EXHIBIT 10.39
PLAN AND AGREEMENT FOR CORPORATE SEPARATION
This PLAN AND AGREEMENT FOR CORPORATE SEPARATION (this "Agreement") made
effective March 31, 1999, among Capitol Communities Corporation, a Nevada
corporation (hereinafter called the Corporation) and Charlie Corporation, a
Nevada corporation (hereinafter called "Charlie").
Recitals
A. Charlie owns 2,839,689 shares of common capital stock of the
Corporation, representing approximately forty-one and 73/100 percent
(41.73%) of all of the outstanding capitol stock of the Corporation.
B. Prescott LP, a California limited partnership (herein after
called "Prescott") owns approximately 2,851,589 shares of common capital
stock of the Corporation, representing approximately forty-one and 90/100
percent (41.90%) of all of the outstanding capitol stock of the Corporation
and 895,917 shares of common capital stock of the Corporation, representing
approximately thirteen and 16/100 percent (13.16 %) of all of the
outstanding capital stock of the Corporation are freely traded shares held
by persons unrelated to Charlie and Prescott (the "Public Shareholders").
213,641 shares of common capital stock of the Corporation, representing
approximately Three and 21/100 percent (3.21%) of all of the outstanding
capital stock of the Corporation are owned by other parties (the "Other
Non-Public Shareholders"). Excluded from the foregoing calculations of
outstanding shares are 700,000 shares of capital stock of the Corporation
held by Capitol Development of Arkansas, Inc., the Corporations wholly
owned subsidiary, 100,000 shares of capital stock of the Corporation held
by the transfer agent for the Corporation which are being canceled
concurrently herewith as provided in Section 2.5 hereof, and 285,000 shares
of capital stock of the Corporation which have been registered pursuant to
an S-8 SEC Registration and are held in a custodial account subject to
release only upon the payment to the Corporation therefor of $4.00 per
share.
C. The Corporation owns all the outstanding shares of stock of
Capitol Development of Arkansas, Inc., an Arkansas corporation
(hereinafter called "CDA").
D. The Corporation owns all the outstanding shares of stock of
Capitol Resort, Inc., an Arkansas corporation (herein after called
"Arkansas Resorts") and all the outstanding shares of stock of Capitol
Resorts of Florida, Inc. ("Florida Resorts"). Arkansas Resorts owns all of
the outstanding shares of stock of Capitol Club International, Inc., a
Florida corporation ("Capitol Club"), Entry Resorts International, LLC, a
New Hampshire limited liability company ("ER/") and Entry Resorts
Marketing, LLC, a New Hampshire limited liability company ("EMI"). Florida
Resorts owns all of the outstanding shares of stock of Capitol SB
Development, Inc., a Florida corporation ("SB Development").
AGREEMENT FOR CORPORATE SEPARATION/PAGE 1
E. For many years past the Corporation has been engaged in the separate
businesses of residential real estate development and home building business
through its subsidiary, CDA, on the one hand, and the resort and resort
marketing business, on the other hand.
F. A majority of the shareholders of the Corporation have agreed upon a
division of the businesses of the Corporation so that the resort and resort
marketing business (hereinafter called the "Resort Business") operated by
Arkansas Resorts and Florida Resorts will be owned solely by Charlie
(hereinafter sometimes referred to as the "Resort Group"), and residential real
estate development and homebuilding business (hereinafter called the
"Homebuilding Business") will continue to be operated in the Corporation which
will be owned by Prescott and the Public Shareholders (hereinafter called the
"Homebuilding Group").
G. All the Resort Business which has been operated by the Corporation through
one or more subsidiaries throughout the years has been previously conveyed to
either Arkansas Resorts or Florida Resorts (both companies are sometimes
cumulatively referred to herein as "Resorts").
