus Period. The Performance Based
Option Shares which may be purchased under this paragraph 2.4(g) will not
be determinable until the completion of the Employer's consolidated
audited financial statements for the Bonus Period in which Employee is
Terminated without Cause. An example of this provision is as follows:
If, under the Stock Option Agreement, Employee would have been
entitled to purchase 150,000 Performance Based Option Shares had he
worked for the entire Bonus Period, and if Employee's employment was
Terminated without Cause immediately after sixty percent (60%) of
the Bonus Period had been completed, then Employee shall be entitled
to purchase, under the Stock Option Agreement, all 150,000
Performance Based Option Shares attributed to such Bonus Period.
Employee shall not be entitled to purchase any Performance Based
Option Shares which underlie Performance Based Options for Bonus
Periods which are subsequent to the Bonus Period in which
Termination without Cause occurred.
2.5. Termination by Reason of Disability. If, during the term of this
Agreement, Employee, in the reasonable judgment of the Board of Directors of
either SLM or Parent, has failed to perform his duties under this Agreement on
account of illness or physical or mental incapacity, and such illness or
incapacity continues for a period of more than three (3) consecutive months,
Employer shall have the right to terminate Employee's employment hereunder by
twenty (20) days written notification to Employee. In the event of termination
by reason of disability, Employee shall pay Employee all cash and other
compensation which would be due and owing to Employee under paragraph 2.3 of
this Employment Agreement if Employee's employment had been Terminated for Cause
by Employer rather than as a result of the Disability of Employee.
Upon receipt of notice of termination under this paragraph 2.5, Employee
may request an opportunity to discuss the termination of his employment at a
meeting of the Boards of Directors of both SLM and Parent. Such request must be
made, if at all, in writing and shall be delivered to SLM and to Parent withing
five (5) days from the date Employee receives
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notification of termination of employment under this paragraph 2.5. Upon receipt
of such request, each of SLM and Parent shall, within a reasonable time, call
and hold a Board of Directors meeting to allow Employee to discuss termination
for reason of disability.
2.6 . Death. In the event of Employee's death during the term of this
Agreement, Employee's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and the Employer shall pay
to his estate or such beneficiaries as Employee may from time to time designate,
to the date of Employee's death all cash and other compensation which would be
due and owing to Employee under paragraph 2.3 of this Employment Agreement if
Employee's employment had been Terminated for Cause by Employer rather than by
as a result of the Death of Employee.
2.7. Voluntary Termination. In the event of a Voluntary Termination,
Employer shall pay to Employee all cash and other compensation which would be
due and owing to Employee under paragraph 2.3 of this Employment Agreement if
Employee's employment had been Terminated for Cause by Employer rather than by
the Voluntary Termination by Employee.
2.8. Good Reason Resignation. In the event of a Good Reason Resignation
Employee resigns, Employer shall continue to pay to Employee his salary for a
period of one (1) year from the date of Resignation for Good Reason and Employer
shall pay to Employee all cash and other compensation which would be due and
owing to Employee under paragraph 2.4 of this Employment Agreement if Employee's
employment had been Terminated without Cause by Employer rather than the Good
Reason Resignation by Employee.
3. Effective Date of Employment. The Effective Date of this Agreement and
Employee's employment by the Employer hereunder shall be January 31, 1997.
4. Compensation. As his entire compensation for all services rendered to
the Employer during the term of this Agreement, in whatever capacity rendered,
the Employee shall be paid, subject to withholding and other applicable
employment taxes, as follows;
4.1.1.Base Salary. Employee shall be paid a base salary of $90,000
per year commencing on the Effective Date. Such base salary shall be
payable in monthly installments, provided however, if the first month of
employment is less than a full calendar month, the first payment shall be
prorated for the number of days worked in the first calendar month of
employment.
Employee's base salary shall be reviewed annually by the Board of
Directors, and the base salary for each employment year (or portion
thereof) beginning July 1, 1998, shall be determined by the Board of
Directors which shall authorize an increase in Employee's base salary for
such year in an amount which, at a minimum, shall be equal to the
cumulative cost-of-living increment on the Base Salary as reported in the
"Consumer Price Index, Salt Lake City, UT, All Items," published by the
U.S.
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Department of Labor (using January 1, 1995 as the base date for
computation). Provided however, that the base salary shall not increase by
more than ten percent (10%) per year due to increases in the Consumer
Price Index.
4.1.2. Bonus. Employee shall be paid a bonus based upon Adjusted Pretax
Profits of SLM. Under this Employment Agreement, there shall be six Bonus
Periods during which the bonus shall be determined and such Bonus Periods are as
follows:
Bonus Period 1 - commencing January 31, 1997, ending June 30, 1997
Bonus Period 2 - commencing July 1, 1997, ending June 30, 1998 Bonus
Period 3 - commencing July 1, 1998, ending June 30, 1999 Bonus
Period 4 - commencing July 1, 1999, ending June 30, 2000 Bonus
Period 5 - commencing July 1, 2000 ending June 30, 2001 Bonus Period
6 - commencing July 1, 2001 ending January 31, 2002
For Bonus Period 1 Employee shall be paid a bonus equal to seven
percent (7%) of the Adjusted Pretax Profits up to a bonus payment of
$30,000.00 After a total bonus of $30,000.00 is earned for Bonus Period 1,
the bonus shall be reduced from seven percent (7%) of Adjusted Pretax
Profits to one and one half percent (1 1/2%) of Adjusted Pretax Profits.
For each of the Bonus Periods 2,3, 4 and 5 ("Full Bonus Periods"),
Employee shall be paid a bonus equal to seven percent (7%) of the Adjusted
Pretax Profits up to a bonus payment of $60,000. After a total bonus of
$60,000 is earned for each of such Bonus Periods, the bonus shall be
reduced from seven percent (7%) to one and one half percent (1 1/2%) of
Adjusted Pretax profits.
For Bonus Period 6, Employee shall be paid a bonus equal to seven
percent (7%) of the Adjusted Pretax Profits up to a bonus payment of
$30,000.00. After a total bonus of $30,000.00 is earned for Bonus Period
6, the bonus shall be reduced from seven percent (7%) to one and one half
percent (1 1/2%) of Adjusted Pretax Profits.
Any bonus due hereunder shall be paid to Employee within twenty (20)
days after the date on which the audited financial statements of Employer
are available for each June 30th fiscal year end.
4.1.3.Vacation. Employee shall be entitled to four (4) weeks of
vacation during each year during the term of this Agreement and any
extensions thereof, prorated for partial years.
4.1.4.Automobile Allowance. SLM currently provides Employee with an
automobile. During the term of this Agreement, Employer shall continue to
provide such automobile (or an equivalent replacement thereof) for
Employee's use and Employer shall pay the first $2,500 of the operating
costs of such automobile. For purposes of this paragraph 4.1.4, operating
costs, shall include, but are not limited to,
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fuel, oil, normal service, repairs, tires and insurance. At any time upon
the request of Employee, or in connection with a termination of his
employment for any reason, this automobile shall be transferred to
Employee for no consideration. In such event, Employee shall be
responsible for any and all taxes, (income, property, or sales taxes)
thereafter and for all such taxes arising as a result of such transfer.
4.1.5.Reimbursement for Expenses. During the term of this Agreement,
The Employer shall reimburse Employee for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred
by Employee in connection with his duties under this Agreement.
4.1.6.Additional Benefits. The Employer shall provide the Employee
with health and disability insurance during the term of this Agreement.
The Employee shall be entitled to participate in such benefit and
compensation plans as are now generally available or later made generally
available to the employees or executive officers of the Employer,
including, but not limited to, 401(k) plans, stock option plans, profit
sharing plans and other such plans and benefits. The health plan offered
to Employee hereunder will be at least as advantageous to Employee as
those offered by SLM prior to the date of the execution of this Agreement.
5. Stock Options. As additional consideration for Employee's services
hereunder, the Employee shall be granted an option to purchase 500,000 shares of
Celtic Investment common stock at a price of $3.00 per share. The terms and
condition of such options are set forth in the Stock Option Agreement.
6. Covenant not to Compete. Employee agrees that he will not, during the
term of his employment, and for the ("Restriction Period") which is defined in
paragraph 6.1.2 of this Employment Agreement directly or indirectly, in any
state, county, city or metropolitan area in which SLM, Parent or any subsidiary
of Parent has transacted business in the three (3) years preceding said
termination, own, manage, operate or control, or participate in the ownership,
management, operation or control of, or be connected with or have any interest
in, as a stockholder, director, officer, employee, agent, consultant, partner or
otherwise, any business which is engaged in the same business as SLM, Parent or
any Subsidiary of Parent. Specifically, but without limitation, this covenant
shall extend to all existing clients or customers of SLM, Parent and all
subsidiaries of Parent and all of the funding sources of SLM, Parent and all
subsidiaries of Parent.
6.1.1.If any of the provisions of this paragraph are held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such determination shall have the power to modify such scope,
duration or area or all of them, and such provision shall then be applicable in
such modified form. The Employer and the Employee acknowledge the reasonableness
of this covenant not to compete and the reasonableness of the geographic area
and duration of time which are part of this covenant.
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6.1.2. The Restricted Period shall be that period of time during
which the Covenant not to Compete set forth in this paragraph 6 is binding upon
Employee. The Restricted Period shall initially be a period of twenty four (24)
months commencing on the Effective Date but shall be reduced thereafter by one
month for each full month of employment of Employee by Employer. Subject to
paragraph 6.1.3 below, in no event shall the Restricted Period be less than six
(6) months from the date of termination of employment regardless of the number
of months of employment prior to termination.
6.1.3.In the event Employee's employment is terminated by Employer
without cause or in the event Employee Resigns for Good Reason, the restrictions
set forth in this paragraph 6 shall be limited to the time in which Employee
continues to receive a salary from Employer under this Agreement.
6.1.4.Notwithstanding anything else contained herein to the
contrary, following the termination of employment under this Employment
Agreement, Employee shall be entitled to engage in land development, real estate
acquisitions and in the ownership, purchase and sale of real estate contracts,
mortgage notes and trust deed notes for his own account to the extent that such
activities have been pre-approved by the SLM Board of Directors.
7. Confidential Information. Employee covenants and agrees not to
disclose, directly or indirectly, at any time either during employment or within
twenty four (24) months subsequent to the termination of employment to anyone
not an employee or consultant of the Employer, and not to use at any time either
during employment or within two (2) years subsequent to the termination of
employment, except in the course of employment with the Employer, any
Confidential Information, as defined below, of the Employer or any parties
dealing with the Employer unless he shall first secure the consent of the
Employer in writing or unless he shall involuntarily be required to do so by a
court having competent jurisdiction, by any governmental agency having
supervisory authority over the business of Employer or Parent, or by any
administrative body or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information after notice to the Employer. Employer and
Employee hereby acknowledge that: (a) the duration and geographical limitations
imposed with respect to said secret and confidential information are reasonable;
and (b) the restrictions stated hereinabove are reasonably necessary for the
protection of Employer's legitimate proprietary interests.
