ESCROW AND CONTINGENT STOCK AGREEMENT
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THIS ESCROW AND CONTINGENT STOCK AGREEMENT (the "Agreement") is made as
of December 31, 1996, by and among Homeplex Mortgage Investments Corporation, a
Maryland corporation ("HPX") and William W. Cleverly and Steven J. Hilton (the
"Monterey Shareholders").
RECITALS
WHEREAS, HPX and the Monterey Shareholders are parties to that certain
Agreement and Plan of Reorganization dated September 13, 1996 (the "Merger
Agreement");
WHEREAS, pursuant to the Merger Agreement, HPX has agreed to assume the
obligations of Monterey Homes Construction II, Inc. and Monterey Homes Arizona
II, Inc. under that certain Warrant Agreement dated October 17, 1994 (the
"Warrant Agreement");
WHEREAS, this Agreement is being entered into pursuant to the Merger
Agreement and establishes the terms and conditions of the deposit and
disbursement of 643,500 shares of HPX Common Stock (the "Warrant Stock") issued
in the names of the Monterey Shareholders upon the exercise or expiration of the
Warrants (as defined in Section 1.3(e) of the Merger Agreement); and
WHEREAS, this Agreement is being entered into pursuant to the Merger
Agreement and establishes the terms and conditions of the issuance of an
additional 668,160 shares of HPX Common Stock (the "Contingent Stock") to the
Monterey Shareholders and an additional 131,840 of HPX Common Stock (the
"Contingent Warrant Stock") reserved for issuance upon the exercise or
expiration of the Warrants (as defined in Section 1.3(e) of the Merger
Agreement;
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby covenant and agree as follows:
1. Capitalized Terms. Unless otherwise defined, capitalized terms used
in this Agreement shall have the same meaning ascribed to such terms in the
Merger Agreement.
2. Appointment. The Monterey Shareholders hereby appoint HPX as the
escrow agent
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with respect to the Warrant Stock under this Agreement, and HPX hereby agrees to
accept such appointment.
3. Resignation and Substitution. HPX may resign as escrow agent at any
time by giving notice of such resignation to the Monterey Shareholders
specifying a date when such resignation shall take effect; provided, however,
that HPX shall continue to serve until its successor accepts the Warrant Stock
and receives the Warrant Stock in accordance with the following provisions: Upon
notice of termination, a successor escrow agent shall be appointed by the
Monterey Shareholders.
4. Deposit of Warrant Stock. The Monterey Shareholders hereby deliver
the Warrant Stock to HPX to be held in escrow for the benefit of the Monterey
Shareholders and Monterey Warrantholders, and such escrow shall be governed by
the terms set forth herein. HPX hereby acknowledges receipt of the Warrant Stock
which shall be reasonably acceptable to HPX.
5. Exercise or Expiration of Warrants.
a. Upon the exercise, in whole or in part, of a Warrant by a
Warrantholder in accordance with the terms of the Warrant Agreement,
HPX shall (i) deliver to such Warrantholder a number of shares of
Warrant Stock allocable to the Warrantholder on a pro rata basis to the
Warrant exercised; (ii) issue and deliver a number of shares of
Contingent Warrant Stock allocable to the Warrantholder on a pro rata
basis to the Warrant exercised; and (iii) pay to the Monterey
Shareholders an amount in cash equal to the aggregate price paid by the
Warrantholder to exercise the Warrant.
b. If any Warrants are not exercised and thus expire on
October 15, 2001, HPX shall (i) deliver to each of the Monterey
Shareholders one-half of any shares of Warrant Stock then held in
escrow by HPX and (ii) issue and deliver to each of the Monterey
Shareholders one-half of any shares of Contingent Warrant Stock that
have not been issued hereunder.
c. Shares of Contingent Warrant Stock issued to Warrantholders
or the Monterey Shareholders pursuant to this Section 5 shall be issued
and delivered without regard to the stock price targets and other
restrictions set forth in Section 6 below.
6. Issuance of Contingent Stock.
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a. Subject to subsection b, the Contingent Stock shall be
issued pro rata to each Monterey Shareholder as follows:
(i) if the closing price of the HPX common stock on
the New York Stock Exchange (the "HPX Stock Price") averages
$1.75 for twenty consecutive trading days at any time during
the five-year period following the Effective Date, then
134,828 shares of Contingent Stock shall be issued pro rata to
the Monterey Shareholders as soon as practicable but only
after the first anniversary of the Effective Date;
(ii) if the HPX Stock Price averages $2.50 for twenty
consecutive trading days at any time during the five-year
period following the Effective Date, then an additional
265,666 shares of Contingent Stock shall be issued pro rata to
the Monterey Shareholders as soon as practicable but only
after the second anniversary of the Effective Date; and
(iii) if the HPX Stock Price averages $3.50 for
twenty consecutive trading days at any time during the
five-year period following the Effective Date, then an
additional 266,666 shares of Contingent Stock shall be issued
pro rata to the Monterey Shareholders as soon as practicable
but only after the third anniversary of the Effective Date.
b. Notwithstanding the foregoing, the pro rata portion of the
shares of Contingent Stock shall be issued to a Monterey Shareholder
only if such Monterey Shareholder (i) is employed by HPX at the date
shares of Contingent Stock are to be issued under Section 6(a) above or
(ii) has been terminated by HPX without Cause (as defined in the
Employment Agreement of even date herewith by and between HPX and the
Monterey Shareholder).