H. The Boards of Directors of Capitol Communities Corporation and Charlie
Corporation deem it advisable and in the best interest of such corporations and
their shareholders that the exchange described hereinabove be completed on the
terms and conditions hereafter set forth and in accordance with all applicable
laws, and have adopted resolutions to that effect.
Now, therefore, in consideration of the recitals, and upon the terms and
conditions hereinafter set forth, the parties have agreed as follows:
Article I
Intended Tax Effect
The Parties to this Agreement intend that the transaction contemplated herein
will qualify as a tax-free corporate separation and exchange pursuant to
Sections 355 and 368 of the Internal Revenue Code (the "Code"). However, neither
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the Corporation nor Charlie intends to request a ruling by the Commissioner of
Internal Revenue. The Parties will divide the businesses of the Corporation
operated through its subsidiaries, in accordance with this Agreement, so that
Resorts, which operates the Resort Business, will be owned by Charlie and the
Homebuilding Business will continue in the Corporation which will be owned by
the Homebuilding Group, and so that neither Group, after such split-off, will
have any interest in the business owned by the other Group except as set forth
in this Agreement. The terms of this Agreement shall be deemed a plan of
reorganization pursuant to the Code.
Article II
Plan of Corporate Separation
The following Plan of Corporate Separation, hereinafter sometimes referred to
as the Plan, is hereby approved, adopted, and agreed upon:
AGREEMENT FOR CORPORATE SEPARATION/PAGE 2
2.1. Definitions. As used in the Plan, the following terms shall have the
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following meanings: (a) "Corporation" shall mean Capitol Communities
Corporation, a Nevada corporation.
(b) "Effective Date" shall mean March 31, 1999, and "Date of Closing"shall
be the date when all actions are taken to implement this Plan as agreed by
Charlie and the Corporation but in no event later than April 30, 1999.
(c) "Corporation Balance Sheet" shall mean balance sheet prepared as of
September 30, 1998 in the customary manner from the books and records of the
Corporation and all of its subsidiaries, except for Arkansas Resorts and Florida
Resorts, and their respective subsidiaries, which is affixed hereto. Except as
may hereinafter be otherwise specifically provided, all assets and liabilities
shall be taken at book value for the purpose of preparing the Corporation
Balance Sheet.
(d) "Arkansas Resorts Balance Sheet" shall mean balance sheet prepared as of
September 30, 1998 in the customary manner from the books and records of
Arkansas Resorts and all of its subsidiaries, which is affixed hereto. Except as
may hereinafter be otherwise specifically provided, all assets and liabilities
shall be taken at book value for the purpose of preparing the Arkansas Resorts
Balance Sheet.
(e) "Florida Resorts Balance Sheet" shall mean balance sheet prepared as of
September 30, 1998 in the customary manner from the books and records of Florida
Resorts and all of its subsidiaries, which is affixed hereto. Except as may
hereinafter be otherwise specifically provided, all assets and liabilities shall
be taken at book value for the purpose of preparing the Florida Resorts Balance
Sheet.
(f) "Balance Sheets" shall refer to the Corporation Balance Sheet, the
Arkansas Resorts Balance Sheet and the Florida Resorts Balance Sheet.
2.2. Intercompanv Advances. The Balance Sheets reflect that Resorts is
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indebted to the Corporation or CDA in the sum of approximately $2,504,751 (the
"Intercompany Advances"). At or prior to Closing, the Corporation shall cause
all of the Intercompany Advances to be contributed as capital to Resorts.
2.3. Pension Plans. Neither the Corporation nor Resorts have any qualified
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pension plans.