For purposes of this Agreement, the term Confidential Information shall
mean any and all:
(a) trade secrets concerning the business and affairs of Employer,
data, know-how, customer lists, current and anticipated customer
requirements, market studies, business plans, and any other information,
however documented, that is a trade secret within the meaning of the Utah
Trade Secrets Act ss. ss. 13-24-1 to 13-24-9; and
(b) information concerning the business and affairs of the Employer
(which includes historical financial statements, financial projections and
budgets, historical
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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 Employer containing or based, in whole or in
part, on any information included in the foregoing.
Nothing contained in this paragraph 7 shall be deemed to apply to (i) any
information which is or becomes known to the public other than as a result of a
breach of this Section 7 by Employee or (ii ) any information which is lawfully
acquired from a third party who is not obligated to Employer to maintain such
information in confidence.
8. Solicitation of Other Employees and/or Consultants. Employee agrees
that he will not, during the course of his employment or for a period of twenty
four (24) months commencing upon the expiration of his employment, either
voluntary or involuntary, for any reason whatsoever, directly or indirectly,
individually or on behalf of persons not now parties to this agreement, aid or
endeavor to solicit or induce any other employee, employees, consultant and/or
consultants of the Employer to leave their employment with the Employer in order
to accept employment of any kind with any other person, firm, partnership or the
Employer.
9. Breach of Covenants by Employee. In the event that the Employee shall
breach paragraphs 6,7 or 8 of this agreement, then the Employer shall be
entitled to seek injunctive relief against the Employee. In any proceeding
commenced by Employer to enforce paragraphs 6,7 or 8 of this Employment
Agreement, the prevailing party shall be liable and shall pay for all damages,
court costs, and reasonable attorneys' fees incurred as the direct result of
commencing or defending such proceeding. The provisions of paragraphs 6, 7 and 8
hereof shall survive the termination of this Employment Agreement.
10. Separate Counsel. The parties acknowledge that the Employer and the
Employee have been represented by separate legal counsel in this transaction and
that Employee has not been represented by the Employer's counsel.
11. Miscellaneous.
11.1 This Employment Agreement and the written agreements referred to
herein, constitutes the entire agreement between the parties or the matters
discussed herein. It also supersedes any and all other agreements or contracts,
either oral or written, between the parties with respect to the subject matter
hereof.
11.2. The terms and conditions of this Employment Agreement may be amended
at any time by mutual agreement of the parties, provided that before any
amendment shall be valid or effective it shall have been approved by the Board
of Directors of the Employer, reduced to writing and signed by the Employer and
the Employee.
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11.3. The invalidity or unenforceability of any particular provision of
this Employment Agreement shall not affect its other provisions, and this
Employment Agreement shall be construed in all respects as if such invalid or
unenforceable provision had been omitted.
11.4. Except as otherwise expressly provided herein, this Employment
Agreement shall be binding upon and inure to the benefit of the Employer, its
successors and assigns, and upon the Employee, his administrators, executors,
legatees, heirs and assigns.
11.5. This Employment Agreement shall be construed and enforced under and
in accordance with the laws of the State of Utah.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
the day and year first above-written.
Salt Lake Mortgage Corp. Employee:
By /s/ By /s/
Roger Davis, Vice President, Reese Howell, Jr.
Celtic Investment, Inc.
By___/s/________________________
Douglas P. Morris, President
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 31st day of January, 1997, by and between
Salt Lake Mortgage Corp., a Utah Corporation ("SLM"), Celtic Investment, Inc., a
Delaware Corporation ("Parent") and Roger Davis ("Employee").
RECITALS
WHEREAS, SLM and Parent (hereafter jointly referred to as "Employer") and
Employee desire and agree to enter into an employment relationship by means of
this agreement ("Employment Agreement"); and
WHEREAS, SLM desires to employ Employee and Employee is willing to accept
such employment by SLM on the terms and subject to the conditions set forth in
this Employment Agreement; and
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
1. Employment and Duties. Upon the effective date of the employment
defined herein ("Effective Date"), Employer shall, and hereby does, employ the
Employee and Employee shall, and hereby does, accept employment as Vice
President of Marketing Sales and Secretary/Treasurer of SLM. Employee agrees to
devote in good faith his full time and best effort to the services that he is
required to render to Employer hereunder. Employee shall report to SLM's
President at all times during the term of this Agreement shall have powers and
duties at least commensurate with his position in SLM. Employee's duties with
SLM shall be consistent with those historically held by Employee.
1.1. American Funds & Trust. The parties acknowledge that Employee
intends to attempt to acquire, either individually, or through an affiliated
company, American Funds &Trust or the right to purchase American Funds & Trust.
In the event such acquisition is effected, Employee, or such affiliate, shall
give Employer the right to purchase American Funds & Trust (or Employee's or
such affiliates right to purchase American Funds & Trust) on such terms and
conditions as the Employer and the Employee may agree to. In the event Employer
does not purchase American Funds & Trust, then Employee (and any affiliate of
Employee) shall sell all of his or its interest in American Funds & Trust as
soon as possible. In such a sale event transaction wherein employee receives
compensation, employee agrees to reimburse SLM for the actual time spent in
relation to the project. The amount of reimbursement will be based on employee's
hourly annual salary rate, not to exceed 250 hours. If Employer elects not to
purchase American Funds & Trust, and if thereafter Employee is, in the opinion
of Employer, devoting excessive time to American Funds & Trust,
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Employer may require Employee to discontinue such excessive time involvement
with American Funds & Trust. Any demand by Employer to Employee that Employee
discontinue such excessive time involvement with American Funds & Trust shall be
made in writing to Employee and shall be hand delivered directly to Employee. In
the event Employee does not discontinue such excessive time involvement with
American Funds & Trust within twenty (20) days after receipt of such notice,
Employer may terminate this Employment Agreement immediately thereafter. Such
termination shall be deemed to be Termination for Cause as defined in paragraph
2.1.4 below. Any determination by Employer that Employee is devoting excessive
time to American Funds & Trust shall be reasonable and made in good faith.
1.2. Consent by Employer. Employer consents to the continued
participation by Employee in the activities described in paragraph 1.1 subject
to his fulfillment of any and all fiduciary duties he will have as an officer
and director of SLM including those fiduciary duties relating to corporate
opportunities.
2. Term of Employment.
2.1 Definitions. For the purposes of this Employment Agreement, the
following terms shall have the following meanings:
2.1.1.Adjusted Pretax Profits. For purposes of this Agreement, the
term "Adjusted Pretax Profits" shall have the same meaning as "API" has in
the Escrow Agreement (hereafter defined) and shall be calculated in the
same manner it is calculated in the Escrow Agreement.
2.1.2. Agreement and Plan of Merger. "Agreement and Plan of Merger" shall
mean the Agreement and Plan of Merger dated the date hereof, entered into by
Parent, Celtic Investment Merger Sub, Inc., SLM, Reese Howell, Jr. and Roger
Davis, which provides for the acquisition SLM by Parent by way of reverse
triangular merger of Celtic Merger Sub, Inc. into SLM.
2.1.3.Bonus Period. "Bonus Period" shall mean (i) the six separate
periods which are provided for in Section 4.1.2 of this Employment
Agreement for the purpose of calculating the amount of cash bonuses due
hereunder to Employee; and (ii) the four separate periods which are
provided for in the Stock Option Agreement (as hereafter defined) for the
purpose of calculating the number of Performance Based Option Shares (as
hereafter defined) Employee shall be entitled to purchase under the Stock
Option Agreement.
2.1.4 Escrow Agreement. "Escrow Agreement" shall mean the Escrow Agreement
dated the date hereof , entered into by Celtic Investment, Inc., Reese Howell,
Jr., Roger Davis and Security Title Insurance Agency of Utah, Inc. as Escrow
Agent, which provides for the deposit into escrow of 500,000 shares of Celtic
$.001 par
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value common stock ("Celtic Common Stock") owned by Reese Howell, Jr. and
Roger Davis and for the release of such shares based upon the terms and
conditions of such Escrow Agreement.
2.1.5.Stock Option Agreement. "Stock Option Agreement" shall mean
the Stock Option Agreement dated the date hereof, entered into by Celtic
Investment, Inc. and Employee whereby Employee is granted (i) options to
purchase 150,000 shares of Celtic Common Stock, which options vest over a
period of time as provided for in the Stock Option Agreement and (ii)
options to purchase 350,000 shares of Celtic Common Stock, which options
vest on the basis of the achievement of certain operating results as
agreed to in the Stock Option Agreement.
2.1.6. Termination for Cause. "Termination For Cause" shall mean
termination by Employer of Employee's employment by the Employer by reason
of Employee's willful dishonesty towards, fraud upon, or deliberate injury
or attempted injury to Employer, or by reason of Employee's willful
material breach of this Employment Agreement which has resulted in
material injury to the Employer and any termination of employment by
Employer pursuant to notice under paragraph 1.2 above.
2.1.7.Termination Without Cause. "Termination Without Cause" shall mean any
termination of employee's employment by Employer other than for cause by Reason
of Disability or by Reason of Death.
2.1.8.Voluntary Termination. "Voluntary Termination" shall mean termination
by Employee of Employee's employment by Employer other than (i) as described in
paragraph 2.1.8 or (ii) termination by reason of Employee's death or disability
as described in paragraphs 2. 5. and 2.6.
2.1.9.Good Reason Resignation. "Good Reason Resignation" shall mean
termination by Employee of Employee's employment by Employer following the
occurrence of any of the events set out below unless such event is fully
corrected by the Employer within 30 days following written notification by
Employee to Employer that Employee intends to terminate his employment for
one or more of the reasons set out below:
(a) removal of Employee from, or a failure to appoint or
reappoint Employee to, any of his offices or the assignment of
Employee to any duties inconsistent with Employee's status as
material alteration in the nature or status of Employee's
responsibilities or conditions of employment from those in effect
prior to the date of this Employment Agreement except as
contemplated by this Employment Agreement;
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(b) the relocation, without Employee's consent, of SLM's
principal executive offices to a location outside of Salt Lake
County or the imposition of a requirement, without Employee's
consent, that Employee be based anywhere other than Salt Lake
County, except for required travel on Employer's business;
(c) failure by Employer without Employee's consent to pay to
Employee any portion of Employee's current compensation, including
bonuses, the vesting of stock options and the issuance of shares
upon exercise of stock options;
(d) the failure to obtain the specific assumption of this
Employment Agreement by any successor or assign of the Employer or
any person acquiring a substantial portion of the assets of either
SLM or Parent or, following any such assumption, assignment or
acquisition by an entity other than an affiliate of SLM or Parent;
(e) any material breach by Employer of any provision of this Employment
Agreement; or
(f) the failure of the Capital Infusion in the Escrow Agreement
to be made into SLM within the time agreed to in the Escrow
Agreement.