7. Rights of Monterey Shareholders. The Monterey Shareholders shall
retain all rights of ownership to the Warrant Stock held in escrow by HPX,
including without limitation the right to vote the Warrant Stock. The Monterey
Shareholders shall have no rights with respect to the Contingent Stock or
Contingent Warrant Stock unless and until such Contingent Stock and Contingent
Warrant Stock is issued to the Monterey Shareholders.
8. Taking of Necessary Action. Each of the parties hereto agrees to use
its or his best efforts promptly to take or cause to be taken all action and
promptly to do or cause to be done all
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things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
9. Termination. This Agreement shall terminate upon the disbursement or
issuance of all shares of Warrant Stock, Contingent Stock and Contingent Warrant
Stock in accordance with the terms hereof.
10. Arbitration. All disputes, claims and other matters in controversy
arising directly or indirectly out of or related to this Agreement, or the
breach hereof, whether contractual or non-contractual, shall be determined by
arbitration and shall be settled by three arbitrators, one of whom shall be
appointed by HPX, one by the Monterey Shareholders and the third of whom shall
be appointed by the first two arbitrators. Persons eligible to be selected as
arbitrators shall be limited to attorneys who have been in practice at least 15
years specializing in corporate and securities laws matters and who have had
both training and experience as arbitrators ("Experienced Arbitrators"). If
either party fails to appoint an arbitrator within ten (10) days of a request in
writing by the other such person to do so or if the first two arbitrators cannot
agree on the appointment of a third arbitrator within thirty days, then such
arbitrator shall be appointed by the American Arbitration Association (which
appointment shall not be limited to Experienced Arbitrators if not made within
the applicable time period). Except as to the selection of arbitrators which
shall be as set forth above, the arbitration shall be conducted promptly and
expeditiously as such place in Phoenix, Arizona agreed to between HPX and the
Monterey Shareholders in accordance with the Commercial Rules of Arbitration of
the American Arbitration Association then in effect so as to enable the
arbitrators to resolve the disputes, claims and other matters in controversy
within forty-five (45) days of the commencement of the arbitration proceedings.
The arbitrators shall base their award on applicable law and judicial precedent
and, unless both parties agree otherwise, shall include in such award the
findings of fact and conclusions of law upon which the award is based and may
award temporary or permanent equitable relief. Judgment on the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
arbitrators' resolution of the dispute shall be final, binding and
non-appealable. The nonprevailing party shall bear the expenses of the
arbitrators and the arbitration, including reasonable attorneys' fees and costs.
11. Notice. Any notice required or permitted under this Agreement must
be in writing and will be deemed to have been given when delivered personally or
by overnight courier service on three days after being sent by mail, postage
prepaid, at the address indicated below or to such changed address as such
person may subsequently give such notice of:
If to HPX: Homeplex Mortgage Investments Corporation
5333 North Seventh Street
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Suite 219
Phoenix, Arizona 85014
Attn: Corporate Secretary
If to Monterey Shareholders: William W. Cleverly
5627 N. Casa Blanca Road
Paradise Valley, Arizona 85253
Steven J. Hilton
5265 N. Wilkinson
Paradise Valley, Arizona 85253
12. Binding Nature of Agreement; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns. This Agreement or any
right, remedy, obligation or liability hereunder may be transferred or assigned
by the Monterey Shareholders without the prior written consent of HPX; provided,
however, that any transfer or assignment of the Monterey Shareholders' rights to
receive Warrant Stock, Contingent Stock or Contingent Warrant Stock hereunder
shall be made in accordance with the Articles of Incorporation of HPX, and any
transferee shall be subject to the conditions hereof.
13. Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the internal laws, and not the law of conflicts, of
the State of Arizona.
14. Entire Agreement. This Agreement and the Merger Agreement embodies
the complete agreement of the parties hereto with respect to the subject matter
hereof and supersedes any prior written, or prior contemporaneous oral,
understandings or agreements between the parties that may have related in any
way to the subject matter hereof. This Agreement may be amended only in writing
executed by HPX and the Monterey Shareholders.
15. Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.
16. Counterparts. This Agreement may be executed in counterparts, each
of which shall
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be deemed an original, but all of which shall constitute one and the same
document.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
HOMEPLEX MORTGAGE INVESTMENTS CORPORATION,
a Maryland corporation
By: /s/ Jay R. Hoffman
.................................................
Jay R. Hoffman, President
THE MONTEREY SHAREHOLDERS
/s/ William W. Cleverly
...................................................
William W. Cleverly
/s/ Steven J. Hilton
...................................................
Steven J. Hilton