2.4. Unknown liabilities. In addition to the liabilities set forth in the
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Corporation Balance Sheet, the Corporation hereby assumes sole responsibility of
all liabilities, obligations, debts, claims and demands of the Corporation
(including, without limitation, claims for taxes of all kinds, penalties, and
interest, and any liability for violation of the Federal Labor Relations Law or
the Rules and Regulations of the Federal Labor Relations Board and for any
claims for acts or omissions which occurred prior to the Effective Date of this
Agreement), not specifically embraced or provided for in the Corporation Balance
Sheet, concerning or related to the operations of the Homebuilding
AGREEMENT FOR CORPORATE SEPARATION/PAGE 3
Business or the assets of the Corporation or CDA. In addition to the
liabilities set forth in the Arkansas Resorts Balance Sheet and the
Florida Resorts Balance Sheet, Resorts, jointly and severally, hereby
assumes sole responsibility of all liabilities, obligations, debts,
claims and demands of Resorts (including, without limitation, claims for
taxes of all kinds, penalties, and interest, and any liability for
violation ofthe Federal Labor Relations Law or the Rules and Regulations
of the Federal Labor Relations Board and for any claims for acts or
omissions which occurred prior to the Effective Date of this Agreement),
not specifically embraced or provided for in the Resorts Balance Sheet
and the Florida Resorts Balance Sheet, concerning or related to the
operations of the Resort Business or the assets of Resorts or any of
their subsidiaries.
2.5. Conveyance of Certain CPCY Shares. K. L. Martin ("Martin") and Joseph J.
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Lombardi ("Lombardi") each hold 16,667 shares of the common capital stock of the
Corporation. In addition, certificates for 50,000 shares of the common capital
stock of the Corporation (the "NonVested Shares") are held in the name of each
of Martin and Lombardi and are not vested in either Martin or Lombardi. The
Corporation and Martin entered into a Stock Option Agreement dated as of April
30, 1998 (the "Martin Option Agreement"), pursuant to which Martin was given the
option to acquire shares of stock of the Corporation as provided therein, though
Martin has not exercised any rights pursuant to the Martin Option Agreement. The
Corporation and Lombardi entered into a Stock Option Agreement dated as of April
30, 1998 (the "Lombardi Option Agreement"), pursuant to which Lombardi was given
the option to acquire shares of stock of the Corporation as provided therein,
though Lombardi has not exercised any rights pursuant to the Lombardi Option
Agreement. Both Lombardi and Martin were employees of Resorts or one of their
subsidiaries. As of the effective date of this Agreement, Resorts (through its
subsidiary, Capitol Club, has terminated Lombardi and Martin as its employees
pursuant to its employment agreements with Lombardi and Martin. Therefore, the
Martin Option Agreement and the Lombardi Option Agreement have terminated by
their terms and the NonVested Shares have been forfeited to the Corporation.
Resorts covenants to take all necessary and reasonable action required to obtain
and deliver all of the shares in the Corporation owned by Martin and Lombardi to
the Corporation and to defend, indemnify and hold the Corporation harmless from
and against all claims Martin and Lombardi may make against the Corporation for
the NonVested Shares or pursuant to the Martin Option Agreement or the Lombardi
Option Agreement.
2.6 The Conveyance. To accomplish the plan pursuant to this Agreement,
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Charlie shall transfer by endorsing all its certificates representing its shares
in the Corporation in blank and delivering same to the Corporation in order that
those shares may be canceled by the Corporation. In exchange, the Corporation
shall transfer by endorsing all its certificates representing all the
Corporation's shares in Arkansas Resorts and Florida Resorts to the order of
Charlie and delivering same to Charlie, whereupon Charlie shall then own all of
the outstanding shares of Arkansas Resorts and Florida Resorts.