2.2. Initial Term. The term of employment of Employee by Employer under
this Employment Agreement shall be for a period of two (2) years beginning with
Effective Date ("Initial Term"), unless terminated earlier pursuant to this
Section. At the sole option of Employee, Employee may cause this Employment
Agreement to be extended for up to three (3) additional terms of one year each.
In order to extend this Employment Agreement for an additional term, Employee
shall provide not less than twenty (20) days written notice to Employer of such
extension. At any time prior to the expiration of the Initial Term, or any
additional term, Employer and Employee may, by mutual written agreement, extend
Employee's employment under the terms of this Employment Agreement for such
additional periods as they may agree.
2.3. Termination For Cause. Termination for Cause may be effected
immediately by Employer during the term of this Agreement by written
notification to Employee. Upon Termination For Cause, the following shall
promptly occur:
(a) Employer shall pay Employee all accrued salary earned at the date of
Termination for Cause;
(b) Employer shall pay Employee all vacation pay which is accrued at the
date of Termination for Cause;
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(c) Employer shall pay all business expenses incurred by Employee in
connection with his duties hereunder which are unpaid at the date of
Termination for Cause;
(d) Employer shall pay to Employee all compensation or benefits due
to Employee at the date of Termination for Cause under any agreement or
plans, excluding stock options or cash bonuses which are specifically
provided for in paragraphs 2.3 (e)(f)and (g) below;
(e) The compensation payable to Employee under paragraph 4.1.2.
hereunder is calculated on the basis of June 30 fiscal year end results
and any bonus payable thereunder will be payable in six Bonus Periods
which are described in paragraph 4.1.2. If Employee is Terminated for
Cause, the amount of bonus due to Employee under paragraph 4.1.2 shall be
prorated on the basis of the percentage of the Bonus Period which has been
completed as of the date of Termination for Cause. The bonus compensation
due to Employee under this paragraph 2.3(e) will not be determinable until
the completion of the Employer's consolidated audited financial statements
for the Bonus Period in which Employee is Terminated for Cause. The bonus
compensation will be paid to Employee within twenty (20) days from the
date such audited financial statements are available. An example of this
provision is as follows:
If, under paragraph 4.1.2 of this Agreement, the Employee would
have been entitled to bonus compensation of $50,000 if Employee had
worked for the entire Bonus Period, and if Employee's employment was
Terminated for Cause after sixty percent (60%) of the Bonus Period
had been completed, then Employee shall be entitled to a bonus of
$30,000 (60% of the total bonus compensation due for such Bonus
Period).
(f) Employee has been granted incentive stock options to purchase
150,000 shares of Celtic Common Stock pursuant to the Stock Option
Agreement which options vest solely on the basis of time of employment
("Time Based Options" and "Time Based Option Shares"). In the event the
Employee is Terminated for Cause, the Time Based Options shall be
accelerated and shall vest immediately, on a prorated basis, through the
date of Termination for Cause but shall be prorated. The number of Time
Based Option Shares which Employee shall be entitled to purchase shall be
prorated on the basis of the percentage of the Vesting Period which has
been completed as of the date of Termination for Cause. An example of this
provision, is as follows:
In the event Employee has a Time Based Option to purchase
75,000 Time Based Option Shares which option vests on the first
anniversary date of this Employment Agreement, and if Employee is
Terminated for Cause nine months after the date of this Employment
Agreement, then Employee shall have the
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right to purchase 50,000 Time Based Option Shares immediately after
the date of Termination for Cause pursuant to the applicable terms
and conditions of the Stock Option Agreement. The right to purchase
the remaining 25,000 Time Based Option Shares shall be terminated
immediately as of the date of Termination for Cause. Employee shall
have no right to purchase Time Based Option Shares for any vesting
period which is subsequent to the vesting period in which
Termination for Cause occurred.
(g) Employee has been granted incentive stock options to purchase
350,000 shares of Celtic Common Stock pursuant to the Stock Option
Agreement which options vest solely on the basis of the achievement of
certain operating results ("Performance Based Options" and "Performance
Based Option Shares"). In the event that Employee's employment is
Terminated for Cause, the vesting of Performance Based Options relating to
the Bonus Period in which Termination for Cause occurs, shall be
accelerated. The number of Performance Based Option Shares which Employee
shall be entitled to purchase shall be prorated on the basis of the
percentage of the Bonus Period which has been completed as of the date of
Termination for Cause. The Performance Based Option Shares which may be
purchased under this paragraph 2.3(g) will not be determinable until the
completion of the Employer's consolidated audited financial statements for
the Bonus Period in which Employee is Terminated for Cause. An example of
this provision is as follows:
If, under the Stock Option Agreement, Employee would have been
entitled to purchase 150,000 Performance Based Option Shares had he
worked for the entire Bonus Period, and if Employee's employment was
Terminated for Cause immediately after sixty percent (60%) of the
Bonus Period had been completed, then Employee shall be entitled to
purchase, under the Stock Option Agreement, 90,000 of the
Performance Based Option Shares attributed to such Bonus Period).
Employee shall not be entitled to purchase any Performance Based
Option Shares which underlie Performance Based Options for Bonus
Periods which are subsequent to the Bonus Period in which
Termination for Cause occurred.
2.4. Termination Without Cause. Employer may terminate Employee's
employment for any reason and without cause at any time upon thirty (30) days
written notice to Employee.
Upon Termination without Cause, the following shall promptly occur:
(a) Employer shall pay Employee all salary compensation for a period
of one year from the date of Termination Without Cause.
(b) Employer shall pay Employee all vacation pay which is accrued at the
date of Termination without Cause;
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(c) Employer shall pay all business expenses incurred by Employee in
the connection with his duties hereunder which are unpaid at the date of
Termination without Cause;
(d) Employer shall pay or deliver to Employee all compensation or
benefits due to Employee at the date of Termination without Cause under
any agreement or plans excluding stock options or cash bonuses which are
specifically provided for in paragraphs 2.4 (e)(f)and (g) below;
(e) The compensation payable to Employee under paragraph 4.1.2.
hereunder is calculated on the basis of June 30 fiscal year end results
and any bonus payable thereunder will be payable in six Bonus Periods
which are described in paragraph 4.1.2. If Employee is Terminated without
Cause, the amount of bonus due to Employee under paragraph 4.1.2 shall be
the amount of bonus compensation which would be due to Employee if
Employee had been employed for the entire Bonus Period in which
Termination without Cause occurred. The bonus compensation due to Employee
under this paragraph 2.4(e) will not be determinable until the completion
of the Employer's consolidated audited financial statements for the Bonus
Period in which Employee is Terminated without Cause. The bonus
compensation will be paid to Employee within twenty (20) days from the
date such audited financial statements are available. An example of this
provision is as follows:
If, under paragraph 4.1.2 of this Agreement, the Employee would
have been entitled to bonus compensation of $50,000 if Employee had
worked for the entire Bonus Period, and if Employee's employment was
Terminated without Cause immediately after sixty percent (60%) of
the Bonus Period had been completed, then Employee shall be entitled
to the entire bonus of $50,000.
(f) Employee has been granted incentive stock options to purchase
150,000 Time Based Option Shares which vest solely on the basis of time of
employment. In the event the Employee is Terminated without Cause, all
Time Based Options for the vesting period in which Termination without
Cause occurred, shall be accelerated and shall vest immediately. An
example of this provision, is as follows:
In the event Employee has a Time Based Option to purchase
75,000 shares of Employers common stock which vests on the first
anniversary date of this Agreement, and if Employee is Terminated
without Cause nine months after the date of this Employment
Agreement, then Employee shall have the right to purchase all 75,000
shares of Employer's common stock immediately after the date of
Termination without Cause pursuant to the applicable terms and
conditions of the stock option agreement. Employee shall have no
right to
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purchase Time Based Option Shares for any vesting period which is
subsequent to the vesting period in which Termination without Cause
occurred.
(g) Employee has been granted incentive stock options to purchase
350,000 shares of Celtic Common Stock pursuant to the Stock Option
Agreement which vest solely on the basis of the achievement of certain
operating results. In the event that Employee's employment is Terminated
without Cause, the vesting of such Performance Based Options shall be
accelerated and the number of Performance Based Option shares which
Employee is entitled to purchase shall be that number of Performance Based
Option Shares which Employee would have been entitled to purchase if he
had been employed during the entire Bonus Period. The Performance Based
Option Shares which may be purchased under this paragraph 2.4(g) will not
be determinable until the completion of the Employer's consolidated
audited financial statements for the Bonus Period in which Employee is
Terminated without Cause. An example of this provision is as follows:
If, under the Stock Option Agreement, Employee would have been
entitled to purchase 150,000 Performance Based Option Shares had he
worked for the entire Bonus Period, and if Employee's employment was
Terminated without Cause immediately after sixty percent (60%) of
the Bonus Period had been completed, then Employee shall be entitled
to purchase, under the Stock Option Agreement, all 150,000
Performance Based Option Shares attributed to such Bonus Period.
Employee shall not be entitled to purchase any Performance Based
Option Shares which underlie Performance Based Options for Bonus
Periods which are subsequent to the Bonus Period in which
Termination without Cause occurred.
2.5. Termination by Reason of Disability. If, during the term of this
Agreement, Employee, in the reasonable judgment of the Board of Directors of
either SLM or Parent, has failed to perform his duties under this Agreement on
account of illness or physical or mental incapacity, and such illness or
incapacity continues for a period of more than three (3) consecutive months,
Employer shall have the right to terminate Employee's employment hereunder by
twenty (20) days written notification to Employee. In the event of termination
by reason of disability, Employee shall pay Employee all cash and other
compensation which would be due and owing to Employee under paragraph 2.3 of
this Employment Agreement if Employee's employment had been Terminated for Cause
by Employer rather than as a result of the Disability of Employee.
Upon receipt of notice of termination under this paragraph 2.5, Employee
may request an opportunity to discuss the termination of his employment at a
meeting of the Boards of Directors of both SLM and Parent. Such request must be
made, if at all, in writing and shall be delivered to SLM and to Parent withing
five (5) days from the date Employee receives notification of termination of
employment under this paragraph 2.5. Upon receipt of such
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request, each of SLM and Parent shall, within a reasonable time, call and hold a
Board of Directors meeting to allow Employee to discuss termination for reason
of disability.
2.6 . Death. In the event of Employee's death during the term of this
Agreement, Employee's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and the Employer shall pay
to his estate or such beneficiaries as Employee may from time to time designate,
to the date of Employee's death all cash and other compensation which would be
due and owing to Employee under paragraph 2.3 of this Employment Agreement if
Employee's employment had been Terminated for Cause by Employer rather than by
as a result of the Death of Employee.
2.7. Voluntary Termination. In the event of a Voluntary Termination,
Employer shall pay to Employee all cash and other compensation which would be
due and owing to Employee under paragraph 2.3 of this Employment Agreement if
Employee's employment had been Terminated for Cause by Employer rather than by
the Voluntary Termination by Employee.
2.8. Good Reason Resignation. In the event of a Good Reason Resignation
Employee resigns, Employer shall continue to pay to Employee his salary for a
period of one (1) year from the date of Resignation for Good Reason and Employer
shall pay to Employee all cash and other compensation which would be due and
owing to Employee under paragraph 2.4 of this Employment Agreement if Employee's
employment had been Terminated without Cause by Employer rather than the Good
Reason Resignation by Employee.
3. Effective Date of Employment. The Effective Date of this Agreement and
Employee's employment by the Employer hereunder shall be January 31, 1997.
4. Compensation. As his entire compensation for all services rendered to
the Employer during the term of this Agreement, in whatever capacity rendered,
the Employee shall be paid, subject to withholding and other applicable
employment taxes, as follows;
4.1.1.Base Salary. Employee shall be paid a base salary of $90,000
per year commencing on the Effective Date. Such base salary shall be
payable in monthly installments, provided however, if the first month of
employment is less than a full calendar month, the first payment shall be
prorated for the number of days worked in the first calendar month of
employment.
Employee's base salary shall be reviewed annually by the Board of
Directors, and the base salary for each employment year (or portion
thereof) beginning July 1, 1998, shall be determined by the Board of
Directors which shall authorize an increase in Employee's base salary for
such year in an amount which, at a minimum, shall be equal to the
cumulative cost-of-living increment on the Base Salary as reported in the
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"Consumer Price Index, Salt Lake City, UT, All Items," published by the
U.S. Department of Labor (using January 1, 1995 as the base date for
computation). Provided however, that the base salary shall not increase by
more than ten percent (10%) per year due to increases in the Consumer
Price Index.
4.1.2. Bonus. Employee shall be paid a bonus based upon Adjusted Pretax
Profits of SLM. Under this Employment Agreement, there shall be six Bonus
Periods during which the bonus shall be determined and such Bonus Periods are as
follows:
Bonus Period 1 - commencing January 31, 1997, ending June 30, 1997
Bonus Period 2 - commencing July 1, 1997, ending June 30, 1998 Bonus
Period 3 - commencing July 1, 1998, ending June 30, 1999 Bonus
Period 4 - commencing July 1, 1999, ending June 30, 2000 Bonus
Period 5 - commencing July 1, 2000 ending June 30, 2001 Bonus Period
6 - commencing July 1, 2001 ending January 31, 2002
For Bonus Period 1 Employee shall be paid a bonus equal to seven
percent (7%) of the Adjusted Pretax Profits up to a bonus payment of
$30,000.00 After a total bonus of $30,000.00 is earned for Bonus Period 1,
the bonus shall be reduced from seven percent (7%) of Adjusted Pretax
Profits to one and one half percent (1 1/2%) of Adjusted Pretax Profits.
For each of the Bonus Periods 2,3, 4 and 5 ("Full Bonus Periods"),
Employee shall be paid a bonus equal to seven percent (7%) of the Adjusted
Pretax Profits up to a bonus payment of $60,000. After a total bonus of
$60,000 is earned for each of such Bonus Periods, the bonus shall be
reduced from seven percent (7%) to one and one half percent (1 1/2%) of
Adjusted Pretax profits.
For Bonus Period 6, Employee shall be paid a bonus equal to seven
percent (7%) of the Adjusted Pretax Profits up to a bonus payment of
$30,000.00. After a total bonus of $30,000.00 is earned for Bonus Period
6, the bonus shall be reduced from seven percent (7%) to one and one half
percent (1 1/2%) of Adjusted Pretax Profits.
Any bonus due hereunder shall be paid to Employee within twenty (20)
days after the date on which the audited financial statements of Employer
are available for each June 30th fiscal year end.
4.1.3.Vacation. Employee shall be entitled to four (4) weeks of
vacation during each year during the term of this Agreement and any
extensions thereof, prorated for partial years.
4.1.4. Automobile Allowance. SLM currently leases a 1994 Plymouth Voyager,
at Employee's expense, for Employee to use. Employer hereby agrees to grant to
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Employee all rights, title and interest in the lease dated May ______,
1994 by and between First Security Bank and SLM. As of February 1, 1997,
Employee agrees to pay any and all costs, including any and all future
lease payments, and to be responsible for any and all taxes (income,
property, or sales taxes) resulting thereafter. During the term of this
Employment Agreement, Employee may cause Employer to lease a replacement
vehicle for Employee's use at Employee's expense. During the term of this
Agreement, the Employer shall provide Employee with an automobile expense
reimbursement equal to the maximum allowed by the rules and regulations of
the Internal Revenue Service.
4.1.5.Reimbursement for Expenses. During the term of this Agreement,
The Employer shall reimburse Employee for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred
by Employee in connection with his duties under this Agreement.
4.1.6.Additional Benefits. The Employer shall provide the Employee
with health and disability insurance during the term of this Agreement.
The Employee shall be entitled to participate in such benefit and
compensation plans as are now generally available or later made generally
available to the employees or executive officers of the Employer,
including, but not limited to, 401(k) plans, stock option plans, profit
sharing plans and other such plans and benefits. The health plan offered
to Employee hereunder will be at least as advantageous to Employee as
those offered by SLM prior to the date of the execution of this Agreement.
5. Stock Options. As additional consideration for Employee's services
hereunder, the Employee shall be granted an option to purchase 500,000 shares of
Celtic Investment common stock at a price of $3.00 per share. The terms and
condition of such options are set forth in the Stock Option Agreement.
6. Covenant not to Compete. Employee agrees that he will not, during the
term of his employment, and for the ("Restriction Period") which is defined in
paragraph 6.1.2 of this Employment Agreement directly or indirectly, in any
state, county, city or metropolitan area in which SLM, Parent or any subsidiary
of Parent has transacted business in the three (3) years preceding said
termination, own, manage, operate or control, or participate in the ownership,
management, operation or control of, or be connected with or have any interest
in, as a stockholder, director, officer, employee, agent, consultant, partner or
otherwise, any business which is engaged in the same business as SLM, Parent or
any Subsidiary of Parent. Specifically, but without limitation, this covenant
shall extend to all existing clients or customers of SLM, Parent and all
subsidiaries of Parent and all of the funding sources of SLM, Parent and all
subsidiaries of Parent.
6.1.1.If any of the provisions of this paragraph are held to be
unenforceable because of the scope, duration or area of its applicability, the
court making such
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determination shall have the power to modify such scope, duration or area or all
of them, and such provision shall then be applicable in such modified form. The
Employer and the Employee acknowledge the reasonableness of this covenant not to
compete and the reasonableness of the geographic area and duration of time which
are part of this covenant.
6.1.2. The Restricted Period shall be that period of time during
which the Covenant not to Compete set forth in this paragraph 6 is binding upon
Employee. The Restricted Period shall initially be a period of twenty four (24)
months commencing on the Effective Date but shall be reduced thereafter by one
month for each full month of employment of Employee by Employer. Subject to
paragraph 6.1.3 below, in no event shall the Restricted Period be less than six
(6) months from the date of termination of employment regardless of the number
of months of employment prior to termination.
6.1.3.In the event Employee's employment is terminated by Employer
without cause or in the event Employee Resigns for Good Reason, the restrictions
set forth in this paragraph 6 shall be limited to the time in which Employee
continues to receive a salary from Employer under this Agreement.
7. Confidential Information. Employee covenants and agrees not to
disclose, directly or indirectly, at any time either during employment or within
twenty four (24) months subsequent to the termination of employment to anyone
not an employee or consultant of the Employer, and not to use at any time either
during employment or within two (2) years subsequent to the termination of
employment, except in the course of employment with the Employer, any
Confidential Information, as defined below, of the Employer or any parties
dealing with the Employer unless he shall first secure the consent of the
Employer in writing or unless he shall involuntarily be required to do so by a
court having competent jurisdiction, by any governmental agency having
supervisory authority over the business of Employer or Parent, or by any
administrative body or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information after notice to the Employer. Employer and
Employee hereby acknowledge that: (a) the duration and geographical limitations
imposed with respect to said secret and confidential information are reasonable;
and (b) the restrictions stated hereinabove are reasonably necessary for the
protection of Employer's legitimate proprietary interests.
For purposes of this Agreement, the term Confidential Information shall
mean any and all:
(a) trade secrets concerning the business and affairs of Employer,
data, know-how, customer lists, current and anticipated customer
requirements, market studies, business plans, and any other information,
however documented, that is a trade secret within the meaning of the Utah
Trade Secrets Act ss. ss. 13-24-1 to 13-24-9; and
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(b) information concerning the business and affairs of the Employer
(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 Employer containing or based, in whole or in
part, on any information included in the foregoing.
Nothing contained in this paragraph 7 shall be deemed to apply to (i) any
information which is or becomes known to the public other than as a result of a
breach of this Section 7 by Employee or (ii ) any information which is lawfully
acquired from a third party who is not obligated to Employer to maintain such
information in confidence.
8. Solicitation of Other Employees and/or Consultants. Employee agrees
that he will not, during the course of his employment or for a period of twenty
four (24) months commencing upon the expiration of his employment, either
voluntary or involuntary, for any reason whatsoever, directly or indirectly,
individually or on behalf of persons not now parties to this agreement, aid or
endeavor to solicit or induce any other employee, employees, consultant and/or
consultants of the Employer to leave their employment with the Employer in order
to accept employment of any kind with any other person, firm, partnership or the
Employer.
9. Breach of Covenants by Employee. In the event that the Employee shall
breach paragraphs 6,7 or 8 of this agreement, then the Employer shall be
entitled to seek injunctive relief against the Employee. In any proceeding
commenced by Employer to enforce paragraphs 6,7 or 8 of this Employment
Agreement, the prevailing party shall be liable and shall pay for all damages,
court costs, and reasonable attorneys' fees incurred as the direct result of
commencing or defending such proceeding. The provisions of paragraphs 6, 7 and 8
hereof shall survive the termination of this Employment Agreement.
10. Separate Counsel. The parties acknowledge that the Employer and the
Employee have been represented by separate legal counsel in this transaction and
that Employee has not been represented by the Employer's counsel.
11. Miscellaneous.
11.1 This Employment Agreement and the written agreements referred to
herein, constitutes the entire agreement between the parties or the matters
discussed herein. It also supersedes any and all other agreements or contracts,
either oral or written, between the parties with respect to the subject matter
hereof.
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11.2. The terms and conditions of this Employment Agreement may be amended
at any time by mutual agreement of the parties, provided that before any
amendment shall be valid or effective it shall have been approved by the Board
of Directors of the Employer, reduced to writing and signed by the Employer and
the Employee.
11.3. The invalidity or unenforceability of any particular provision of
this Employment Agreement shall not affect its other provisions, and this
Employment Agreement shall be construed in all respects as if such invalid or
unenforceable provision had been omitted.
11.4. Except as otherwise expressly provided herein, this Employment
Agreement shall be binding upon and inure to the benefit of the Employer, its
successors and assigns, and upon the Employee, his administrators, executors,
legatees, heirs and assigns.