2.7. Closing. The Plan shall become operative at the Date of Closing. At
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2 p.m. on such date, the transactions contemplated by the Plan and by this
agreement shall be consummated at the office of the Corporation. The Corporation
shall assign, transfer, convey, and deliver to Resorts the
AGREEMENT FOR CORPORATE SEPARATION/PAGE 4
various items of property required by the Plan. Charlie shall deliver to the
Corporation: (a) all of' the shares in the Corporation owned by Charlie, duly
endorsed in blank, with all necessary transfer stamps; (b) resignations of
Herbert Russell and John W. DeHaven, as directors, officers, and employees of
the Corporation and its subsidiaries, effective as of the Date of Closing; and
(c) general releases in favor of the Corporation, excepting only obligations of
the Corporation under the Plan and under this agreement. The Corporation shall
deliver to Charlie: (a) an opinion of counsel for the Corporation to the effect
that Resorts has been duly organized under the laws of Arkansas; (b)
certificates for all the authorized shares of Resorts in such denominations as
may be requested by Charlie on which all issuance taxes for shares have been
paid; (b) resignations of Michael G. Todd, as directors, officers, and employees
of the Resorts and their subsidiaries, effective as of the Date of Closing; and
(c) a general release in favor of Charlie, excepting only obligations of Resorts
and Charlie under the Plan and under this agreement. Each of the parties shall
execute and deliver such further instruments as may be reasonably requested by
any other party in order to carry out the purpose and intent of the Plan and
this agreement. The effectiveness and the closing pursuant to this Agreement is
expressly conditioned upon the closing of that transaction contemplated by that
Contribution Agreement executed contemporaneously herewith by and between CDA
and Trade Partners, Inc., a Michigan corporation.
Article IV
Notices
Any notice or offer or demand required to be sent hereunder shall be sent by
registered United States mail, return receipt requested, addressed to the
respective parties at:
TO THE CORPORATION: Michael G. Todd
25550 Hawthorne Boulevard,
Suite 207
Torrance, California 90505
TO CHARLIE: John W. DeHaven
P.O. Box 13256
10605 D Maumelle Boulevard
Maumelle, Arkansas 72113
Article V Arbitration
Any dispute between Charlie and the Corporation, or any dispute involving the
Corporation and Resorts arising out of and by reason of this agreement or the
Plan set forth herein, or the construction and performance thereof, shall be
settled by arbitration in accordance with the roles and regulations then
obtaining of the American Arbitration Association. Judgment upon any award so
rendered may be obtained by either party in the Circuit Court of the State of
Arkansas, County of Pulaski, under the relevant provisions of the laws of
Arkansas.
AGREEMENT FOR CORPORATE SEPARATION/PAGE 5
Article VI
Authorization and Benefit
This Agreement and the terms and provisions hereof shall be binding upon and
inure to the benefit of the parties, their personal representatives, successors,
and assigns. This Agreement is being executed by the Corporation pursuant to a
resolution adopted this day at a special meeting of its directors and with a
written consent of a majority of the shareholders, including and excluding the
vote of Charlie. Charlie covenants that at the Date of Closing and
contemporaneously with the transfer of shares of Resorts to Charlie and election
of directors and officers for Resorts, it will cause this Agreement to be
approved and executed by Resorts pursuant to valid authority from all the
shareholders and directors of Resorts.
Article VII
Severability
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect. If any of the covenants
or provisions of this Agreement are determined to be unenforceable by reason of
its extent, duration, scope or otherwise, then the parties contemplate that the
court making such determination shall reduce such extent, duration, scope or
other provision and enforce them in their reduced form for all purposes
contemplated by this Agreement.
Article VIII
Attorneys Fees and Costs of Transaction
The Corporation and Charlie shall bear their own costs and expenses,
including attorneys fees, incident to the preparation, negotiation, execution
and delivery of this Agreement.
Article VIV
Publicity
No announcement of the Plan or of the purposes of this agreement, either
to customers, for trade journals, or otherwise, shall be made without the prior
approval of the text thereof by both Groups.
Approved:
M.G.T. H.E.R.
AGREEMENT FOR CORPORATE SEPARATION/PAGE 6
In witness whereof the parties have executed this Agreement the day and
year first above written.
CAPITOL COMMUNITIES CORPORATION
By: /s/ Michael G. Todd
President
CHARLIE CORPORATION
By: /s/ Herbert E. Russell
President
AGREEMENT FOR CORPORATE SEPARATION/PAGE 7