(THIS SPACE IS INTENTIONALLY LEFT BLANK)
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11.5. This Employment Agreement shall be construed and enforced under and
in accordance with the laws of the State of Utah.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
the day and year first above-written.
Salt Lake Mortgage Corp. Employee:
By /s/ By /s/
Reese Howell, Jr., President Roger Davis
Celtic Investment, Inc.
By__/s/_______________________
Douglas P. Morris, President
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THESE OPTIONS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE
SECURITIES LAWS. THESE OPTIONS CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED BY THIS AGREEMENT AND BY APPLICABLE
FEDERAL AND STATE SECURITIES LAWS.
- ------------------------------------------------------------------------------
CELTIC INVESTMENT INC.
STOCK OPTION AGREEMENT
This Agreement is entered into this 31st day of January, 1997, by and
between Celtic Investment, Inc., a Delaware corporation ("Corporation") and
Reese Howell, Jr. ("Employee").
RECITALS:
WHEREAS, Salt Lake Mortgage ("SLM") and Corporation have entered into an
Employment Agreement (the "Employment Agreement") wherein there are jointly
referred to as "Employer" whereby they have agreed to hire Employee and whereby
Employee has agreed to be employed by Employer pursuant to the terms and
conditions set forth therein; and approved by the Board of Directors of Employer
and meets the requirements of SEC Rule 16(b)(3) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
WHEREAS, under the Employment Agreement, the Corporation has agreed to
grant stock options to Employee entitling Employee to purchase shares of the
Corporation's common stock ("Shares"); and
WHEREAS, the purpose of granting these options to Employee is to promote
the success of the Corporation and SLM and to advance the interests of the
Corporation and SLM by providing an additional means, through the grant of these
stock options, to motivate, retain and reward Employee with an incentive for
high levels of individual performance and improved financial performance of the
Corporation and SLM;
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
1.1 Definitions. For the purposes of this Option Agreement, the following
terms shall have the following meanings:
1.1.1.Adjusted Pretax Profits. For purposes of this Agreement,
Adjusted Pretax Profits shall have the same meaning as "API" has in the Escrow
Agreement (hereafter defined) and shall be calculated in the same manner it is
calculated in the Escrow Agreement.
1.1.2.Bonus Period. "Bonus Period shall have the same meaning it does in
the Employment Agreement.
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1.1.3 Escrow Agreement. "Escrow Agreement" shall have the same meaning it
does in the Employment Agreement.
1.1.4. Termination for Cause. "Termination For Cause" shall have the same
meaning it does in the Employment Agreement.
1.1.5.Voluntary Termination. "Voluntary Termination" shall have the same
meaning it does in the Employment Agreement.
1.1.6.Good Reason Resignation. "Good Reason Resignation" shall have the
same meaning it does in the Employment Agreement.
1.1.7. Termination Without Cause. "Termination Without Cause" shall have
the same meaning it does in the Employment Agreement.
2. Grant of Option, Option Types and Exercise Period.
2.1 Grant of Options. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to the Employee, options ("Options") to
purchase from the Corporation up to 500,000 Shares ("Option Shares") at a price
of $3.00 per Share ("Exercise Price"). The Options granted hereunder shall be
allocated between Time Based Options, as defined below, and Performance Based
Options, as defined below.
2.2. Time Based Options. Options to purchase 150,000 of the Option Shares
(the "Time Based Options") shall vest in two equal installments ("Vesting
Periods") each of which shall entitle the Employee to purchase 75,000 Option
Shares. The Time Based Options shall vest as follows:
Number of
Vesting Date Option Shares
January 31, 1998 75,000
January 31, 1999 75,000
2.3. Performance Based Options. Options to purchase the remaining
350,000 Option Shares (the "Performance Based Options") shall vest, if at all,
over a period of three years and five months commencing on January 31, 1999 and
ending on June 30, 2002. The vesting schedule shall be based on four periods
during which the "Performance Based Options" shall vest and such periods are as
follows:
Period 1 - Commencing January 31, 1999, ending June 30, 1999.
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Period 2 - Commencing July 1, 1999, ending June 30, 2000.
Period 3 - Commencing July 1, 2000, ending June 30, 2001.
Period 4 - Commencing July 1, 2001, ending January 31, 2002.
(a) The first group ("First Option") to purchase 48,611 Option Shares,
shall vest, subject to the achievement of the Performance Criteria for the First
Option, on June 30, 1999. In order for the First Option to vest, Adjusted Pretax
Profits for the twelve month period ending on June 30, 1999, must be not less
than 118% of the Adjusted Pretax Profits as stated in the June 30, 1998 fiscal
year ending audited financial statements.
(b) The second group ("Second Option") to purchase 116,667 Option Shares,
shall vest, subject to the achievement of the Performance Criteria for the
Second Option, on June 30, 2000. In order for the Second Option to vest,
Adjusted Pretax Profits for the twelve month period ending on June 30, 2000,
must be not less than 118% of the Adjusted Pretax Profits as stated in the June
30, 1999 fiscal year ending audited financial statements.
(c) The third group ("Third Option") to purchase 116,667 Option Shares,
shall vest, subject to the achievement of the Performance Criteria for the Third
Option, on June 30, 2001. In order for the Third Option to vest, Adjusted Pretax
Profits for the twelve month period ending on June 30, 2001, must be not less
than 118% of the Adjusted Pretax Profits as stated in the June 30, 2000 fiscal
year ending audited financial statements.
(d) The fourth group ("Fourth Option") to purchase 68,055 Option Shares,
shall vest subject to the achievement of the Performance Criteria for the Fourth
Options, on June 30, 2002. In order for the Fourth Option to vest, Adjusted
Pretax Profits for the twelve month period ending on June 30, 2002, must be not
less than 118% of the Adjusted Pretax Profits as stated in the June 30, 2001
fiscal year ending audited financial statements.
An example of the operation of the Performance Criteria is as
follows: if the Adjusted Pretax Profits for the twelve month period ending June
30, 1999 are $1,000,000, then in order for the Second Option to vest, Adjusted
Pretax Profits must be $1,180,000 for the 12 month period ending on June 30,
2000.
2.4. No Prorata Vesting For Performance Based Options. Each group of
Performance Based Options shall vest or be void in total on a group basis and
there shall be no prorata vesting of Options within a group. If the Performance
Criteria is not met for a group of Performance Based Options, then no Options
from that group shall vest except for the provisions provided for in the
employment agreement.
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2.5. Exercise Period. Once vested under paragraph 2.2 or 2.3, an Option
shall be exercisable for a period of five years.
3. ISO's and NSO's. Each Option granted hereunder shall be deemed to be an
Incentive Stock Option ("ISO") to the maximum amount allowed by the Internal
Revenue Code ("IRC") and a Non-Statutory Stock Option ("NSO'") to the extent not
deemed to be an ISO.
4. Exercise of Option. Each Option shall become exercisable by the
Employee beginning on the date of vesting and must be exercised, if at all prior
to termination of such Option. Notwithstanding the foregoing, if required in
order to be deemed to be an ISO, a Option shall not become exercisable until six
months following the date on which shareholder approval for this Agreement is
obtained. The Corporation shall seek shareholder approval of the grant of these
Options at its next meeting of shareholders.
4.1. Manner of Exercise. An Option granted hereunder which has
vested, may be exercised in whole or in part by delivery to the Corporation,
from time to time, of a written notice signed by the Employee, specifying the
number of Option Shares that the Employee then desires to purchase, together
with cash, certified check, or bank draft payable to the order of the
Corporation or with some other form of payment acceptable to the Board of
Directors of the Corporation, for an amount equal to the Exercise Price of such
Option Shares. Employee may make payment of all or a portion of the Exercise
Price in installments over a period of not more than three (3) years and in such
event, the Employee shall deliver a promissory note, in form satisfactory to the
Corporation for the deferred portion of the Exercise Price secured by a pledge,
also in form satisfactory to the Corporation, of the Option Shares purchased by
such exercise of Option. This pledge shall provide that any sale by pledgee
shall be conducted in a manner as to not give rise to any of the liability for
the pledgor under Section 16 of the Exchange Act. Employee may pay all or a
portion of the Exercise Price, and/or the tax withholding liability with respect
to the exercise of the Option either by surrendering shares of stock already
owned by Employee or by withholding Option Shares, provided that the Board of
Directors of the Corporation determines that the fair market value of such
surrendered stock or withheld Option Shares is equal to the corresponding
portion of such Exercise Price and/or tax withholding liability, as the case may
be, to be paid for therewith.
4.2. Certificates. Promptly after any exercise in whole or in part of the
Option by the Employee, the Corporation shall deliver to the Employee a
certificate or certificates for the number of Option Shares with respect to
which the Option was so exercised, registered in the Employee's name.
5. Representations and Warranties of Employee. Employee hereby represents
and warrants to the Corporation that:
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5.1. Information. Employee has received and read all reports filed by the
Corporation with the Securities and Exchange Commission ("SEC Reports") during
1995 and 1996. Employee acknowledges that all documents, records and books
pertaining to an investment in the Corporation have been made available to
Employee.
5.2. Legal and Tax Counsel. Employee has consulted with his own attorney
and tax advisor regarding legal matters concerning this Option and an investment
in the Corporation and the tax consequences of this Option and of such an
investment.
5.3. No Guaranties. Employee acknowledges that he is aware that there is no
assurance with respect to the profitability of the Corporation.
5.4. Knowledge. Employee is, by reason of his business or financial
experience, capable of evaluating the merits and risks of an investment in the
Corporation and of protecting Employee's own interests in connection with his
acquisition of this Option and an investment in the Corporation.
5.5. Restricted Option and Shares. Employee acknowledges that this
Option and the Option Shares are restricted and will be restricted unless
registered under applicable securities laws. Employee is aware that it may not
be possible to liquidate his investment in the Corporation. Employee agrees,
that until registered, certificates evidencing the Option Shares shall bear a
legend restricting the transfer thereof consistent with the foregoing and that
stock transfer instructions may be issued to the Corporation's transfer agent
restricting the transfer of the Option Shares.
6. Duration of Option. Each Option, granted hereunder, to the extent vested
and not previously exercised, shall terminate upon the earliest of the following
dates:
6.1. Five (5) years from the date of vesting;
6.2. If the Employment Agreement is terminated by the Employer for
cause, for reason of disability or for reason of death pursuant to paragraphs
2.3, 2.5 or 2.6 of the Employment Agreement, or if the Employment Agreement is
voluntarily terminated by the Employee pursuant to paragraph 2.7 of the
Employment Agreement, then:
(a) the Time Based Options for the year of termination shall be
accelerated and shall vest immediately through the date of termination but
shall be prorated. The number of Time Based Option Shares which Employee
shall be entitled to purchase under this paragraph 6.2 shall be prorated
on the basis of the percentage of the Vesting Period which has been
completed as of the date of Termination for Cause.
An example of this provision, is as follows:
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In the event Employee has a Time Based Option to purchase
12,000 Time Based Option Shares which Option vests on the first
anniversary date of this Agreement, and if Employee is terminated
pursuant to paragraphs 2.3, 2.5 or 2.6 of the Employment Agreement
or if there is a Voluntary Termination of the Employment Agreement
pursuant to paragraph 2.7 thereof, nine months after the date of of
this Agreement, then Employee shall have the right to purchase 9,000
Time Based Option Shares immediately after the date of such
termination pursuant to the applicable terms and conditions of this
Agreement. The right to purchase the remaining 3,000 Time Based
Option Shares shall be terminated immediately as of the date of such
termination. Employee shall have no right to purchase Time Based
Option Shares for any Vesting Period which is subsequent to the
Vesting Period in which such termination occurred.
(b) all previously vested Time Based Options shall be exercisable according
to the terms of this Agreement;
(c) all Time Based Options which have not vested prior to such
termination or which do not vest pursuant to paragraph 6.2 (a) hereof,
shall immediately expire;
(d) the vesting of Performance Based Options shall be accelerated.
The number of Performance Based Option Shares which Employee shall be
entitled to purchase shall be prorated on the basis of the percentage of
the Bonus Period which has been completed as of the date of such
termination. The Performance Based Option Shares which may be purchased
under this paragraph 6.2(d) will not be determinable until the completion
of the Corporation's consolidated audited financial statements for the
Bonus Period in which such termination occurs. An example of this
provision is as follows:
If, under this Agreement, Employee would be entitled to
purchase 150,000 Performance Based Option Shares had he worked for
the entire Bonus Period, and if Employee's employment was terminated
immediately after sixty percent (60%) of the Bonus Period had been
completed, then Employee shall be entitled to purchase 90,000 of the
Performance Based Option Shares attributed to such Bonus Period.
Employee shall not be entitled to purchase any Performance Based
Option Shares which underlie Performance Based Options for Bonus
Periods which are subsequent to the Bonus Period in which such
termination occurred.
(e) all previously vested Performance Based Options shall be exercisable
according to the terms of this Agreement; and
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(f) all Performance Based Options which have not vested prior to
such termination or which do not vest pursuant to paragraph 6.2 (d), shall
immediately expire.
6.3. if the Employee's employment is terminated by Employer Without
Cause pursuant to paragraph 2.4 of the Employment Agreement or by the Good
Reason Resignation by Employee pursuant to paragraph 2.8 of the Employment
Agreement, then:
(a) the Time Based Options for the Vesting Period in which such
termination occurred shall be accelerated and shall vest immediately. An
example of this provision, is as follows:
In the event Employee has a Time Based Option to purchase
12,000 shares of Employers common stock which vests on the first
anniversary date of this Agreement, and if Employee 's employment is
Terminated Without Cause or employment is terminated by Employee
pursuant to paragraph 2.8 of the Employment Agreement nine months
after the date of this Agreement, then Employee shall have the right
to purchase all 12,000 shares of Employer's common stock immediately
after the date of such termination pursuant to the applicable terms
and conditions of this Agreement. Employee shall have no right to
purchase Time Based Option Shares for any Vesting Period which is
subsequent to the Vesting Period in which such termination occurred
;
(b) all previously vested Time Based Options shall be exercisable according
to the terms of this Agreement;
(c) all Time Based Options which have not vested prior to such
termination or which do not vest pursuant to Section 6.3 (a), shall
immediately expire;
(d) the vesting of Performance Based Options shall be accelerated
and the number of Performance Based Option shares which Employee is
entitled to purchase shall be that number of Performance Based Option
Shares which Employee would be entitled to purchase if he had been
employed during the entire Bonus Period. The Performance Based Option
Shares which may be purchased under this paragraph 6.3(d) will not be
determinable until the completion of the Corporation's consolidated
audited financial statements for the Bonus Period in which such
termination occurred.
An example of this provision is as follows:
If, under this Agreement, Employee would be entitled to
purchase 150,000 Performance Based Option Shares had he worked for
the entire Bonus Period, and if Employee's employment was Terminated
without Cause
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or is terminated pursuant to paragraph 2.8 of the Employment
Agreement immediately after sixty percent (60%) of the Bonus Period
had been completed, then Employee shall be entitled to purchase all
150,000 Performance Based Option Shares attributed to such Bonus
Period. Employee shall not be entitled to purchase any Performance
Based Option Shares which underlie Performance Based Options for
Bonus Periods which are subsequent to the Bonus Period in which such
termination occurred.
(e) all previously vested Performance Based Options shall be exercisable
according to the terms of this Agreement; and
(f) all Performance Based Options which have not vested prior to
such termination or which do not vest pursuant to paragraph 6.3 (d) hereof
shall immediately expire.
7. Restriction on Transfer. This Option is not transferable by the
Employee otherwise than by testamentary will or the laws of descent and
distribution and, during the Employee's lifetime, may be exercised only by the
Employee or the Employee's guardian or legal representative. Except as permitted
by the preceding sentence, neither this Option nor any of the rights and
privileges conferred thereby shall be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise), and no such
option, right, or privilege shall be subject to execution, attachment, or
similar process. Upon any attempt to transfer this Option, or of any right or
privilege conferred thereby, contrary to the provisions hereof, or upon the levy
of any attachment or similar process upon such option, right, or privilege, this
Option and any such rights and privileges shall immediately become null and
void.
8. Exercise in Event of Death or Disability. Whenever the word "Employee"
is used in any provision of this Agreement under circumstances when the
provision should logically be construed to apply to the Employee's guardian,
legal representative, executor, administrator, or the person or persons to whom
the Option may be transferred by testamentary will or by the laws of descent and
distribution, the word "Employee" shall be deemed to include such person or
persons.
9. No Rights As Shareholder Prior To Exercise. The Employee shall not, by
virtue hereof, be entitled to any rights of a shareholder in the Corporation,
either at law or equity. Prior to exercise, the rights of the Employee are
limited to those expressed in this Option and are not enforceable against the
Corporation except to the extent set forth herein.
10. Registration of Option Shares. The Option Shares have not been
registered with the Securities and Exchange Commission. The Company shall use
its best efforts to
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register the the shares underlying the options on Form S-8 and keep such
Registration in effect with the Securities and Exchange Commission as soon as
practical and not later than six months from the date hereof.
11. Anti-Dilution Provisions. The number and kind of Shares purchasable
upon the exercise of this Option and the exercise price shall be subject to
adjustment from time to time as follows:
11.1. In case the Corporation shall (i) pay a dividend or make a
distribution on the outstanding Shares payable in Shares, (ii) subdivide the
outstanding Shares into a greater number of Shares, (iii) combine the
outstanding Shares into a lesser number of Shares, or (iv) issue by
reclassification of the Shares any Shares of the Corporation, the Employee shall
thereafter be entitled, upon exercise, to receive the number and kind of shares
which, if this Option had been exercised immediately prior to the happening of
such event, the Employee would have owned upon such exercise and been entitled
to receive upon such dividend, distribution, subdivision, combination, or
reclassification.
11.2. In case the Corporation shall consolidate or merge into or
with another corporation, or in case the Corporation shall sell or convey to any
other person or persons all or substantially all the property of the
Corporation, the Employee shall thereafter be entitled, upon exercise, to
receive the kind and amount of shares, other securities, cash, and property
receivable upon such consolidation, merger, sale, or conveyance by a holder of
the number of Shares which might have been purchased upon exercise of this
Option immediately prior to such consolidation, merger, sale, or conveyance, and
shall have no other conversion rights. In any such event, effective provision
shall be made, in the certificate or articles of incorporation of the resulting
or surviving corporation, in any contracts of sale and conveyance, or otherwise
so that, so far as appropriate and as nearly as reasonably may be, the
provisions set forth herein for the protection of the rights of the Employee
shall thereafter be made applicable.
11.3. Whenever the number of Shares purchasable upon exercise of
this Option is adjusted pursuant to this Section, the exercise price per Share
shall be adjusted simultaneously by multiplying that exercise price per Share in
effect immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon exercise of this Option
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately after such adjustment, so that the
aggregate exercise price of this Option remains the same.
11.4. The existence of the Option shall not affect in any way the right or
power of the Corporation or its shareholders to make or authorize any
adjustments, recapitalization, reorganization, or other changes in the
Corporation's capital structure or its business, or any
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merger or consolidation of the Corporation, or any issue of bonds, debentures,
preferred shares with rights greater than or affecting the Shares, or the
dissolution or liquidation of the Corporation, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
12. No Waiver of Corporation's Right to Terminate Employment. Nothing in
this Agreement shall affect in any manner whatsoever the right or power of the
Corporation or SLM to terminate Employee's employment for any reason, with or
without cause.
13. Notices. Any notices permitted or required under this Agreement shall
be deemed given upon the date of personal delivery or 72 hours after deposit in
the United States mail, postage fully prepaid, return receipt requested,
addressed to the Corporation at its principal placement of business and to
Employee at his residence.
14. Corporation's Right to Repurchase Shares. In the event Employee's
employment is Terminated for Cause the Corporation may repurchase from Employee
any Option Shares purchased by Employee hereunder. The purchase price to be paid
for such shares shall be the Exercise Price paid by the Employee for the Option
Shares, plus an eight percent (8%) carrying cost. The Corporation's right to
repurchase Option Shares pursuant to this Section 14, shall terminate ninety
days from the date of such Termination for Cause. Any Option Shares repurchased
by the Corporation hereunder shall be paid for by certified funds. Any
repurchase by the Corporation shall be conducted in a manner as to not give rise
to any liability for the employee under Section 16 of the Exchange Act.
15. Right of First Refusal to Repurchase Shares. In the event Employee's
employment is Terminated Without Cause and in the event Employee desires to sell
all or a portion of the Option Shares within ninety days of such termination of
employment, the Corporation shall have the first right of refusal to purchase
such shares. In such event, the Employee shall give written notice to the
Corporation of his intent to sell all or a portion of the Option Shares. After
receiving such notice, the Corporation shall have twenty (20) days to purchase
from Employee all of the Option Shares which Employee intends to sell. Any
Option Shares purchased hereunder shall be paid for by certified funds and the
price per share shall be the "bid" price of the Company's common stock on the
date of Employee's notice of intent to sell, provided, however, that if Employee
has received and accepted a bona fide offer for the purchase of the Option
Shares, the price paid by the Corporation shall be the offered price, rather the
"bid" price.
16. Miscellaneous
16.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah.
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16.2. Titles and Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
. 16.3. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
16.4. Binding Agreement. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
16.5. Computation of Time. In computing any period of time pursuant
to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which event the period shall begin to
run on the next day which is not a Saturday, Sunday, or legal holiday. In the
event that the last day of any period falls on a Saturday, Sunday or legal
holiday, such period shall run until the end of the next day thereafter which is
not a Saturday, Sunday, or legal holiday.
16.6. Pronouns and Plurals. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or persons may require.
16.7. Arbitration. If at any time during the term of this Agreement any
dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbiter may be entered in any court having jurisdiction thereof.
16.8. Presumption. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
16.9. Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
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16.10. Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
16.11. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above-written.
Celtic Investment, Inc. Employee:
By /s/ /s/
Douglas P. Morris, President Reese Howell, Jr.
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THESE OPTIONS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR STATE
SECURITIES LAWS. THESE OPTIONS CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF EXCEPT AS PERMITTED BY THIS AGREEMENT AND BY APPLICABLE
FEDERAL AND STATE SECURITIES LAWS.
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CELTIC INVESTMENT INC.
STOCK OPTION AGREEMENT
This Agreement is entered into this 31st day of January, 1997, by and
between Celtic Investment, Inc., a Delaware corporation ("Corporation") and
Roger D. Davis ("Employee").
RECITALS:
WHEREAS, Salt Lake Mortgage ("SLM") and Corporation have entered into an
Employment Agreement (the "Employment Agreement") wherein there are jointly
referred to as "Employer" whereby they have agreed to hire Employee and whereby
Employee has agreed to be employed by Employer pursuant to the terms and
conditions set forth therein; and approved by the Board of Directors of Employer
and meets the requirements of SEC Rule 16(b)(3) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
WHEREAS, under the Employment Agreement, the Corporation has agreed to
grant stock options to Employee entitling Employee to purchase shares of the
Corporation's common stock ("Shares"); and
WHEREAS, the purpose of granting these options to Employee is to promote
the success of the Corporation and SLM and to advance the interests of the
Corporation and SLM by providing an additional means, through the grant of these
stock options, to motivate, retain and reward Employee with an incentive for
high levels of individual performance and improved financial performance of the
Corporation and SLM;
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
1.1 Definitions. For the purposes of this Option Agreement, the following
terms shall have the following meanings:
1.1.1.Adjusted Pretax Profits. For purposes of this Agreement,
Adjusted Pretax Profits shall have the same meaning as "API" has in the Escrow
Agreement (hereafter defined) and shall be calculated in the same manner it is
calculated in the Escrow Agreement.
1.1.2.Bonus Period. "Bonus Period shall have the same meaning it does in
the Employment Agreement.
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1.1.3 Escrow Agreement. "Escrow Agreement" shall have the same meaning it
does in the Employment Agreement.
1.1.4. Termination for Cause. "Termination For Cause" shall have the same
meaning it does in the Employment Agreement.
1.1.5.Voluntary Termination. "Voluntary Termination" shall have the same
meaning it does in the Employment Agreement.
1.1.6.Good Reason Resignation. "Good Reason Resignation" shall have the
same meaning it does in the Employment Agreement.
1.1.7. Termination Without Cause. "Termination Without Cause" shall have
the same meaning it does in the Employment Agreement.
2. Grant of Option, Option Types and Exercise Period.
2.1 Grant of Options. Subject to the terms and conditions of this
Agreement, the Corporation hereby grants to the Employee, options ("Options") to
purchase from the Corporation up to 500,000 Shares ("Option Shares") at a price
of $3.00 per Share ("Exercise Price"). The Options granted hereunder shall be
allocated between Time Based Options, as defined below, and Performance Based
Options, as defined below.
2.2. Time Based Options. Options to purchase 150,000 of the Option Shares
(the "Time Based Options") shall vest in two equal installments ("Vesting
Periods") each of which shall entitle the Employee to purchase 75,000 Option
Shares. The Time Based Options shall vest as follows:
Number of
Vesting Date Option Shares
January 31, 1998 75,000
January 31, 1999 75,000
2.3. Performance Based Options. Options to purchase the remaining
350,000 Option Shares (the "Performance Based Options") shall vest, if at all,
over a period of three years and five months commencing on January 31, 1999 and
ending on June 30, 2002. The vesting schedule shall be based on four periods
during which the "Performance Based Options" shall vest and such periods are as
follows:
Period 1 - Commencing January 31, 1999, ending June 30, 1999.
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Period 2 - Commencing July 1, 1999, ending June 30, 2000.
Period 3 - Commencing July 1, 2000, ending June 30, 2001.
Period 4 - Commencing July 1, 2001, ending January 31, 2002.
(a) The first group ("First Option") to purchase 48,611 Option Shares,
shall vest, subject to the achievement of the Performance Criteria for the First
Option, on June 30, 1999. In order for the First Option to vest, Adjusted Pretax
Profits for the twelve month period ending on June 30, 1999, must be not less
than 118% of the Adjusted Pretax Profits as stated in the June 30, 1998 fiscal
year ending audited financial statements.
(b) The second group ("Second Option") to purchase 116,667 Option Shares,
shall vest, subject to the achievement of the Performance Criteria for the
Second Option, on June 30, 2000. In order for the Second Option to vest,
Adjusted Pretax Profits for the twelve month period ending on June 30, 2000,
must be not less than 118% of the Adjusted Pretax Profits as stated in the June
30, 1999 fiscal year ending audited financial statements.
(c) The third group ("Third Option") to purchase 116,667 Option Shares,
shall vest, subject to the achievement of the Performance Criteria for the Third
Option, on June 30, 2001. In order for the Third Option to vest, Adjusted Pretax
Profits for the twelve month period ending on June 30, 2001, must be not less
than 118% of the Adjusted Pretax Profits as stated in the June 30, 2000 fiscal
year ending audited financial statements.
(d) The fourth group ("Fourth Option") to purchase 68,055 Option Shares,
shall vest subject to the achievement of the Performance Criteria for the Fourth
Options, on June 30, 2002. In order for the Fourth Option to vest, Adjusted
Pretax Profits for the twelve month period ending on June 30, 2002, must be not
less than 118% of the Adjusted Pretax Profits as stated in the June 30, 2001
fiscal year ending audited financial statements.
An example of the operation of the Performance Criteria is as
follows: if the Adjusted Pretax Profits for the twelve month period ending June
30, 1999 are $1,000,000, then in order for the Second Option to vest, Adjusted
Pretax Profits must be $1,180,000 for the 12 month period ending on June 30,
2000.
2.4. No Prorata Vesting For Performance Based Options. Each group of
Performance Based Options shall vest or be void in total on a group basis and
there shall be no prorata vesting of Options within a group. If the Performance
Criteria is not met for a group of Performance Based Options, then no Options
from that group shall vest except for the provisions provided for in the
employment agreement.
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2.5. Exercise Period. Once vested under paragraph 2.2 or 2.3, an Option
shall be exercisable for a period of five years.
3. ISO's and NSO's. Each Option granted hereunder shall be deemed to be an
Incentive Stock Option ("ISO") to the maximum amount allowed by the Internal
Revenue Code ("IRC") and a Non-Statutory Stock Option ("NSO'") to the extent not
deemed to be an ISO.
4. Exercise of Option. Each Option shall become exercisable by the
Employee beginning on the date of vesting and must be exercised, if at all prior
to termination of such Option. Notwithstanding the foregoing, if required in
order to be deemed to be an ISO, a Option shall not become exercisable until six
months following the date on which shareholder approval for this Agreement is
obtained. The Corporation shall seek shareholder approval of the grant of these
Options at its next meeting of shareholders.
4.1. Manner of Exercise. An Option granted hereunder which has
vested, may be exercised in whole or in part by delivery to the Corporation,
from time to time, of a written notice signed by the Employee, specifying the
number of Option Shares that the Employee then desires to purchase, together
with cash, certified check, or bank draft payable to the order of the
Corporation or with some other form of payment acceptable to the Board of
Directors of the Corporation, for an amount equal to the Exercise Price of such
Option Shares. Employee may make payment of all or a portion of the Exercise
Price in installments over a period of not more than three (3) years and in such
event, the Employee shall deliver a promissory note, in form satisfactory to the
Corporation for the deferred portion of the Exercise Price secured by a pledge,
also in form satisfactory to the Corporation, of the Option Shares purchased by
such exercise of Option. This pledge shall provide that any sale by pledgee
shall be conducted in a manner as to not give rise to any of the liability for
the pledgor under Section 16 of the Exchange Act. Employee may pay all or a
portion of the Exercise Price, and/or the tax withholding liability with respect
to the exercise of the Option either by surrendering shares of stock already
owned by Employee or by withholding Option Shares, provided that the Board of
Directors of the Corporation determines that the fair market value of such
surrendered stock or withheld Option Shares is equal to the corresponding
portion of such Exercise Price and/or tax withholding liability, as the case may
be, to be paid for therewith.
4.2. Certificates. Promptly after any exercise in whole or in part of the
Option by the Employee, the Corporation shall deliver to the Employee a
certificate or certificates for the number of Option Shares with respect to
which the Option was so exercised, registered in the Employee's name.
5. Representations and Warranties of Employee. Employee hereby represents
and warrants to the Corporation that:
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5.1. Information. Employee has received and read all reports filed by the
Corporation with the Securities and Exchange Commission ("SEC Reports") during
1995 and 1996. Employee acknowledges that all documents, records and books
pertaining to an investment in the Corporation have been made available to
Employee.
5.2. Legal and Tax Counsel. Employee has consulted with his own attorney
and tax advisor regarding legal matters concerning this Option and an investment
in the Corporation and the tax consequences of this Option and of such an
investment.
5.3. No Guaranties. Employee acknowledges that he is aware that there is no
assurance with respect to the profitability of the Corporation.
5.4. Knowledge. Employee is, by reason of his business or financial
experience, capable of evaluating the merits and risks of an investment in the
Corporation and of protecting Employee's own interests in connection with his
acquisition of this Option and an investment in the Corporation.
5.5. Restricted Option and Shares. Employee acknowledges that this Option
and the Option Shares are restricted and will be restricted unless registered
under applicable securities laws. Employee is aware that it may not be possible
to liquidate his investment in the Corporation. Employee agrees, that until
registered, certificates evidencing the Option Shares shall bear a legend
restricting the transfer thereof consistent with the foregoing and that stock
transfer instructions may be issued to the Corporation's transfer agent
restricting the transfer of the Option Shares.
6. Duration of Option. Each Option, granted hereunder, to the extent vested
and not previously exercised, shall terminate upon the earliest of the following
dates:
6.1. Five (5) years from the date of vesting;
6.2. If the Employment Agreement is terminated by the Employer for
cause, for reason of disability or for reason of death pursuant to paragraphs
2.3, 2.5 or 2.6 of the Employment Agreement, or if the Employment Agreement is
voluntarily terminated by the Employee pursuant to paragraph 2.7 of the
Employment Agreement, then:
(a) the Time Based Options for the year of termination shall be
accelerated and shall vest immediately through the date of termination but
shall be prorated. The number of Time Based Option Shares which Employee
shall be entitled to purchase under this paragraph 6.2 shall be prorated
on the basis of the percentage of the Vesting Period which has been
completed as of the date of Termination for Cause.
An example of this provision, is as follows:
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In the event Employee has a Time Based Option to purchase 12,000 Time Based
Option Shares which Option vests on the first anniversary date of this
Agreement, and if Employee is terminated pursuant to paragraphs 2.3, 2.5 or 2.6
of the Employment Agreement or if there is a Voluntary Termination of the
Employment Agreement pursuant to paragraph 2.7 thereof, nine months after the
date of of this Agreement, then Employee shall have the right to purchase 9,000
Time Based Option Shares immediately after the date of such termination pursuant
to the applicable terms and conditions of this Agreement. The right to purchase
the remaining 3,000 Time Based Option Shares shall be terminated immediately as
of the date of such termination. Employee shall have no right to purchase Time
Based Option Shares for any Vesting Period which is subsequent to the Vesting
Period in which such termination occurred.
(b) all previously vested Time Based Options shall be exercisable according
to the terms of this Agreement;
(c) all Time Based Options which have not vested prior to such
termination or which do not vest pursuant to paragraph 6.2 (a) hereof,
shall immediately expire;
(d) the vesting of Performance Based Options shall be accelerated.
The number of Performance Based Option Shares which Employee shall be
entitled to purchase shall be prorated on the basis of the percentage of
the Bonus Period which has been completed as of the date of such
termination. The Performance Based Option Shares which may be purchased
under this paragraph 6.2(d) will not be determinable until the completion
of the Corporation's consolidated audited financial statements for the
Bonus Period in which such termination occurs. An example of this
provision is as follows:
If, under this Agreement, Employee would be entitled to
purchase 150,000 Performance Based Option Shares had he worked for
the entire Bonus Period, and if Employee's employment was terminated
immediately after sixty percent (60%) of the Bonus Period had been
completed, then Employee shall be entitled to purchase 90,000 of the
Performance Based Option Shares attributed to such Bonus Period.
Employee shall not be entitled to purchase any Performance Based
Option Shares which underlie Performance Based Options for Bonus
Periods which are subsequent to the Bonus Period in which such
termination occurred.
(e) all previously vested Performance Based Options shall be exercisable
according to the terms of this Agreement; and
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(f) all Performance Based Options which have not vested prior to
such termination or which do not vest pursuant to paragraph 6.2 (d), shall
immediately expire.
6.3. if the Employee's employment is terminated by Employer Without
Cause pursuant to paragraph 2.4 of the Employment Agreement or by the Good
Reason Resignation by Employee pursuant to paragraph 2.8 of the Employment
Agreement, then:
(a) the Time Based Options for the Vesting Period in which such
termination occurred shall be accelerated and shall vest immediately. An
example of this provision, is as follows:
In the event Employee has a Time Based Option to purchase
12,000 shares of Employers common stock which vests on the first
anniversary date of this Agreement, and if Employee 's employment is
Terminated Without Cause or employment is terminated by Employee
pursuant to paragraph 2.8 of the Employment Agreement nine months
after the date of this Agreement, then Employee shall have the right
to purchase all 12,000 shares of Employer's common stock immediately
after the date of such termination pursuant to the applicable terms
and conditions of this Agreement. Employee shall have no right to
purchase Time Based Option Shares for any Vesting Period which is
subsequent to the Vesting Period in which such termination occurred
;
(b) all previously vested Time Based Options shall be exercisable according
to the terms of this Agreement;
(c) all Time Based Options which have not vested prior to such
termination or which do not vest pursuant to Section 6.3 (a), shall
immediately expire;
(d) the vesting of Performance Based Options shall be accelerated
and the number of Performance Based Option shares which Employee is
entitled to purchase shall be that number of Performance Based Option
Shares which Employee would be entitled to purchase if he had been
employed during the entire Bonus Period. The Performance Based Option
Shares which may be purchased under this paragraph 6.3(d) will not be
determinable until the completion of the Corporation's consolidated
audited financial statements for the Bonus Period in which such
termination occurred.
An example of this provision is as follows:
If, under this Agreement, Employee would be entitled to
purchase 150,000 Performance Based Option Shares had he worked for
the entire Bonus Period, and if Employee's employment was Terminated
without Cause
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or is terminated pursuant to paragraph 2.8 of the Employment
Agreement immediately after sixty percent (60%) of the Bonus Period
had been completed, then Employee shall be entitled to purchase all
150,000 Performance Based Option Shares attributed to such Bonus
Period. Employee shall not be entitled to purchase any Performance
Based Option Shares which underlie Performance Based Options for
Bonus Periods which are subsequent to the Bonus Period in which such
termination occurred.
(e) all previously vested Performance Based Options shall be exercisable
according to the terms of this Agreement; and
(f) all Performance Based Options which have not vested prior to
such termination or which do not vest pursuant to paragraph 6.3 (d) hereof
shall immediately expire.
7. Restriction on Transfer. This Option is not transferable by the
Employee otherwise than by testamentary will or the laws of descent and
distribution and, during the Employee's lifetime, may be exercised only by the
Employee or the Employee's guardian or legal representative. Except as permitted
by the preceding sentence, neither this Option nor any of the rights and
privileges conferred thereby shall be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise), and no such
option, right, or privilege shall be subject to execution, attachment, or
similar process. Upon any attempt to transfer this Option, or of any right or
privilege conferred thereby, contrary to the provisions hereof, or upon the levy
of any attachment or similar process upon such option, right, or privilege, this
Option and any such rights and privileges shall immediately become null and
void.
8. Exercise in Event of Death or Disability. Whenever the word "Employee"
is used in any provision of this Agreement under circumstances when the
provision should logically be construed to apply to the Employee's guardian,
legal representative, executor, administrator, or the person or persons to whom
the Option may be transferred by testamentary will or by the laws of descent and
distribution, the word "Employee" shall be deemed to include such person or
persons.
9. No Rights As Shareholder Prior To Exercise. The Employee shall not, by
virtue hereof, be entitled to any rights of a shareholder in the Corporation,
either at law or equity. Prior to exercise, the rights of the Employee are
limited to those expressed in this Option and are not enforceable against the
Corporation except to the extent set forth herein.
10. Registration of Option Shares. The Option Shares have not been
registered with the Securities and Exchange Commission. The Company shall use
its best efforts to
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register the the shares underlying the options on Form S-8 and keep such
Registration in effect with the Securities and Exchange Commission as soon as
practical and not later than six months from the date hereof.
11. Anti-Dilution Provisions. The number and kind of Shares purchasable
upon the exercise of this Option and the exercise price shall be subject to
adjustment from time to time as follows:
11.1. In case the Corporation shall (i) pay a dividend or make a
distribution on the outstanding Shares payable in Shares, (ii) subdivide the
outstanding Shares into a greater number of Shares, (iii) combine the
outstanding Shares into a lesser number of Shares, or (iv) issue by
reclassification of the Shares any Shares of the Corporation, the Employee shall
thereafter be entitled, upon exercise, to receive the number and kind of shares
which, if this Option had been exercised immediately prior to the happening of
such event, the Employee would have owned upon such exercise and been entitled
to receive upon such dividend, distribution, subdivision, combination, or
reclassification.
11.2. In case the Corporation shall consolidate or merge into or
with another corporation, or in case the Corporation shall sell or convey to any
other person or persons all or substantially all the property of the
Corporation, the Employee shall thereafter be entitled, upon exercise, to
receive the kind and amount of shares, other securities, cash, and property
receivable upon such consolidation, merger, sale, or conveyance by a holder of
the number of Shares which might have been purchased upon exercise of this
Option immediately prior to such consolidation, merger, sale, or conveyance, and
shall have no other conversion rights. In any such event, effective provision
shall be made, in the certificate or articles of incorporation of the resulting
or surviving corporation, in any contracts of sale and conveyance, or otherwise
so that, so far as appropriate and as nearly as reasonably may be, the
provisions set forth herein for the protection of the rights of the Employee
shall thereafter be made applicable.
11.3. Whenever the number of Shares purchasable upon exercise of
this Option is adjusted pursuant to this Section, the exercise price per Share
shall be adjusted simultaneously by multiplying that exercise price per Share in
effect immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon exercise of this Option
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately after such adjustment, so that the
aggregate exercise price of this Option remains the same.
11.4. The existence of the Option shall not affect in any way the right or
power of the Corporation or its shareholders to make or authorize any
adjustments, recapitalization, reorganization, or other changes in the
Corporation's capital structure or its business, or any
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merger or consolidation of the Corporation, or any issue of bonds, debentures,
preferred shares with rights greater than or affecting the Shares, or the
dissolution or liquidation of the Corporation, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
12. No Waiver of Corporation's Right to Terminate Employment. Nothing in
this Agreement shall affect in any manner whatsoever the right or power of the
Corporation or SLM to terminate Employee's employment for any reason, with or
without cause.
13. Notices. Any notices permitted or required under this Agreement shall
be deemed given upon the date of personal delivery or 72 hours after deposit in
the United States mail, postage fully prepaid, return receipt requested,
addressed to the Corporation at its principal placement of business and to
Employee at his residence.
14. Corporation's Right to Repurchase Shares. In the event Employee's
employment is Terminated for Cause the Corporation may repurchase from Employee
any Option Shares purchased by Employee hereunder. The purchase price to be paid
for such shares shall be the Exercise Price paid by the Employee for the Option
Shares, plus an eight percent (8%) carrying cost. The Corporation's right to
repurchase Option Shares pursuant to this Section 14, shall terminate ninety
days from the date of such Termination for Cause. Any Option Shares repurchased
by the Corporation hereunder shall be paid for by certified funds. Any
repurchase by the Corporation shall be conducted in a manner as to not give rise
to any liability for the employee under Section 16 of the Exchange Act.
15. Right of First Refusal to Repurchase Shares. In the event Employee's
employment is Terminated Without Cause and in the event Employee desires to sell
all or a portion of the Option Shares within ninety days of such termination of
employment, the Corporation shall have the first right of refusal to purchase
such shares. In such event, the Employee shall give written notice to the
Corporation of his intent to sell all or a portion of the Option Shares. After
receiving such notice, the Corporation shall have twenty (20) days to purchase
from Employee all of the Option Shares which Employee intends to sell. Any
Option Shares purchased hereunder shall be paid for by certified funds and the
price per share shall be the "bid" price of the Company's common stock on the
date of Employee's notice of intent to sell, provided, however, that if Employee
has received and accepted a bona fide offer for the purchase of the Option
Shares, the price paid by the Corporation shall be the offered price, rather the
"bid" price.
16. Miscellaneous
16.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah.
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16.2. Titles and Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
. 16.3. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
16.4. Binding Agreement. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
16.5. Computation of Time. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday, or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday. In the event that the last
day of any period falls on a Saturday, Sunday or legal holiday, such period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
16.6. Pronouns and Plurals. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular, or plural as
the identity of the person or persons may require.
16.7. Arbitration. If at any time during the term of this Agreement
any dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbiter may be entered in any court having jurisdiction thereof.
16.8. Presumption. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
16.9. Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
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16.10. Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
16.11. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above-written.
Celtic Investment, Inc. Employee:
By /s/ /s/
Douglas P. Morris, President Roger D. Davis
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